Feds: For-profits could lose federal student aid

[June 27, 2012]  WASHINGTON (AP) -- Former students in career-training programs at dozens of for-profit institutions have had so much trouble paying off their loans that the schools could lose access to federal student aid if they don't improve, new data from the U.S. Department of Education finds.

The Education Department reported that at 193 programs at 93 schools, students were unable to meet any of three measures under the agency's new "gainful employment" rule. The new regulations, announced by the Obama administration last year, are aimed at making sure students in career-training programs at for-profit, nonprofit and public institutions are able to get a job and pay off their student loans when they graduate.

The programs include Everest College's paralegal training in Salt Lake City and more than 40 other programs operated by Corinthian Colleges, one of the nation's largest higher education companies; chef training at Le Cordon Bleu College of Culinary Arts in Austin, Texas; and the medical assistant program at Sanford-Brown College in McLean, Va.

"Career colleges have a responsibility to prepare people for jobs at a price they can afford," Education Secretary Arne Duncan said. "Schools that cannot meet these very reasonable standards are on notice: invest in your students' success, or taxpayers can no longer invest in you."

The Education Department considers former students "gainfully employed" if the program they participated in meets one of three metrics: The estimated annual loan payments for a typical graduate does not exceed 30 percent of his or her discretionary income or 12 percent of total earnings; or at least 35 percent of former students are repaying their loans.

"These aren't the strictest standards to live up to," said Stephen Burd, a senior policy analyst at the New America Foundation, a nonpartisan public policy institute. That there are programs at 93 schools that don't meet any of the three "should raise alarms, and the fact we aren't doing anything about them for a long while from now is worrisome."

Twelve percent of all students in higher education attend a for-profit institution, yet they represent 46 percent of all student loan dollars in default. While students who attend community colleges usually do not have to borrow money to enroll, the median federal student loan debt for a student earning an associate's degree at a for-profit was $14,000.

Meanwhile, for more than a quarter of for-profit schools, 80 percent of their revenue consists of federal student aid, the Department of Education said in announcing the finalized rule last year.

The department estimated 8 percent of all career programs would fail to meet the three benchmarks at some point in time, while only 2 percent would eventually lose student aid eligibility.

The data being released Wednesday covers 3,695 programs in 1,335 schools over a two-year period. Of those, 35 percent met all three measurements; 31 percent met two; 29 percent met one and 5 percent did not meet any of the three metrics.

Burd said many had expected the number who failed all three of the benchmarks to be much higher. Nonetheless, he said the data raises serious questions about the quality of training that students are receiving at institutions that didn't meet any of the benchmarks.

"If we're seeing they're failing all three metrics and we're not taking any action related to that, it's putting students in harm's way," he said.

All of the data to be released Wednesday is strictly for informational purposes and to give the schools an opportunity to review and work on improving their student outcomes, the department said. Enforcement will begin this fall, though schools would need to fail for three out of four years in order to lose access to federal student aid.

[Associated Press; By CHRISTINE ARMARIO]

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