Obama Administration Announces New Regulations Aimed at Making Colleges Accountable
November 4, 2014

Last week, the US Department of Education announced regulations aimed at protecting students at career colleges from taking on burdens of student loan debt, which they would not be able to repay. The regulations stipulate that the institutions offering career training programs must demonstrate improvements in their outcomes for students, or risk losing access to federal student aid.

SparkTruck was in the depertmant of Education, by Flickr user SparkTruck

SparkTruck was in the depertmant of Education, by Flickr user SparkTruck

The new regulations come into effect on July 01, 2015. They reflect the Department’s endeavor to protect Americans from poor career training programs, which leave students buried under mountains of student loan debt, whilst giving them little or no opportunity for repaying it. Some of the main features of the new rules include:

  • Giving institutions the opportunity to make immediate changes for avoiding sanctions, failing which, they would become ineligible for federal student aid
  •  Tougher regulations that set a higher passing requirement along with a shorter path to ineligibility for the poorest-performing programs
  • Increasing transparency levels about student success by instructing institutions to provide information about:
    • Their programs
    • The salaries of their former students
    • The success of their former students at graduating and,
    • The amount of debt accumulated by their former students
  • Building momentum toward increased accountability levels in higher education by setting standards for career training programs so that they serve their students well

In addition, the regulations will attempt to:

  • Keep student debt at an affordable level by offering borrowers flexible repayment options such as the “Pay As You Earn” plan, which caps student loan payments at 10 percent of the borrower’s discretionary income
  • Create and implement a new college ratings system that will:
    • Highlight institutions, which have been successful in improving student success levels and,
    • Give incentives to institutions for working towards significant goals such as graduating low-income students and reducing expenses
  • Protect the country’s military families by ensuring that institutions provide the necessary levels of information, support and protection that service members, veterans, spouses and other family members receive via the federal military and veterans educational benefits programs and,
  • Protect students from unfair, deceptive and abusive policies and practices by coordinating the activities and promoting the sharing of information among the Department and other federal and state agencies

To achieve this, the Department is working on formalizing partnerships with several federal agencies. The Department plans to task an interagency task force to monitor the for-profit institutions of higher education.

Currently, many institutions levy excessive costs on their students, without providing the education the students paid for. As a result, these students receive poor quality training, which lead them to low-wage jobs or occupations that hardly provide any meaningful employment opportunities. Some institutions even provide their students with misleading information about their programs.

The consequence of all this is that students find themselves burdened with large volumes of student loan debt, without any means for repaying it. Consequently, these students end up defaulting on their loans. According to the Department:

  • A student attending a two-year program at a for-profit institution pays four times as much by way of costs than a student attending the same program at a community college
  • Over 80 percent of students at for-profit institutions take out student loans, as opposed to less than 50 percent of the students at public institutions
  • Students at for-profit colleges represent:
    • Only about 11 percent of the total population seeking higher education
    • About 44 percent of all federal student loan defaults

At present, the law requires that most for-profit programs and certificate programs at private non-profit and public institutions prepare their students for finding gainful employment in a recognized occupation. Doing so, would qualify these institutions for receiving federal student aid.

As per the regulations announced last week, the law would recognize a program as providing gainful employment to its students if the estimated annual loan payment of the average graduates does not exceed:

  • More than 20 percent of their discretionary income or,
  • Around eight percent of their total earnings

Any programs found exceeding these thresholds could risk losing their ability to participate in taxpayer-funded federal student aid programs.

According to the Department, federal student aid makes up nearly 90 percent of the revenue at for-profit institutions. This, by itself, should be incentive enough for many of these institutions to comply with the new regulations, when they come into effect.