Obama administration proposal targets for-profit colleges over student debt

WASHINGTON – The Obama administration is proposing new rules designed to protect students at for-profit colleges from amassing huge debt they can't pay off -- and still pass judicial muster after a previous version was thrown out by a federal judge.

The proposed regulations would penalize programs that produce graduates without the training needed to find a job with a salary that will allow them to pay off their debt. Schools, for-profit or not, that don't comply would lose access to the federal student aid programs.

"Career-training programs offer millions of Americans an opportunity they desperately need to further their education and reach the middle class," Education Secretary Arne Duncan told reporters Thursday. "Today, too many of these programs fail to provide students with the training that they need at taxpayers' expense and the cost to these students' futures."

If finalized, the regulations would take effect in 2016.

The for-profit college lobby is expected to vigorously oppose the proposals. In 2012, the for-profit colleges convinced a judge that similar regulations were too arbitrary.

The administration has long sought to block federal student aid from programs that do not prepare students for "gainful employment" in a recognized occupation.

Duncan said for-profit colleges can receive up to 90 percent of their revenue from federal financial aid programs. If blocked from participating, some could be forced to close, he said.

"Some of these programs -- whether public, private or for-profit -- empower students to succeed by providing high-quality education and career training. But many of these programs, particularly those at for-profit colleges, are failing to do so," the Education Department said in a fact sheet.

The latest proposal closely follows those that were struck down in 2012 by U.S. District Judge Rudolph Contreras, but it makes technical changes tailored to the court's concerns that the benchmarks were arbitrary.

"We tried to base that on expert research and mortgage industry standards for acceptable levels of debt," Duncan said.

For instance, a typical graduate should not pay more than 20 percent of his or her discretionary income to repaying loans. The previous regulations sought a limit of 30 percent of that income going to repayment.

The proposed regulation also says graduates should not be paying more than 8 percent of their total income to student loans. The department previously sought a 12 percent cap.

The proposed regulations also set a default rate of no more than 30 percent.

In many cases, students who graduate from Education Department-approved programs would keep a greater percentage of their paychecks in their pockets.

Education Department reports show for-profit programs account for about 13 percent of all college students but 46 percent of all loan defaults.

At the same time, 22 percent of for-profit student borrowers defaulted on their loans within three years. At public colleges, that number is 13 percent of borrowers.

And for schools that the Education Department could review, 72 percent of for-profit colleges produce graduates who earn less than high school dropouts.

Duncan said the proposed regulations "target those who are both failing students and taxpayers."

The proposed rules drew a sharp reaction from Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities, who said in a statement that the regulations would "deny millions of students the opportunity for higher earnings."

"The government should be in the business protecting opportunity not restricting it," Gunderson said.