Obama’s Latest Hostile Takeover Target: Private Career Colleges

The Obama administration’s latest college crusade claims it will help students. In reality, it’s a hostile takeover attempt by government of the private for-profit career college sector that will hurt students, taxpayers, and the economy.

Education Secretary Arne Duncan acknowledges that the “majority of career colleges play a vital role in training our workforce to be globally competitive.” Yet he insists that students must be protected from debt he says is foisted on them by a relative handful of bad actors.

Rather than hold those select institutions accountable through existing laws, since 2010 Duncan has been attempting to use his department to gain control of the private for-profit career college sector, which is the fastest growing nationwide increasing from 200,000 students in the late 1980s to 2 million as of 2010 (pp. 2, 5, 7-8).

This isn’t the Obama administration’s first attempted takeover of higher education.

Thanks to an Obamacare provision the U.S. Department of Education took over direct lending to students. Duncan insisted that the feds would be more efficient and cost-effective than private lenders, but costs actually went up. In recent years the Obama administration has also pushed interest rate freezes on federal student loans, which have done nothing to make a college education more affordable.

The administration’s latest takeover scheme is attempting to impose onerous regulations on all private for-profit career colleges.

Back in 2010 the U.S. Department of Education unveiled a set of proposed “gainful employment” rules requiring private for-profit colleges to meet mandated loan repayment rates and debt-to-earnings levels before their students could qualify for federal student aid.

In 2011 the department unveiled the final gainful employment regulations, which deemed students’ employment “gainful” only if it was “in a recognized occupation.” The regulations further mandated that at least 35 percent of former career college students must be repaying their loans; the estimated annual loan payments cannot exceed 30 percent of their disposable income; or the estimated annual loan payments cannot exceed 12 percent of former students’ total earnings.

The regulations were supposed to go into effect on July 1, 2012, but they were struck down the day before by Federal Judge Rudolph Contreras for being “arbitrary and capricious.”

In 2013 the Obama administration revived its crusade against what Duncan called “predatory” career colleges with proposed mandates that are no less arbitrary or capricious than their predecessors. Under the new proposed regulations unveiled earlier this year, for students to qualify for federal aid for-profit career colleges must prove the estimated annual loan payments of graduates do not exceed 20 percent of their discretionary earnings, or 8 percent of their total earnings, and the default rate for former students does not exceed 30 percent.

Duncan justified the move saying that “of the for-profit gainful employment programs the Department could analyze and which could be affected by our action today, the majority—72 percent—produced graduates who on average earned less than high school dropouts. The Washington Post’s Fact Checker found that this claim didn’t come close to passing the Pinocchio Test:

Could attending a for-profit institution actually result in a three-out-of-four-chance of earning less than a high school dropout?…In straining for a striking factoid, the Education Department went too far.

Department of Education officials insist that 90 percent of career college students losing aid will find suitable alternatives, but independent research concludes the figure will be far lower.

Should the Obama administration succeed and gainful employment regulations take effect next year, more than 4 out of 10 students currently enrolled at private for-profit career colleges could lose access to federal financial aid. Over the next decade as many as 7.5 million students could lose access.

And who are these students?

Most of private career college students are older adults, more than half (51 percent) are low-income, and 80 percent of them are the first in their families to attend college (pp. 9 and 23). Moreover, close to half of all career college students (49 percent) are high-risk students, compared to less than 20 percent at public and not-for-profit institutions.

Compared to public institutions private for-profit career colleges enroll more women and minorities, not to mention more than one-quarter of military family members (28 percent).

These students seek out private for-profit career schools precisely because the public and non-profit sectors aren’t the right options for them, including not offering the desired degree programs or flexible schedules that help them balance family and career responsibilities. Forcing these students into schools and programs the feds (and their union allies) prefer won’t help them or taxpayers.

The net taxpayer cost of a private for-profit college student is $183 compared to more than $13,000 per public college student (2013 Fact Book, p. 40). If private for-profit options aren’t available, many of these students would have to transfer to public colleges at cost taxpayers nationwide an additional $1.7 billion annually. In the long-run gainful employment regulations could cost students and taxpayers even more.

As many as 23 million skilled and educated workers are needed over the next decade, and private for-profit career colleges specialize in offering degree programs in the highest-growth occupational fields (2013 Fact Book, pp. 37-39).

At a time when 90 million Americans are undereducated, 12 million are unemployed, and family incomes are down, a government takeover of education through gainful employment regulations is the last thing American students, taxpayers, or our economy needs.