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Obama administration takes another crack at for-profit colleges

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The Obama administration is trying again to crack down on for-profit and career colleges.

The Department of Education on Friday morning released a new version of its so-called "gainful employment" rule, which sets up specific requirements that institutions must meet or risk being cut off from federal aid programs. A version of the proposal released in 2012 largely was struck down by a federal judge and the administration was forced to start from scratch.

Leaders in the for-profit sector wasted little time in blasting the administration, calling its rulemaking process "a sham" that reached "a predetermined conclusion."

The battle between Democrats — both on Capitol Hill and in the administration — and the for-profit college sector has been playing out for years, but Friday's rule represents perhaps the most tangible action the White House can take.

"College must open up doors of opportunity, but students in these failing programs often end up worse off than before they enrolled," Education Secretary Arne Duncan told reporters Friday at the White House.

The regulations apply to specific schools or programs in about 8,000 institutions across the country, Mr. Duncan said.

They require that average graduates from a program — such as nursing or business — not pay more than 20 percent of their discretionary income toward student loans, or 8 percent of their total annual earnings. The rule also says that a program's loan default rate — the percentage of its former students who stop repaying their loans — must not exceed 30 percent.

Right now, about 25 percent of the 8,000 programs covered by the new regulations would fail to meet the thresholds and be cut off from federal money, according to Mr. Duncan.

In justifying the rule, the Education Department pointed to the fact that for-profit colleges represent about 13 percent of the total higher education population but 31 percent of all student loans. They account for nearly half of all student loan defaults, Mr. Duncan said.

Failing to meet the new thresholds and losing access to federal loan-and-grant money could quickly shut many institutions down, though the administration cast the rules as an opportunity for schools to improve.

"We need this sector to do well … this has to be a path to the middle class, so we want to expand opportunity but it's got to be high-quality opportunity," Mr. Duncan said. "When that opportunity is leading to massive debt, when that opportunity is leading to massive default rates, that's not opportunity any of us can be proud of."

The rules address the most common criticisms of for-profit schools — that they run lackluster programs and leave students with worthless degrees while profiting off of taxpayer dollars.

Supporters vehemently dispute that characterization and say the sector is a vital part of today's higher education landscape.

The gainful employment proposal now enters a 60-day public comment period, and the for-profit sector is urging the Education Department to change course during that time.

"The U.S. Department of Education's actions confirm that they are engaged in a sham … with the sole goal of reaching a predetermined conclusion that will result in eliminating higher education access and opportunity for millions of students based on the type of institution they attend," said Steve Gunderson, a former Republican congressman who now serves as president and CEO of the Association of Private Sector Colleges and Universities. "The department has never been interested in constructive input or ensuring that student access is protected. As a result, millions of new traditional students will lose access to postsecondary education and hundreds of thousands of dollars in lifetime earning potential."

He added that non-traditional students also would be impacted. The for-profit sector often is the choice of older students, single parents and others because of the flexible class schedules and, in many cases, ability to learn online.

Republicans on Capitol Hill also slammed the proposal.

"This proposed rule will weaken both choice and access for some of our most disadvantaged higher education students and will be highly destructive to our system of higher education," said Sen. Lamar Alexander, Tennessee Republican and his party's ranking member on the Senate Education Committee.

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