Greenberg: What’s Next for For-Profit Schools?

With the stocks of for-profit schools trading up in the face of new rule changes released Friday by the Education department, the big question: What's next?

What's next is a rule known best as “gainful employment,” which some might view as a small package with a big stick.

As previously reported, the release of new gainful employment rules has been deferreduntil early next year. The department is weighing public comment.

Not that the rules releasedaren’t important: They are, and they cover such things as incentive compensation for recruiters, deceptive advertising and the need to get state authorization for online schools.

Some were watered down a bit, but is it to the point that the schools are breathing a sigh of relief?

“I don't know if I am breathing a sigh of relief,” said attorney Dennis Cariello, who represents schools at the law firm of DLA PIPER. “You still have gainful employment hanging over you. That's really the big enchilada; that's the one that will have a real impact on the industry.”

At stake with gainful employment is school eligibility for federal student loans, which generate the lion’s share of their revenue. As proposed, eligibility will be determined through student-loan repayment rates and student debt-to-income ratios.

Some in the industry believe Tuesday's election could be a tipping point, of sorts, for whether gainful employment goes through.

A key, Cariello believes, is whether the Ed department gets the new gainful employment rule published in the Federal Register before Jan. 5, when the new Congress takes over.

“If the rule after the new Congress gets sworn, then the new Congress exercising its oversight responsibility can slow the process and make more difficult to publish any rule that is particularly problematic,” Cariello said.

That’s assuming the house gets a Republican majority. In the unlikely even the Senate goes Republican, even publishing the rule before January 5 may not help. Cariello believes a Republican-controlled senate could move to restrict Ed department spending on anything related to gainful employment.

Timing, as always, is everything.

For-profit education companies possibly impacted by any rule-changes include Apollo Group, Corinthian Colleges, Career Education, ITT Education, Bridgepoint, EducationManagement, Strayer Education and DeVry.