The Education Department defended its controversial “gainful employment” rule at a U.S. Senate hearing on student debt on Tuesday, calling it a “significant step forward” that would improve graduation and default rates among for-profit colleges.
But Sen. Tom Harkin, the Iowa Democrat who held the hearing, said the rule would not do enough to protect students and taxpayers from underperforming programs, and he promised stronger legislation focused on the sector.
The rule is “a modest first step, but I think its going to take a much more aggressive policy,” said Mr. Harkin, who is chairman of the Senate education committee.
The regulation, which was released last week, will cut off federal student aid to vocational programs whose students struggle to repay their debts. Under the rule, programs that fail to meet federal benchmarks for loan repayment and debt-to-income ratios in three out of four years will become ineligible to receive federal student aid.
The final rule is significantly softer than the original, which would have disqualified programs after a single failure. It also includes several changes that will make it easier for programs to meet the benchmarks, such as allowing colleges to deduct living expenses from their debt calculations.
Though for-profit colleges have welcomed the changes, some student and consumer groups say the rule has lost its teeth.
At Tuesday’s hearing before the Committee on Health, Education, Labor, and Pensions, Martha J. Kanter, the under secretary of education, said the department had sought to “draw upon the strengths of the for-profit sector, while avoiding its pitfalls.”
“We’re giving career colleges every opportunity to reform themselves, but we’re not letting them off the hook, because too many vulnerable students are being hurt,” she said in her prepared remarks.
Mr. Harkin, who has been conducting a bruising inquiry into for-profit colleges during a series of hearings, challenged that assessment, noting that the colleges would not face any penalties under the rule until 2015.
“Is it better than nothing? Yeah. But what does it say to you that after this rule was published, stock prices of the largest for-profit companies soared?,” he pressed.
“We don’t control the markets,” Ms. Kanter answered. “We want the sector to succeed. ... We’ve got to create a model that is going to help them improve.”
“It said to me that investors and Wall Street looked at this and said that for the next three to four years, things will be pretty good,” he said.
Ms. Kanter acknowledged that the rule was ‘not the be-all, end-all,” but added, “I think we’ve provided a step in the right direction.”
Mr. Harkin repeated his vow to offer legislation cracking down on the sector, but he provided no new details on what such a bill might include.
“There must be some legislative solution that is more enduring, that people know will last longer than one administration,” he said, implying that the rule could be undone by a future Republican administration.
The committee’s Republicans, meanwhile, continued their boycott of Mr. Harkin’s for-profit hearings, which they complain have been prejudicial and biased. Sen. Michael B. Enzi of Wyoming, the panel’s top Republican, had previously said that Republicans would attend to question Secretary of Education Arne Duncan on the gainful-employment rule. But when a back injury kept Mr. Duncan from the hearing, and Ms. Kanter went in his place, they decided to skip it.
Ms. Kanter, as under secretary, is the department’s second-highest official. At the meeting, she announced a pilot program that will give colleges more discretion over how much their students borrow. The rule could help participating institutions comply with both the gainful-employment regulation and the 90/10 rule, which requires for-profit colleges to receive at least 10 percent of their revenue from sources other than the Education Department. (See a related article.)
