Department of Education Sec. Arne Duncan is finalizing a controversial new regulation on for-profit, or “career,” colleges, issuing final rules Wednesday that condition federal aid to students of the schools to numeric thresholds on how much debt they incur or how quickly they repay the loans after attending.
The regulation is at the center of a bitter feud between the Obama administration, left wing interest groups and Wall Street “short sellers” on the one side pushing the rules, and lobbyists for the for-profit schools on the chopping block on the other pushing against them.
The administration has scored major hits in revealing sleazy sales techniques and even outright fraud on the part of some schools.
But industry representatives have unearthed a disquieting role played by Wall Street investors in pushing the regulation and forced the Government Accountability Office to issue a slew of corrections to an error-ridden report it issued at the behest of far left Democratic Sen. Tom Harkin of Iowa.
The scandals have led to at least two investigations: by the Education Department’s Inspector General regarding the role of the short sellers, who are pushing the regulation because they will profit if the schools’ stock goes down, and by top GOP oversight official Rep. Darrell Issa of California, who is investigating an undercover sting unit at GAO behind the error-ridden report.
The “gainful employment” regulation at the center of the political storm will give for-profit schools three “metrics” they can meet in order for their students to be eligible for federal grants and subsidized loans.
Those include the percentage of former students actively repaying loans they took to attend (35 percent or above qualifies the school) and the percentage of former students’ incomes used to repay loans (12 percent or below on average qualifies the school).
“These new regulations will help ensure that students at these schools are getting what they pay for: solid preparation for a good job,” Duncan said.
Harkin, the chief congressional proponent of the regulations who over the last year led a crusade against them through hearings and investigations, offered muted approval, saying the regulation is a “modest and important first step.”
The leading left wing activist group, The Institute for College Access and Success (TICAS), went further, actually criticizing the final rule. “Unfortunately the final rule will allow many programs that over-charge and under-deliver to continue to receive federal student aid,” the group said in a written statement.
Meanwhile, the trade association that represents the for-profit schools said it was closely reviewing the regulation and hinted at a lawsuit insiders widely expect to be filed against the rule.
“Congressional leaders have made it clear that the definition of ‘gainful employment’ is the purview of Congress and not the Department,” said Penny Lee, managing director of the Coalition for Educational Success, the trade association.
Duncan softened the regulation from a draft form issued approximately two years ago that drew the fierce ire of the industry, prompting around 90,000 comments to be sent to the department.
In a conference call with reporters Tuesday, he said the new, “thoughtful” regulation was much improved. He also dismissed criticisms about the role of the Wall Street short sellers and other matters, recounting how some officials of the for-profit schools told him privately they were “ashamed” of the campaign their industry was waging against the Education Department.
The department’s Inspector General is expected to release its report in June. Duncan also faces a series of document requests under the Freedom of Information Act from watchdog groups like Citizens for Responsibility and Ethics in Washington.