U.S. places new student debt rules on for-profit colleges

WASHINGTON – The U.S. Department of Education on Thursday outlined new rules that could restrict the use of federal funding at for-profit colleges.

The rules aim to keep for-profit colleges from saddling students with loans that their degrees will not reasonably enable them to repay. For-profit colleges now account for 11 percent of college enrollment, but 44 percent of student loan defaults, the department said.

To remain eligible for federal aid grants and loans, schools must now demonstrate that graduates of degree and certification programs spend no more than 8 percent of their total earnings, or 20 percent of their discretionary earnings, on loan repayments.

While the rules also apply to nondegree programs at public and nonprofit schools, the department said 99 percent of the estimated 840,000 students in programs that fall outside the standards go to for-profit colleges.

"Career colleges must be a steppingstone to the middle class, but too many hardworking students find themselves buried in debt with little to show for it," Secretary of Education Arne Duncan said in a statement. "That is simply unacceptable."

Minnesota is the headquarters of two of the country's most prominent for-profit colleges: Capella University, which has more than 35,000 students nationwide, and Rasmussen College, which has 14,000 students.

Capella spokesman Mike Buttry told the Star Tribune in an e-mail that the company is studying the regulation but that it is too soon to draw firm conclusions.

The median income of Capella graduates "compares very favorably to that of our for-profit peers," he added.

George Fogel, Rasmussen's vice president for government relations, said in an interview that the school wanted accountability rules applied to all colleges, not a certain type. But Fogel said Rasmussen has taken steps over the past few years that should allow it to meet the new rules.

"We've changed parts of our programs to make them more employer-relevant," Fogel said. The school has also focused on lowering tuition and speeding up graduation.

Rasmussen is a member of the Association of Private Sector Colleges and Universities, a trade group that sued to block an earlier attempt by the Education Department to apply "gainful employment" rules. A federal court stopped the rules, calling them arbitrary.

The association has not decided whether to sue again, a spokesman said Thursday. But it strongly disagrees with the new policy.

Republican Rep. John Kline, who represents Minnesota's Second Congressional District, chairs the House Education and Workforce Committee. Kline has opposed past gainful employment efforts and pushed back against the current one.

"There are long-standing, bipartisan concerns with the department's attempt to define gainful employment," Kline said in a statement Thursday. "We all want to ensure institutions are accountable for how taxpayer dollars are spent and that students receive a quality education, but both Republicans and Democrats have questioned whether this is the right approach."

Fifth District Rep. Keith Ellison, D-Minn., called the rules "an important first step toward college affordability."

But Sen. Tom Harkin, chairman of the Senate Health, Education, Labor and Pensions Committee, said the new rules do not go far enough to keep for-profit colleges, many of which are publicly traded, from putting shareholders' interests over students'.

Harkin, D-Iowa, has led investigations into the enrollment and lending practices of for-profit colleges.