Education Dept. to Delay Issuing 'Gainful Employment' Rules Opposed by For-Profit Colleges

September 24, 2010

The U.S. Department of Education announced on Friday that it would delay issuing final rules on the most controversial aspects of its "gainful employment" regulation until early 2011, but said it would issue all the rest of its regulations affecting for-profit colleges on or around November 1, as scheduled.

The department said its intent was still to have the new gainful-employment regulation go into effect in July 2012, as planned.

"Let me be clear," said Education Secretary Arne Duncan, in a news release. "While a majority of career colleges play a vital role in training our work force to be globally competitive, some bad actors are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use."

The department said it was postponing action on the gainful-employment proposals to give interested parties more time to "clarify the comments they've submitted and respond to questions from department officials."

The rule, which is being vehemently opposed by the for-profit college industry and its allies and backed by a coalition of consumer and education groups, could eliminate federal financial aid for programs where high proportions of students are not repaying the principle on their student loans or end up with excessive debt loads for the salaries they can earn.

Many of the opponents contend that the department's proposed rule is based on incomplete data and faulty reasoning.

Publicly the Association of Private-Sector Colleges and Universities, formerly the Career College Association, and several higher-education companies expressed support for the department's move on Friday. Privately some noted that while the department said the postponement would allow for time to hold meetings and public hearings on the proposals, its announcement on the timetable said nothing explicit about its willingness to considering changes in the gainful-employment rule.

Harris N. Miller, the association's president, said the postponement could provide an "opportunity to avoid issuing a rule that would harm students, job growth, and communities."

A Vast PR Campaign

Corinthian Colleges Inc., which owns Everest College and other institutions with programs that would be eliminated or restricted under the gainful-employment rule, as currently proposed, said the postponement would allow a welcome second look at a proposal that "would have had serious unintended consequences for students and the country."

Last week Corinthian began a vast public-relations campaign designed to show that the rule could affect "as many as" 100,000 jobs and one million students. The company's chief executive, Peter C. Waller, said Corinthian was spending in the "high seven figures" for its "My Career Counts" advertisements in newspapers and on the radio.

Supporters of tougher regulations praised the department for sticking with its planned time frame for putting the new rule into effect.

"Today's announcement recognizes that students and taxpayers are getting fleeced and cannot afford to wait for protection from unscrupulous schools," said Pauline M. Abernathy, vice president of the Institute for Access and Success, in a written statement. The institute, along with more than two dozen other education and consumer groups, is seeking an even stricter gainful-employment rule.

The institute said it was also pleased that, under the timetable, the department could begin enforcing by next year some portions of the gainful-employment regulation that would require colleges to provide greater disclosure about programs' costs and their students' job prospects. Those parts of the regulation could "warn students away from the programs most likely to leave them with debts they cannot repay," said Ms. Abernathy in the statement. A Chronicle analysis in July found that 40 percent of government loans to students at for-profit colleges who entered repayment in 1995 have gone into default.

In comments to the department about the proposal, the institute has suggested that the department also require colleges where students have high rates of borrowing and high rates of default to post that information prominently on their Web sites, beginning in July 2011, when the first parts of the gainful-employment regulation would go into effect.

The department has said it has received about 90,000 comments—about twice as many as ever before—on the proposed rule. Some of the comments were auto-generated in the names of for-profit college students and employees with the help of lobbying firms that specialize in stirring up what appear to be grass-roots protests.

A Mountain of Comments

The sheer volume of the comments was probably one reason for the department's delay, according to Nancy Broff, a lobbyist for for-profit colleges who has years of experience in department rule-making matters.

With the rule likely to be challenged in court, the department would "have to be able to say to a judge with a straight face" that it had considered and analyzed all the public input it received, Ms. Broff told attendees at a major conference this month in New York for investors in the for-profit higher-education industry.

The mountain of comments is just one sign of the intensity of the debate over the new regulations, which also include provisions that would put new teeth into rules regulating aggressive recruiting tactics and deceptive advertising by colleges.

Executives like Mr. Waller, Donald E. Graham, chairman of the Washington Post Company (which owns a piece of Corinthian and runs its own colleges through its Kaplan Inc. subsidiary), and many others have also been lobbying members of Congress in hopes of building political opposition to the gainful-employment rule.

Another group, calling itself the Coalition for Education Success and backed by colleges owned by private-equity investors, has also become active on the public-relations front. It has hired Lanny Davis, once a top lawyer in the Clinton administration and now a lobbyist and a columnist for The Hill, a newspaper covering Congress, as its spokesman.

The push will only intensify this coming week. On Tuesday the Association of Private-Sector Colleges and Universities will hold a "Career Day" rally on Capitol Hill followed by a lobbying blitz. Declaring that "the stakes are enormous" and "the time is short," the association has urged its member colleges to come to Washington with students and with representatives of companies that hire their graduates.

Later in the week, for-profit colleges will find themselves back in the spotlight. On Thursday a key Senate committee led by Sen. Tom Harkin, Democrat of Iowa, will hold its third hearing on for-profit higher education. Earlier hearings focused on the rising levels of federal money going into the rapidly growing for-profit sector and on fraud and deception in student recruiting disclosed in an undercover investigation of for-profit colleges by the Government Accountability Office.

At Thursday's hearing, Senator Harkin said, the focus will be on "the magnitude of the federal investment in for-profit schools and whether students are being left with debt but no diploma."