The Education Department has just released an early draft of its plan to limit federal aid to colleges, and for-profit schools are squarely in the spotlight. Under the new proposal, for-profit colleges and career training programs at community colleges whose average graduate debt exceeds certain benchmarks will become ineligible for pell grants and other forms of federal aid. The WSJ has the details:
The administration is expected to formally propose a “gainful employment” plan early next year and have the rules in place by 2015. Under a version released this week, programs would lose Title IV funds if they failed one of several standards. The student-debt payments of their former graduates, on average, couldn’t exceed 12% of their annual income or 30% of their discretionary income several years after they leave school. Also, the share of students defaulting on federal loans within three years of leaving a program couldn’t reach 30%….
The proposal would threaten revenues at major education companies such as DeVry Education Group Inc., Corinthian Colleges Inc., Education Management Corp., which runs the Art Institutes; and Apollo Education Group Inc., which owns the University of Phoenix. At most for-profit schools, so-called Title IV funds—generally Pell grants and federal student loans—are the biggest source of revenue. The funds are awarded to students who use them to cover tuitions at the schools.
Although the specifics of the plan are new, the basic thrust of the plan has been a part of Obama’s education agenda for some time. Earlier this year, the administration launched a plan which included a similar measure to confront rising tuition prices. When that plan was announced, we had mixed feelings—we liked the attempts to encourage colleges to keep graduate debt under control, but we have concerns about increasing federal control over higher-ed.Abundant federal loans have played a key role in enabling the relentless rise of tuition costs, and if President Obama is serious about tackling that problem, he should seriously consider a much broader rollback of these loan programs.