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Proposed rule would hurt poor students, for-profit U.S. colleges say

Students listen as U.S. President Barack Obama makes remarks on student loans from the White House in Washington May 31, 2013. REUTERS/Kevin
Students listen as U.S. President Barack Obama makes remarks on student loans from the White House in Washington May 31, 2013. REUTERS/Kevin

By Elvina Nawaguna

WASHINGTON (Reuters) - Nearly half of students attending for-profit colleges in the United States could lose federal aid if the Obama administration implements a new rule on public disclosure of the schools' performance and earnings, according to a report prepared for the colleges and released on Tuesday.

The "gainful employment" rule unfairly targets for-profit institutions and would disproportionately affect poor students, said the report prepared by the Association of Private Sector Colleges and Universities, a trade group representing the colleges.

The U.S. Education Department rule would require for-profit institutions to publicly disclose information including cost of attendance, student loan default rates, and student completion rates.

For their students to continue receiving federal financial aid, the institutions must show that the estimated annual loan payment of their typical graduates does not exceed 20 percent of their discretionary income or 8 percent of their total earnings, and that the default rate for former students does not exceed 30 percent.    Tuesday was the last day for public comment on the rule.    The APSCU report, prepared by Northwestern University economist Jonathan Guryan and Matthew Thompson of the consulting firm Charles River Associates, said nearly 7.5 million students over a decade could be denied higher education if the rule goes into effect.    For-profit colleges have already spent millions of dollars fighting the proposed rule since its earliest version was released in 2010.   The debt-to-income ratio used in the rule to determine continued eligibility for federal funding, APSCU said, could unfairly cause certain schools or programs to fail because it does not take into consideration that poor students typically have to borrow more for college than their wealthier counterparts.    For-profit institutions tend to serve larger numbers of minorities, low-income students and non-traditional students such as single parents and veterans than traditional colleges.

State and federal regulators have accused the institutions for deceptive practices, including providing misleading information and poor-quality education at excessive costs. They have also criticized the institutions for having low completion rates and graduates with high student loan default rates.    According to the U.S. Department of Education, students at for-profit colleges represent 13 percent of the U.S. higher education population but account for about 31 percent of all student loans and nearly half of all loan defaults.    APSCU said the regulation runs contrary to President Barack Obama's goal of increasing the number of college graduates. About 21.8 percent of programs in for-profit colleges could fail the rule's test, causing 44.2 percent of students in those institutions to lose access to postsecondary education, the report said.    "It's going to be discriminative," Guryan, one of the reports co-authors, told Reuters.

(Reporting by Elvina Nawaguna; Editing by Jim Loney)

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