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The Government’s Renewed Assault on Private-Sector Colleges

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In 2010, the Obama administration began a concerted assault on private-sector, for-profit colleges (often called “career colleges”) by, among other means, seeking to establish so-called gainful employment regulations that would restrict students’ access to federally backed loans if students sought to attend career colleges rather than government-run or nonprofit colleges. As Craig Biddle explains in “The Government’s Assault on Private-Sector Colleges and Universities,” these “gainful employment” rules proposed in 2010

would prohibit students from obtaining federal student loans for use at career colleges if a certain debt-to-income ratio or loan repayment rates of prior students of those colleges were deemed by the government to be unacceptable.

As Biddle writes, although government ought not be involved with student loans at all, “Given the government’s legally enforced monopoly on low-price, taxpayer-funded student loans, the government cannot morally exclude students of private-sector universities and colleges from receiving these funds.”

The government’s earlier efforts to impose “gainful employment” requirements were rebuffed by the courts, but, this past October, the Obama administration renewed the assault on career colleges. According to the Department of Education:

Under the regulations . . . , a program would be considered to lead to gainful employment if the estimated annual loan payment of a typical graduate does not exceed 20 percent of his or her discretionary income or 8 percent of his or her total earnings. Programs that exceed these levels would be at risk of losing their ability to participate in taxpayer-funded federal student aid programs.

These regulations intentionally target private, for-profit colleges, as James Marshall Crotty points out in Forbes:

[Some] 840,000 students are currently enrolled in schools with programs (e.g., nursing, criminal justice, military intelligence, beautician) that would not pass the new benchmarks. In addition, 99% of those students are enrolled at for-profit colleges. So, while the language of the regulations does not single out for-profits, it is clear whom Education Secretary Arne Duncan has in his sights.

Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities, observes in a Wall Street Journal article that the rules clearly discriminate against for-profit colleges and universities:

The Education Department’s new rule—all 945 pages of it—has nothing to do with protecting students from taking on too much debt, ensuring accountability of higher education, or saving taxpayers money. We know this is true because if you applied the regulation to a law degree from George Washington University, a bachelor’s degree in hospitality administration from Stephen F. Austin State University or a bachelor’s in social work from University of Texas, the programs would all fail to meet the standard.

According to Education Department data, if the regulation were fairly applied across all of higher education, 43% of graduates from public colleges and 56% from private nonprofit colleges would fail the department’s debt-to-earnings standard and their programs would lose access to federal financial aid. The Education Department gives these institutions a pass while coming down hard on students attending for-profit institutions.

Gunderson also observes that, under the rules, nearly a million students could be cut off from higher education financing—with potentially millions more to follow—because their chosen for-profit private schools don’t meet the new regulations, which are scheduled to take effect July 1, 2015.

The government should not be involved in lending money to students at all. But so long as it is, and so long as it regulates these loans, it is morally obligated—and should be legally obligated—to treat all students and all educational institutions equally under the law. Toward that end, Congress should amend the Higher Education Act to forbid the executive branch from acting prejudicially against private-sector, for-profit colleges and universities.

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