Greenberg: New Rules Released for For-Profit Schools

For-profit schools just got a new playbook that will affect how they do business.

The Education Department today released 13 of 14 new, controversial new rules aimed at curbing alleged abuse at for-profit colleges and post-secondary vocational schools.

The new rules, which will be published in the Federal Register on Friday, govern such things as incentive compensation, new program approval and deceptive advertising. Some have been modified or somewhat watered down, with 82 changes from the original proposals—the result, the Department says, of public comments. They go into effect July 1 of next year.

Wednesday's action also partially addresses the 14th rule: gainful employment, perhaps the most significant and certainly most hotly contested of all rules.

Publication of the full gainful employment rule, which could affect school eligibility for federal loans based on student loan repayment rates and debt-to-income ratios, has been delayed until early next year; it will be effective July 1, 2012. The department claims to have received upwards of 90,000 comments regarding gainful employment from schools and students, much of it orchestrated by what appear to be last-minute lobbying efforts.

In a press release announcing the new rules, the Department noted that for-profit schools represent 11 percent of all higher education students, 26 percent of all student loans and 43 percent of all loan defaults. Furthermore, according to the Department, more than a quarter of the schools get at least 80 percent of their revenue from federal loans.

The rules now being published include:

  • Job placement rates. Requiring for-profits and post-secondary vocational schools to provide prospective students with graduation and job placement rates. (It doesn’t include any standards, however.)
  • New programs. Requiring schools to give notice and, in some cases, formally apply when introducing a new program. This is aimed at schools with poor gainful employment records that attempt to “game the system,” the Department says, by creating a large number of new programs.
  • Crackdown on deception. Strengthening the department’s authority to take action against schools that “engage in deceptive advertising, marketing and sales practices.
  • No more incentive comp. Removing a “safe harbor” that allowed incentive compensation for admissions recruiters based exclusively on success in enrollment.
  • State authorization. Requiring states to monitor and approve post-secondary programs. Even though they’re required to do so, some don’t.
  • High school diploma mills. Requiring the schools to validate that a prospective student’s high school diploma is real and not from a “high school diploma mill.”
  • Credit hour definition. Regulations that define a credit hour for federal loan, not academic purposes. With no current standards, states can create their own definition of credit hours and get more federal aid per course.

The Department is holding public hearings next Thursday and Friday and additional private meeting over the next few weeks regarding gainful employment.

Publicly traded for-profit schools affected by these changes, in one way or the other, include: Strayer Education , Education Management , DeVry , Bridgepoint , Apollo Group , Corinthian Colleges , Career Education and ITT Education .