A report yesterday stated that the US Department of Education has made it known they want to be more aggressive in policing for-profit colleges. This means introducing rules to easily discontinue funding to low-performing schools and possibly forcing colleges to help borrowers stuck with high debt and low earnings.
With these new rule propositions, if a school is not preparing its students for “gainful employment” then it could lose access to federal loans. This could force some for-profit schools to close because often federal loans account for all of the revenue.
These new rules would be the beginning of a process in which the department would determine which schools prepare students for “gainful employment” and which do not.
About 3 months ago, the Department of Education proposed two calculations to measure gainful employment. These calculations compare the graduates’ student loan debt to what they earn.
Consumer advocates, however, indicated that the measurement doesn’t account for the loans acquired by students who drop out of the program, leaving them with debt and no degree.
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Friday, the Department of Education introduced two additional measurements of a school’s performance identifying how well students are paying back their loans.
Measurement 1 –
Known as the “program cohort default rate,” calculates the percentage of students falling behind on their loans within three years.
Measurement 2 –
This measurement reviews loans taken out by students and identifies if they are cumulatively making the required interest payments, at least.
Both measurements include graduated and dropped-out borrowers.
According to a New America Foundation report, there is an additional part of the proposal and it is “by far the largest change.”
A college that is failing in these measurements will be required to pay back some of the borrower debt. That school would have to pay enough to bring the borrower debt payments down to 8% of their income.
The New America Foundation offered an example –
“If the current debt-to-earnings rate was 15% because average annual debt payments were $3,000 and average annual earnings were $20,000, then the school would have to provide funds to get the average debt payment down to $1,600.”
These measurement proposals are currently going through a formal process of agreement among the Department of Education and designated negotiators from the for-profit industry. If an agreement is not reached, the Department of Education can still issue its own regulations. If it comes to that, then it’s likely that the Department of Education will not go easy on for-profits.
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