- The Washington Times - Monday, August 23, 2010

The Obama administration’s animosity for business profits threatens to deny educational opportunities for more than 300,000 poor, working or otherwise at-risk college students. Congress needs to step up to block a proposed new rule affecting for-profit colleges.

It’s no secret that for-profit institutions such as Strayer University, the University of Phoenix and Kaplan University serve an unusually high percentage of students who lack the resources to repay student loans easily. It’s also true that investigations have shown employees at some for-profit schools using misleading recruiting tactics to persuade some students to enroll. Somehow, the Obama administration has conflated the two problems.

The administration claims to be cracking down on misleading tactics and outright fraud, but it has proposed a solution far too broad for the problem. A new rule, scheduled to take effect Nov. 1, would adjudge the worthiness of any particular program of study by how many of its students default on loans. If too many prior students in that program default, the administration would make future students in that program ineligible for federal loans.

Especially in a down economy, and with less-privileged students of the sort for-profit colleges serve, this rule would disqualify about 307,000 students, according to the Department of Education’s own estimates. Even worse, the government would change the rules for what qualifies as a “default.” Students still current on paying off their loan interest - with Education Department encouragement for that arrangement - would be considered in default if they have not yet paid off any principal. In short, the new rule would punish students and colleges for abiding by the old rules.

The scheme would make for-profit colleges less attractive and probably would lead to many of the 307,000 affected students being dumped into state-sponsored universities and community colleges. Advocates for for-profit schools offer convincing arguments why this is bad social policy. First, they say loan defaults at these colleges aren’t all that high: about $1 billion annually out of more than $600 billion in outstanding loans. The rate of default is almost exactly the same as for students from the same socioeconomic strata at state colleges.

Second, state-sponsored colleges often can’t serve the educational needs of students who choose for-profit schools. For out-of-state students, they cost more by an average of $4,374. In-state, the taxpayer subsidies for state-sponsored colleges are about $4,500 higher per student than at for-profits, even after accounting for loan defaults. Moreover, the for-profits uniquely offer flexible class scheduling that “regular” colleges rarely match. For poor and minority students often fitting classes around full-time jobs or other hurdles, these flexible schedules can mean the difference between getting a college degree or not.

The Obama administration’s proposed change would mean a lot of students simply won’t get that degree.