SOURCE: Center for Responsible Lending

Center for Responsible Lending

October 30, 2014 14:55 ET

The Weakened Gainful Employment Rule is a Step Forward, but Fails to Fully Protect Students

The Department of Education Regulation, Released Today, Falls Short of Providing Needed Consumer Protections for Students Attending For-Profit Colleges

WASHINGTON, DC--(Marketwired - October 30, 2014) - Today, the US Department of Education released the final "gainful employment" rule imposing new limits on career education programs with poor outcomes for graduates. The final rule, which only considers the outcomes of the minority of student s who graduate, is significantly weaker than the proposed rule. Nevertheless, it provides some important new protections.

Maura Dundon, senior policy counsel at the Center for Responsible Lending, offered the following remarks:

The Department of Education's final gainful employment rule aims to prevent programs with extremely poor outcomes from receiving federal student aid dollars. This rule is a step towards protecting vulnerable students from unmanageable debt burdens, but more remains to be done.

For-profit colleges and universities have come under increasing public and regulatory review. For-profit schools -- including ITT Tech and Corinthian Colleges -- have been sued by government agencies for deceptive marketing techniques and abusive lending practices, and have come under investigation by numerous state and federal agencies. The Department's focus on eliminating the worst of these programs is vitally important to ensure that federal financial aid dollars, both grants and loans, are not wasted or used to cause harm.

The final rule's main shortcomings are its failure to address the outcomes of students who withdraw without getting a degree or certificate, and failure to consider student loan default rates. Although default and the inability to graduate are the most serious risks faced by for-profit college students, the final rule dropped a provision that would have considered default rates of all program attendees. Instead, the rule considers a graduate's debt burden relative to their income, and does not consider the fate of students who leave without a degree. We are pleased that the final rule does not water down the debt-to-earnings metric. But since a majority of for-profit college students are unable to complete their degree, the decision to eliminate consideration of default rates has seriously weakened the rule.

The final rule also provides important, but incomplete, new protections against programs that do not qualify students to get the license or certification legally required to practice in their intended occupation. In recent years, some for-profit colleges offered programs purporting to prepare students for a specific occupation, but after taking out loans, students found that the program would not qualify them to be legally eligible to practice that occupation in their state. But the rule fails to go far enough to protect online students or students located close to state lines, who may still find that the program does not legally qualify them to get needed licenses for a job in the state where they live.

We appreciate the Department of Education's longstanding commitment and hard work to protect students. While the rule will provide accountability for a small subset of programs that repeatedly demonstrate abysmal results for their graduates, predatory lending practices, abusive collection tactics, and aggressive, deceptive marketing techniques will continue to ensnare hopeful students into assuming large debt under false pretenses. The gainful employment rule is an important, but incomplete, step in protecting students from loans that hurt rather than help them.

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