A Pincer Movement: U.S. Department Of Education vs. For-Profit Schools

Glenn Bogart | Contributor

Recently a Federal District Court in New York ruled against a coalition of New York private for-profit colleges in a suit where they sought relief from the U.S. Department of Education’s “gainful employment” rule, which is set to take effect in July of 2015. But that isn’t the end of this controversy. Another lawsuit is being decided by the Federal District Court for the District of Columbia — which was brought by the Association of Private Sector Colleges and Universities (APSCU) on behalf of its member schools all over the country. That’s the suit people in this industry are following. It’s their last hope, unless Congress acts, and it seems unlikely that even congressional action would survive a presidential veto.

The gainful employment rule, in the current incarnation and in the previous one (which was vacated in an earlier lawsuit) seeks to eliminate from participation in the federal student aid programs (Pell Grants, Stafford Loans, etc.) certain educational programs where the graduates of these programs allegedly do not earn enough money to make their student loan payments. It affects private for-profit schools overwhelmingly. That’s the short version.  But there is a lot more to this, than just that. There is actually a pincer movement, or squeeze, being pursued by the federal government in order to destroy these for-profit schools. First there was the 90/10 rule, and now there is the gainful employment rule. One has to look at these two things together in order to understand what the government is doing here.

The “90/10 rule” requires for-profit schools, if they wish have their students continue to be able to receive Pell Grants and federal student loans, to receive at least 10 percent of their tuition revenue from sources other than the federal student aid programs. Because many first-year students can receive more than $15,000 in federal student aid per academic year, these schools have to charge a bit more than that, so as to be sure students have to pay some cash for tuition on top of what they can get from Uncle Sam. This rule has been around for years.

And it’s insane. It almost guarantees that such schools will have to increase tuition in order to survive. If you’re a for-profit school, even if you could do just fine on the amount of money your students could bring in in federal student aid, you have to charge more than that if you want to stay in business — because otherwise, your students will lose their ability to get federal student aid, and if that happens, you can’t compete. Thanks, Congress, for making sure tuition is higher than it needs to be at these schools, just to be able to comply with this rule. Nice work. Imagine how grateful the students would be if they understood what you have done. They’re paying up to 10 percent more in tuition, just so their schools can meet this artificial requirement.

But now, there’s a “gainful employment rule” on top of that. Gainful employment requires that these schools’ educational programs graduate students who are able to earn enough, in their first jobs after school, so that their student loan payments will not exceed 8 percent of their incomes, or 12 percent of their “disposable incomes.”

So we have federal pressure both to increase tuition (to meet the 90/10 requirement) and to decrease it (to make it more affordable, so that graduates will not have student loan payments that are “too high,” according to an arbitrary formula developed pretty much out of thin air by the U.S. Department of Education).

At least the 90-10 rule has the benefit of having been passed by Congress. People in the industry  don’t like it, and it’s pretty stupid, but it’s really a law. But the “gainful employment” rule cannot boast of the same. It is strictly the invention of the Department of Education.

For-profit schools, for 50 years or so, have been required by the law to provide educational programs that lead to gainful employment for their graduates. That term, “gainful employment,” for all those years, has had the dictionary definition — a job that pays. Now, though, the Department of Education has decided that it means, not just that, but a job that pays enough so that the worker, right out of school, can make payments on his student loans that Department of Education bureaucrats deem “affordable.” There is nothing in the actual law that requires (or for that matter, even authorizes) the Department to do this.

The gainful employment rule is set to go into effect in July of 2015. It is estimated that one-third of educational programs now being offered by for-profit schools will fail. Thus, these educational programs will be deemed ineligible for federal student aid.

So.  On the one hand, we have a rule, passed by Congress and signed into law, that forces these schools to charge higher prices, just so they can be sure to earn more than 10 percent of their revenue from sources other than federal student aid.  On the other hand, we have an administrative rule, in no way mandated by Congress, that seeks to force these same schools to lower their tuition. That’s the pincer strategy. But in fact, it’s even worse than that.

Reducing tuition would not necessarily help a school to meet the gainful employment rule requirements. That’s because students can borrow under the federal student loan programs for living expenses, not just for tuition and fees. Most will borrow the max — trust me, I have seen it happen for 30 years as a worker in this field.

The Department of Education has not been bashful about admitting that the purpose of the “gainful employment” rule is to put for-profit schools out of business. The president’s Special Assistant for Education, for example, stated that “the whole premise behind the gainful employment regulation” was the administration’s intent to “cut [for-profits] out … of federal aid.” (ASPCU v. U.S. Department of Education Memorandum of Law, p, 7, February 6. 2015)

Congress made these schools’ students eligible for federal student aid 50 years ago. Should it not be up to Congress, then, to kick the schools out en masse, if that is something that should be done? Where does the U.S. Department of Education get off, in promulgating rules for the express purpose of destroying businesses lawfully participating in the federal student aid programs?

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