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FACTBOX-Rules impacting the U.S. education industry

(Adds 90/10 rule, APSCU) Nov 12 (Reuters) - After a year-long review, the U.S. Education Department last month finalized tighter regulations for the for-profit education sector, which has relied heavily on taxpayer money but is accused of failing to educate students and saddling them with big debts. The most contentious proposal -- on gainful employment -- remains to be signed off, but this should be done early in 2011. The gainful employment rule aims to make the for-profit education industry more accountable. To comply with the new rules, for-profit education firms are overhauling their business practices at the cost of student numbers and short-term profitability. The new rules should come into effect in July, though the gainful employment regulation will be introduced in 2012. Following are key elements of what the gainful employment reforms may include: WHAT'S THE MAIN OBJECTIVE OF THE GAINFUL EMPLOYMENT PROPOSAL? For-profit colleges need to demonstrate they prepare students for jobs before they can receive federal grants and loans. WHY IS THE GOVERNMENT TOUGHENING UP REGULATION? The for-profit industry has been criticized for turning out poorly prepared students, who tend to be low-income, are most likely to end up with big and often unpayable debt. The Department reckons increasing default rates are a burden on taxpayers' money. WHAT WILL THE PROPOSED REGULATION SAY? Education companies will be forced to prove their ex-students are either paying off their loans or are capable of doing so. WHICH COLLEGES MAY LOSE THEIR ELIGIBILITY FOR FEDERAL LOANS? Those where more than 65 percent of former students fail to pay the principal on federal loans, and if graduates' debt is more than 30 percent of discretionary income and 12 percent of total income. WHICH COLLEGES CAN CONSIDER THEMSELVES SAFE? Schools would be declared fully eligible for loans if they can show that 45 percent of ex-students are paying down debt, or that their debt is less than 20 percent of ex-students' discretionary income or 8 percent of total income.

Other schools will fall in the middle ground and may have to warn students about incurring heavy debt. HOW IS THE 90/10 RULE A THREAT TO FOR-PROFITS? Under a provision of the HEA (Higher Education Act) commonly referred to as the "90/10 Rule," a private, for-profit institution would cease being eligible to access federal student aid if, on a cash accounting basis, more than 90 percent of its revenue was derived from federal aid. HOW DO MID-TERM ELECTION RESULTS IMPACT THE SECTOR? Republican gains could reduce congressional scrutiny of the for-profit education sector, including companies such as Apollo Group, DeVry and ITT Educational Services . Republicans argue that defaults on student loans and high dropout rates are common at all schools, not just for-profits. But the companies could come under pressure if Republicans are able to use their new clout to cut education spending. WHO ARE THE KEY PLAYERS HERE? Tom Harkin: An Iowa Democrat who chairs the Senate's education committee.

He has been prominent in pushing for stricter rules to control the for-profit education industry. Arne Duncan: The U.S. Secretary of Education is a key driver in finalising the regulation. Michale McComis: Head of the Accrediting Commission of Career Schools and Colleges, an industry body that represents mostly for-profit colleges. Harris Miller: President of the Association of Private Sector Colleges and Universities, formerly known as the Career College Association, has been actively involved in lobbying for for-profit colleges. The APSCU has over 1,400 members. (Reporting by Bijoy Koyitty and Megha Mandavia in Bangalore; Editing by Ian Geoghegan) Keywords: EDUCATION/ . Keywords: EDUCATION/ . Keywords: EDUCATION/ (bijoy.koyitty@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: bijoy.koyitty.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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