The Obama Administration released final regulations requiring career college programs to better prepare students for “gainful employment” or risk losing access to Federal student aid. While many career college programs are helping to prepare America’s workforce for the jobs of the future, far too many students at these schools are taking on unsustainable debt in exchange for degrees and certificates that fail to help them get the jobs they need or were promised. These regulations are designed to ramp up over the next four years, giving colleges time to reform while protecting students and their families from exploitative programs.

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“These new regulations will help ensure that students at these schools are getting what they pay for: solid preparation for a good job,” Secretary of Education Arne Duncan said. “We’re giving career colleges every opportunity to reform themselves but we’re not letting them off the hook, because too many vulnerable students are being hurt,” Duncan continued.

To qualify for Federal aid, the law requires that most for-profit programs and certificate programs at nonprofit and public institutions prepare students for gainful employment in a recognized occupation. Under the regulations introduced today, a program would be considered to lead to gainful employment if it meets at least one of the following three metrics: at least 35 percent of former students are repaying their loans (defined as reducing the loan balance by at least $1); the estimated annual loan payment of a typical graduate does not exceed 30 percent of his or her discretionary income; or the estimated annual loan payment of a typical graduate does not exceed 12 percent of his or her total earnings. While the regulations apply to occupational training programs at all types of institutions, for-profit programs are most likely to leave their students with unaffordable debts and poor employment prospects.

The Need for and History of Reform

Students at for-profit institutions represent 12 percent of all higher education students, 26 percent of all student loans and 46 percent of all student loan dollars in default. The median Federal student loan debt carried by students earning associate degrees at for-profit institutions was $14,000, while the majority of students at community colleges do not borrow. More than a quarter of for-profit institutions receive 80 percent of their revenues from taxpayer-financed Federal student aid.

“While for-profit schools have profited and prospered thanks to Federal dollars, some of their students have not. This is a disservice to students and taxpayers, and undermines the valuable work being done by the for-profit education industry as a whole,” Duncan continued.

Efforts to regulate abuse by for-profit institutions date back to the Reagan administration, under the leadership of then Secretary of Education William Bennett. However, regulations were weakened during the previous administration leading to the rapid growth of enrollment and default rates at for-profit institutions seen in recent years.

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These problems and wide-spread evidence of waste, fraud and abuse prompted the Obama administration to embark on an 18-month negotiation with the higher education community over new regulations. During the negotiation, the Department worked with stakeholders to develop a set of proposals around 14 specific issues that strengthen the integrity of the Federal student aid program and ensure that taxpayer funds are used appropriately. The final gainful employment regulations published today follow that two-year process and will go into effect on July 1, 2012.

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