U.S. Delays For-Profit College Rule on Student Aid After 90,000 Comments

U.S. Department of Education Secretary Arne Duncan delayed publishing a rule that could hamper for-profit colleges’ access to federal financial aid after receiving 90,000 comments and letters.

The department will postpone the publication of the rule to early 2011 from Nov. 1 to review public comments and host several meetings and hearings, Duncan said in an interview yesterday. The proposal, called gainful employment, requires for-profit colleges to show their programs improve job prospects or lose eligibility for funds. The rule remains scheduled to take effect in July, 2012, he said.

“We have 90,000 comments and we want to do it justice,” Duncan said. “We’re going to read every single one.”

The proposal has provoked a letter-writing campaign from for-profit colleges and opposition from at least 80 members of Congress. The Education Department says the rule is necessary to ensure taxpayer money isn’t wasted and that graduates aren’t saddled with debt for programs that don’t improve their job prospects. For-profit colleges say the regulation would hurt low-income students.

“We’re very pleased that the secretary has delayed the rule,” said Harris Miller, president and chief executive officer of the Career College Association, a Washington-based industry group in a telephone interview. “We’re also glad to see that the department is willing to have further dialogue with stakeholders.”

Photographer: Jay Mallin/Bloomberg

Arne Duncan, U.S. secretary of education. Close

Arne Duncan, U.S. secretary of education.

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Photographer: Jay Mallin/Bloomberg

Arne Duncan, U.S. secretary of education.

‘Misleading Folks’

Lobbying by for-profit colleges “is putting incredible pressure on policy makers,” said Sarah Flanagan, vice president of the National Association of Independent Colleges and Universities in Washington, which represents private nonprofit institutions. “It simply shows that many of these colleges wouldn’t have been able to meet the gainful employment test.”

For-profit colleges are an important part of the U.S. education system, Duncan said.

“If folks are producing a great education and making a dollar from that, I don’t have a problem,” Duncan said. “Where they are misleading folks, we have a problem.”

The Education Department will still issue 13 other rules on or about Nov. 1 intended to protect students at for-profit colleges, the agency said in a statement. For-profit colleges will be required to provide applicants with information on graduation and job placement rates. The department also will strengthen sanctions against colleges whose recruiters mislead students, according to the statement.

Circumventing Law

If the gainful employment rule were in place today, about 5 percent of all for-profit college programs would no longer be eligible for federal student aid, according to Education Department estimates.

Duncan is concerned that for-profit colleges are getting around a 1992 law that caps at 90 percent the proportion of revenue they can receive from federal aid, he said.

While the law was intended to ensure that for-profit colleges enroll students who are paying out of their own pockets, some of those colleges are recruiting veterans and active-duty military whose federal benefits don’t count toward the ceiling.

For-profit colleges should have “some skin in the game beyond our dollars,” Duncan said. “You want some viability beyond what’s coming from the federal government.”

An index of 12 education companies including Phoenix-based Apollo Group Inc., the biggest company in the sector by enrollment, has declined 17 percent in the 12 months ended Sept. 24.

Republican Plans

Speaking in a separate interview for Bloomberg Television’s “Political Capital with Al Hunt,” Duncan said the Republicans’ plans to cut federal spending “would be a blow” to efforts to improve the nation’s education system through programs such as the $4.35 billion “Race to the Top” initiative.

“It’s not something that I can begin to support,” Duncan said on the program that airs this weekend.

House Republicans, who polls show making gains in the Nov. 2 elections, announced a governing agenda Sept. 23 that would roll back non-security discretionary spending.

“We have to continue to invest, and so that would not be helpful,” Duncan said.

Duncan said his confidence in the benefits of merit pay wasn’t shaken by a Vanderbilt University study that found students of middle-school math teachers offered bonuses didn’t do better than those who had teachers who weren’t eligible for extra money.

The study “didn’t look at how these kinds of resources help bring the next generation of talent into public education,” Duncan said. “The big thing it didn’t talk about is how you get your hardest working, your most committed teachers to go to underserved communities.”

To contact the reporter on this story: John Lauerman in Boston at jlauerman@bloomberg.net.

To contact the editors responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net.

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