Obama administration intros new regulations for career college programs

career colleges

The Obama administration recently introduced new regulations requiring career college programs to better prepare students for gainful employment in order to get access to Federal student aid.

According to the U.S. Department of Education, too many students in such programs are taking on unsustainable debt in exchange for degrees that don't help them get jobs.

"These new regulations will help ensure that students at these schools are getting what they pay for: solid preparation for a good job," U.S. Secretary of Education Arne Duncan said in a statement. "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."

For-profit programs and certificate programs at non-profit and public institutions must prepare students for "gainful employment" in order to qualify for Federal aid. The new regulations state that a program can be considered to lead to gainful employment if it meets at least one of the following metrics:

  • At least 35 percent of former students are repaying their loans
  • The estimated annual loan payment of a typical graduate does not exceed 30 percent of his or her discretionary income
  • The estimated annual loan payment of a typical graduate does not exceed 12 percent of his or her total earnings

Programs must fail the debt measure three times in a four-year period before losing eligibility to participate in Federal student aid programs.

"We're asking companies that get up to 90 percent of their profits from taxpayer dollars to be at least 35 percent effective," Duncan said. "This is a perfectly reasonable bar and one that every for-profit program should be able to reach."

The regulations also require institutions to disclose their total program costs, loan repayment rates, graduates' debt-to-earnings ratio and other information, to help students choose the right program for them.

According to the Department of Education, 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. Over a quarter of for-profit institutions get 80 percent of their revenue from Federal student aid.

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

The new regulations will take effect on July 1, 2012.