New Gainful Employment Rule Is Weak, but Predatory For-profit Colleges Remain on the Ropes

The Obama administration is releasing its “gainful employment” rule, aimed at curbing abuses by federally-funded career colleges, at 7 am Thursday. I can’t fully evaluate the rule without seeing its details. But I have obtained a press release and fact sheet provided by the administration to the media and also spoken to administration and other sources, and I have this to report: UPDATE [Oct. 30 11:00 am]: I’ve read the rule, and my views remain the same.

1. The rule is far too weak to address the grave misconduct of predatory for-profit colleges. The administration missed an opportunity to issue a strong rule, to take strong executive action and provide real leadership on this issue. However, the for-profit college industry remains on the ropes because its abuses have now been exposed — in some measure as a result of the angry fight the industry has waged over gainful employment.

2. By eliminating the programmatic cohort default rate (pCDR) component of the draft rule released by the administration in March 2014, this final rule only addresses the plight of graduates, through provisions comparing the debt of grads to their earnings; it does almost nothing to deal with programs where the biggest problem is high dropout rates. Unfortunately, there is voluminous evidence that when for-profit colleges want students to drop out, they know how to make that happen — by piling on more and more bills and forcing out students for alleged weak performance right up to graduation day.

3. However, in significant respects today’s final rule is stronger than the rule that the administration issued in 2011 — the rule that the for-profit college industry convinced a federal judge to strike down. First, the debt to earnings test is somewhat more substantial than in the previous rule, although it remains too weak. The Department of Education is saying that 1400 programs as currently performing would flunk the test — more than seven times as many as would have flunked the 2011 rule. Second, although the 2011 rule had the repayment rate test that addressed dropouts, in that version of the rule, a program would remain eligible for aid unless it repeatedly flunked both the repayment and debt-to-earnings tests.

In 2011, the administration insisted that the furious campaign of lobbying — ranging from sending in emissaries to charm their old friends in the White House to issuing threats — directed at the administration by the for-profit college industry was not a factor in its decision to water down its gainful employment rule. No doubt the administration will claim the same again, despite the visit to the White House by Kaplan head Don Graham to see his friend Jeffrey Zients, the National Economic Council director; despite, I have heard, the last-minute call to the White House by a former very senior Obama White House official on behalf of one of the industry’s biggest companies; despite the millions spent by industry lobbying this year.

As part of today’s announcement, the administration committed to formalize a federal interagency task force to address for-profit college abuses and work with state attorneys general probing the industry. It pledged other measures, and the historically reticent Department of Education showed this year that it knows how to use its existing authorities in forcing the decline of the awful Corinthian Colleges. All of that is good, because there is still much more work to do to curb the deceptive and abusive practices of for-profit colleges, the fleecing of taxpayers, and the ruination of students’ lives across the country.

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