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The for-profit college industry is on the verge of notching another win in its belt. On Aug. 10 the Education Department announced another Obama-era student protection, the gainful employment rule, is on the chopping block. The department is proposing to do away with the rule entirely.
The announcement comes on the heels of the department’s plan to scrap the Borrower Defense to Repayment (BDR). The department argues that the gainful employment regulation isn’t backed by research and creates burdensome reporting requirements for schools. The rule went into effect in 2015. Its aim was to punish for-profit college programs that leave graduates with serious debt compared to their incomes.
The gainful employment rule cuts off federal funding if the average debt ratio of a for-profit college’s graduates stays above a certain limit for two out of three years straight. In addition, the rule requires schools to publicize debt and earnings data for their programs. The goal was to help students avoid poor performing programs or schools.
Opponents say that rollbacks will loosen accountability and allow shoddy programs to keep their doors open. President of the non-profit Institute for College Access and Success, James Kvaal, said the rule prevents students from getting swamped with student debt. In addition, the rule already forced programs to improve.
John B. King Jr., former Education Secretary under President Obama, called the proposal “outrageous and irresponsible.”
How will the Education Department keep for-profit colleges in check?
Under the gainful employment rule, for-profit colleges could be cut off from federal funding if they did not meet certain guidelines. In addition, the rule required schools to publicize debt and earnings data for their programs. The goal was to help students avoid poor performing programs.
Instead, the education department will require all colleges and universities, not just for-profit programs, to publish earnings data for programs.
“Students deserve useful and relevant data when making important decisions about their education post-high school,” DeVos said. “That’s why instead of targeting schools simply by their tax status, this administration is working to ensure students have transparent, meaningful information about all colleges and all programs.”
How is the gainful employment rule applied?
The gainful employment rule was submitted to the Federal Register as a regulatory document in October 2014. The regulation went into effect on July 1, 2015. The intent is to address unaffordable student loan debt in relation to earnings at for-profit institutions of higher education. The rule also addresses non-degree programs at both public and private non-profit institutions, such as community colleges.
Programs graduates debt-to-income ratio as follows:
- Programs pass requirements if graduates have annual loan payments less than 8 percent of their total earnings or less than 20 percent of their discretionary earnings.
- Institutions are at risk of failing requirements if graduates have annual loan payments between 8 percent and 12 percent of total earnings or 20 percent and 30 percent of discretionary earnings.
- Programs fail requirements if graduates have annual loan payments greater than 12 percent of total earnings and greater than 30 percent of discretionary earnings.
In addition, when programs fail any two of three consecutive years or are in the at-risk zone for four consecutive years, they are no longer eligible for federal student funding for a minimum of three years.
Trump Administration rolling back Obama-era student protections
The for-profit college industry flourished under former President George W. Bush; which loosened restrictions on the industry. However, it has long denounced regulations such as gainful employment and BDR as a witch hunt. The industry claims that Obama-era regulations were the cause of the decline in for-profit enrollments. Incoming or returning students and their parents should pay particular attention to the rollback of these regulations. These rules were put in place to protect students from the predatory practices of for-profit colleges.
The gainful employment rollback is the department’s second major for-profit regulation proposal in the last month. In late July, the department announced its plans to scrap the Obama-era Borrower Defense to Repayment (BDR) protection that went into in the summer of 2017. The BDR allows students to seek loan forgiveness based on institutional misconduct, for example, fraud.
The Obama Administration began to crack down on for-profit colleges after widespread complaints of fraud. Large chains like Corinthian Colleges and ITT Technical Institute—both of which collapsed under pressure from Obama officials—were at the center of the fraud complaints.
For-profit college lawsuits
In 2016, DeVry settled with the Federal Trade Commission for $100 million. The suit claims that DeVry defrauded thousands of students through deceptive advertisements. DeVry paid $49.4 million in cash to qualifying students. Further, the court ordered it to pay an additional $50.6 million in debt forgiveness.
The FTC’s suit claimed that DeVry violated federal law by deceptively claiming 90 percent of its graduates actively seeking employment landed jobs in their field within six months of graduation. The suit also asserted that DeVry misrepresented the earnings of its bachelor’s degree graduates. The for-profit institution claimed that on average, its bachelor’s degree graduates earned 15 percent more than graduates from all other colleges and university.
In addition to federal lawsuits, many for-profit colleges have sued or investigated by state attorney generals. One such instance is the now-defunct ITT Technical Institute, which was investigated by 16 attorney generals.
Other examples of fraud committed by for-profit institutions include college operator Education Affiliates. The Justice Department ordered Education Affiliates to pay $13 million to settle allegations that it falsified federal financial aid claims and misled the Education Department. Claims against Education Affiliates also allege that the institution helped applicants obtain fake diplomas and collect federal financial dollars for students.
The Carlson Law Firm is Currently Accepting Graduates Defrauded by DeVry
While the Trump Administration is actively working to make it more difficult for students defrauded by for-profit colleges to seek justice, the Carlson Law Firm is fighting for defrauded DeVry graduates. Our firm currently suing DeVry for its fraudulent advertising in Texas. The for-profit’s college predatory practices defrauded students by engaging in deceptive marketing practices to lure prospective students. The suit alleges that DeVry severely inflated the success rate of job placements. It also asserts that it misled the earnings of graduates through an aggressive marketing scheme grounded in deceptive data and flawed methodologies.
The Carlson Law Firm’s lawsuit seeks to provide student loan forgiveness to students who are tens of thousands of dollars debt as a result of DeVry’s false promises.