Policy Documents

Research & Commentary: For-Profit Colleges’ Gainful Employment Regulations

Marc Oestreich –
January 6, 2011

In July 2011, the U.S. Department of Education will be implementing two new regulations on for-profit colleges. Delayed, for now, is implementation of a “gainful employment” metric, which would cut off federal aid to programs failing to produce graduates likely to be “gainfully employed” and able to repay debt.

The “gainful employment” regulations would define an aid-worthy institution as “an eligible program of training that prepares students for gainful employment in a recognized occupation.” The definition is accompanied by a series of arbitrary quotas. For instance, a graduate’s loan-to-earnings ratio cannot exceed 8 percent. Research by Charles River Associates finds the gainful employment measure would shut-out 5.4 million potential students by 2020. This massive cut in higher education aid would, according to The Parthenon Group, create “$5.3 billion in annual taxpayer burden to reduce $1.9 billion in possible losses stemming from federal student loan defaults.”

Applying onerous regulations such as these would disproportionately limit the higher education opportunities of traditionally disadvantaged groups. According to the Government Accountability Office, the average for-profit higher education student has a household income at just 60.1 percent of his or her peer in public college. Research by the Center for College Affordability and Productivity found that in 2007 almost 40 percent of for-profit students were racial minorities, a figure well above public and non-profit private schools.

If adopted this regulation would all but eliminate the only educational option for many high school graduates. The regulations would serve to create a net loss for taxpayers and stifle innovation in the higher education sector.

The following documents offer additional information on for-profit higher education.

“Edupreneurs:” A Survey of For-Profit Education
Cato Institute’s Carrie Lips examines the innovations coming from for-profit educators and offers some policymaking tips. Lips says, “Policymakers interested in improving America’s education system should eliminate financial biases against edupreneurs by adopting policies, such as tax cuts and universal tuition tax credits, that would return education purchasing power to individuals.”

Splitting the Difference on Gainful Employment
This article by higher education specialist Jennifer Epstein at Inside Higher Ed pulls apart the debate about “gainful employment” with reactions on both sides.

What Is Gainful Employment? What is Affordable Debt?
Mark Kantrowitz, creator of finaid.org and fastweb.com, studied the new regulations and points out five major flaws and potential corrections.

War on For-Profit Colleges Reeks Even Worse
Cato’s Neal McClusky points out the hypocrisy and politicization of the government attacking only for-profit higher education rather than focusing on the whole of higher education.

Proposed Rulemaking for The Department of Education: “Program Integrity: Gainful Employment”
The official document laying out more stringent definitions of “gainful employment” issued from the Department of Education.

For-Profit School Students Need Loans
Former Libertarian presidential candidate Bob Barr and ex-Mississippi state legislator Ronnie Shows jointly authored this piece about students attending for-profit schools. They say many good schools will not survive under the new rules and make the case that “students at for-profit colleges may have greater problems meeting financial obligations incurred during their school years.”

Let's Put Students First
This Association of Private Sector Colleges and University’s site is intended to educate policy makers and others about private sector colleges and universities (PSCUs).  Of particular interest to legislator are the state fact sheets on the site.  http://letsputstudentsfirst.com/facts/states.cfm

Linda Chavez: Closing the Doors to Opportunity
Linda Chavez, chairman of the Center for Equal Opportunity and popular Fox News analyst, contends, “The administration should be making it easier, not more difficult, for Americans to receive the training they need and want. And they should let Americans decide for themselves which programs best serve their needs.”

Obama Needs to Support Choice in Higher Education
Kevin P. Chavous, a former member of the Council of the District of Columbia and chair of the Council’s Education Committee, makes the case that “as we have seen in the K-12 education reform movement, more quality choices for students leads to a more vibrant, more inclusive educational experience for all.”

Put Department of Education in Timeout
Cato’s Richard W. Rahn finds that “the nation is best served by having a highly competitive mix of public, private, nonprofit and for-profit educational institutions.” He gives the Department of Education an “F” for regulating for-profit education so tightly.

U.S. Education Dept. Proposes New Regulations on For-Profit Colleges
Heritage Foundation education policy expert Lindsey Burke writes about the new regulations in The Heartland Institute’s School Reform News.

For further information on this subject, visit our Web sites at School Reform News and The Heartland Institute.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or Heartland’s work on education reform issues, contact Marc Oestreich, legislative specialist in education, at 312/3774000 or moestreich@heartland.org.