Why some for-profit colleges could lose eligibility for federal aid

Dozens of for-profit colleges, also called career training programs, could lose their federal financial aid because they are saddling students with unsustainable levels of debt, according to new data from the US Department of Education.

More than 190 programs at 93 schools failed to satisfy any of the department’s three benchmarks of its “gainful employment” rule, according to the data, released Tuesday. The regulation, introduced by the Obama administration last June, was crafted to promote employment and loan repayment among graduates of vocational programs.

Corinthian Colleges Inc., which owns the Everest chain of for-profits, was among the worst-performing on the list, with more than 40 out of 637 programs flagged for failing to meet any of the department’s metrics. Other schools with programs cited include Le Cordon Bleu College of Culinary Arts, as well as the Art Institutes owned by the Education Management Corp.

"Career colleges have a responsibility to prepare people for jobs at a price they can afford,” Education Secretary Arne Duncan said in a statement. “Schools that cannot meet these very reasonable standards are on notice: invest in your students' success, or taxpayers can no longer invest in you."

The department’s new data serve as a signal to schools to make adjustments before enforcement of the gainful-employment regulation begins this fall. Schools, however, cannot lose eligibility to federal student aid until they fail three out of four years, meaning that no school would be affected until 2015.

Under the rule, programs must satisfy any one of three standards to continue receiving federal funds: At least 35 percent of former students are repaying their loans, annual loan payments do not surpass 12 percent of their total earnings, and those payments do not total more than 30 percent of their discretionary income.

The department’s requirements are more lenient than stringent, says education expert Kevin Carey.

“A good institution is not going to be adversely affected by some short-term data problems,” says Mr. Carey, director of the Education Policy Program at the New America Foundation, a nonpartisan public-policy institute based in Washington. 

But some charge that the standards do not accurately reflect the services that career colleges provide. The Association of Private Sector Colleges and Universities (APSCU), a longtime critic of gainful-employment measures, maintains they will thwart the attempts by thousands of nontraditional students to earn a college education.

“America faces a demand for eight to 23 million additional workers with postsecondary education over the next decade, but this regulation seeks to only impose a series of faulty numerical metrics that ignore the economic reality of inner-city and rural areas, education's long-term benefits, and the will of the Congress,” said Steve Gunderson, APSCU president and CEO, in a statement.

Mr. Gunderson added that reports have surfaced about the student and loan files used by the department being incorrect, in addition to the amount of debt levels.

Some of the programs disproportionately represented in the findings – such as those in criminal justice and the medical field – reflect a changed economy that has made securing a job more difficult, says Westwood College spokesman Gil Rudawsky. Westwood College has 16 programs, out of 45 total, that are failing all three metrics.

“These are preliminary findings, and Westwood is obviously going to use the preliminary findings to modify their programs to ensure they’re in compliance,” Mr. Rudawsky says.

Corinthian Colleges, meanwhile, has eliminated or is in the process of eliminating 13 of its programs that failed all three metrics, says spokesman Kent Jenkins Jr.

While 12 percent of all students enrolled in higher education attend a for-profit institution, they account for 46 percent of all student loan dollars in default, the Department of Education said when it finalized the rule last year. More than a quarter of vocational programs generate 80 percent of their revenues from federal student aid.

Students earning an associate’s degree at a for-profit school carry a median federal student loan debt of $14,000. By contrast, the majority of students enrolled at community colleges do not carry any federal student loan debt.

The data in the report come from 3,695 programs in 1,335 schools over two years. Thirty-five percent satisfied all three requirements of gainful employment, 31 percent satisfied two, 29 percent satisfied one, and 5 percent did not meet any.

When the regulation goes into effect, the department will examine programs with at least 31 former students over a four-year time span.

• Material from the Associated Press was used in this report.