New Rules for Schools

For-profit schools got fat on federal education money. Now the government wants to put them on a diet.

When parents of the nation’s art history majors open their tuition bills, the same question springs, unbidden, to many lips: How are you ever going to get a job with a degree like this?

When the federal government is paying the bills (or, more to the point, making the loans), the dynamic remains more or less unchanged: Whoever shells out the cash for school wants some assurances about results. Which explains why, on Friday, the Department of Education issued proposed regulations [PDF] on how much debt students should be allowed to take on in the pursuit of certain degrees.

Ironically, the useless hordes of art history majors and other liberal arts dilettantes (among whom I proudly count myself) will be left unmolested. Loan-laden philosophy majors will be welcome to continue on their merry way, taking classes with names like “Art, Love, and Beauty” or “Tragedy and Political Theory”—two actual classes I took as an underwater undergrad benefiting from federally-subsidized loans and grants. If, however, I had chosen to enroll in a physician’s assistant program at a school like the University of Phoenix or Kaplan University, Uncle Sam would have some strongly worded thoughts on my appropriate levels of debt.

The proposed rules are complicated—and not yet fully worked out. But the basic idea is this: In order to be eligible for student aid within a career-oriented for-profit institution, programs will have to prove that their graduates aren’t taking on loans that would require them to spend more than 8 percent of the total income from their eventual “gainful employment in a recognized occupation” on loan service payments. Failing to meet that standard—or alternative standards designed to determine debt loans and repayment rates for students in a given program—means the schools would be forced to disclose data about debt levels to all prospective students. Programs with loan repayment rates below 35 percent or debt loads above 12 percent of student income become automatically ineligible for federal grants and loans; about 8 percent of currently enrolled students will be affected by those ceilings. More than half of the remaining students are in programs that will have to make some modifications to meet the proposed federal guidelines.

The new rules are designed to keep track of the massive flood of federal higher education dollars coursing through the system. President Barack Obama made it clear that he wants more Americans to enroll in post-secondary education. Lots more. And he’s willing to spend more money to get those numbers up. Lots more. And he can’t get the kind of enrollment boom he’s looking for without fast-growing for-profit schools. Secretary of Education Arne Duncan is typically careful to acknowledge the positive role of for-profit schools in increasing educational opportunity, and he seems to be admirably free of the reflexive hostility to the industry demonstrated by many education bureaucracy lifers. Instead of condemning for-profits as schools that feed on federal loan dollars, siphon the big bucks off for investors, and stick students with the bill, he says stuff like this: “These schools—and their investors—benefit from billions of dollars in subsidies from taxpayers, and in return, taxpayers have a right to know that these programs are providing solid preparation for a job.”

As the public notice of rule making notes: “In recent years, enrollment has grown rapidly, nearly tripling to 1.8 million between 2000 and 2008. This trend is promising and supports President Obama's goal of leading the world in the percentage of college graduates by 2020.” But immediately afterward there’s this: “The programs offered by the for-profit sector must lead to measurable outcomes, or those programs will devalue post-secondary credentials through oversupply.”

All of which is true. That leaves us at an impasse. Federal money means federal oversight. The for-profit education sector is up to its neck in taxpayer dollars. In 2009, according to the backgrounder in the proposed rule document, the five largest for-profit institutions received 77 percent of their revenues straight from the federal student aid program—and that doesn’t even include sideways education funding like veterans’ benefits or federal job training money. Beating that kind of addiction to government money is tough, maybe impossible. A steady flow of federal education money is so irresistible that schools of all types will make all manner of concessions to federal oversight just to guarantee next fall’s fix.

But “measurable outcomes” or the lack thereof are not the problem. College degrees and other credentials don’t pay off like they used to precisely because every Joe Schmo seems to have one these days. If Obama’s goal for large increases in college and other post-secondary enrollment are met, such degrees will be worth even less as a signaling device to potential employers. And pushing people to log more years in school for the sake of increasing America’s attendance figures simply means that skills required for various professions that were once acquired outside the realm of formal education—in an apprenticeship or by learning on the job—will be pushed into the federal-funded higher education sector.

As for the new rules, we’re now in the mandatory 45 day comment period, where members of the public can chime in with their thoughts about the who deserves federal education money and on what terms. And Congress may yet have some strong opinions to share on the matter. But the most trenchant comment has already been made by Terry W. Hartle of the American Council on Education when he told Inside Higher Ed that the proposal is "the most complicated regulatory package that the Department of Education has ever promulgated.”

The new rules will require schools to track graduates on a unprecedented scale, offer massive disclosures to students (who probably won’t read them anyway), and tweak their program prices to slide in just under the threshold. Some programs that were previously on the cheap side will realize they are leaving money on the table and inflate their prices, ignoring what the market will bear in favor of what the bureaucrats will allow, just as traditional schools figured out how to do long ago.

This kind of regulatory burden takes a fast-growing sector and briefly slows it down while schools scramble to rejigger the math—all without disturbing the status quo where for-profit programs continue to pull from the federal teat. Some students will wind up with less debt, but others will no longer be able to enroll in programs they previously found appealing. More federal money plus more oversight simply means more energy spent tailoring programs to maximize the amount of federal dollars coming in.

People are right to be peeved that their tax dollars are going to fund college educations that don’t make fiscal sense for anyone. But this problem isn’t unique to for-profit career programs. My college education probably shouldn’t have been subsidized by your taxpayer dollars either.

Katherine Mangu-Ward is a senior editor at Reason magazine.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Federal Dog||

    "President Barack Obama has made it clear that he wants more Americans to get more education."

    Bullshit. He had made it clear that he will confiscate any moneys set aside to permit school choice and force people into classrooms with union functionaries instead of educators.

  • ||

    Bullshit. He had made it clear that he will confiscate any moneys set aside to permit school choice and force people into classrooms with union functionaries instead of educators.

    My wife is in an evening class (non-profit private university) where the instructor seems to just be putting in the time to get an extra paycheck to supplement his full-time job. He's a terrible teacher. However, I don't think this is something the government needs to get involved in. The school will fire him when it turns out his crappy teaching is affecting the reputation of the school.

  • Federal Dog||

    "President Barack Obama has made it clear that he wants more Americans to get more education."

    Bullshit. He had made it clear that he will confiscate any moneys set aside to permit school choice and force people into classrooms with union functionaries instead of educators.

  • Federal Dog||

    Sorry. The message posted not only twice, but before it was complete, due to the page unexpectedly refreshing.

  • ||

    Both major public universities in Nevada graduate fewer students in 4 years than the average for-profit school at a cost of over $11,000 a year, per pupil, to state taxpayers and students alike... http://npri.org/publications/predatory-educators

  • ||

    "My college education probably shouldn’t have been subsidized by your taxpayer dollars either."

    Not for a liberal arts degree. Maybe if you were a engeneer, or chemist though.

  • ||

    I don't think the goverment should be subsidizing education period - but if they are going to do it, then yeah, let's promote science, engineering or health care* degrees.

    *By health care, I don't mean "medical assistant" or "pharmacy technician." Those degrees (or certificates, really) are pretty much useless - anyone can learn those skills on the job.

  • Raven Nation||

    While I have some sympathy for the idea of subsidizing "useful" degrees, the problem is that once you get the government involved it all goes to hell in a handbasket pretty quickly. Every semester I get students in my office who are struggling to pass basic classes (& I'm referring to ones who are smart enough to get through). A key problem is that to get some federal funding they have to take a full-time load. But the federal funding isn't enough for them to support themselves so they end up working 30 hours a week as well & then can't figure out why two hours of study at midnight when they're dead tied doesn't get them through.

    And yes, I'm well aware as an educator, I'm sucking off the government teat. I keep reminding myself to be quietly subversive.

  • Drax the Destroyer||

    That reminds me of my engineering school days... except I paid (am paying?) for all of it myself and in order to prevent malnutrition from too much Ramen, I forced myself to work. It's good to know I'm not the only poor bastard who was in that situation. In the end, I can't help but think how much more expensive my "education" was due to the freely flowing government money pumped into our institutions. When free(thus depreciating) money is involved, everything gets more expensive.

  • Heroic Mulatto||

    Not for a liberal arts degree. Maybe if you were a engeneer, or chemist though.

    Agreed, Comrade! The Motherland needs more "engeneer" (sic) and chemists to guide the people to her glorious destiny! Za Lenina!

  • Rak||

    People are absolutely right to be concerned that their tax dollars are going to fund college educations that don’t make fiscal sense for anyone.  uae offshore company helps to prevent misuse of your tax dollars!

  • Eleven words or less||

    Not for a liberal arts degree. Maybe if you were a engeneer, or chemist though.

    That assumes that subsidizing science or engineering has some kind of a benefit. Instead, it seems that we have a glut of PhDs.

  • jtuf||

    Ironically, the useless hordes of art history majors and other liberal arts dilettantes (among whom I proudly count myself) will be left unmolested.

    Because people with useless liberal arts majors make up a disproportionately large percent of the ruling elite. People with technicolgy, math, science, and engineering degrees are able to find productive work.

  • Heroic Mulatto||

    I guess that since you're so productive, you never had time to learn how to spell.

  • ||

    I guess that since you're so productive, you never had time to learn how to spell.

    I thought that's what you were here for.

  • Heroic Mulatto||

    To paraphrase our Commander-in-Chief, I ain't yo' dictionary, nigga; spell yo' own damn words!

  • Drax the Destroyer||

    Because people with useless liberal arts majors make up a disproportionately large percent of the ruling elite. People with technicolgy, math, science, and engineering degrees are able to find productive work.

    Plus, they usually are too busy to stand outside of outrageously wasteful government institutions all week waving signs calling the fat asses inside "Nazis". Vacation hours are precious things, and most people will not waste them to ensure their blood is thoroughly boiled. I can't blame them.

  • ||

    But this problem isn’t unique to for-profit career programs.

    This is a bit misleading--what is unique is for-profits grabbing people from homeless shelters and signing them up for federal student loans to buy their product, regardless of academic ability, with no reason to believe they will ever graduate, find work, or repay the loans. http://www.businessweek.com/ma.....219731.htm
    [there are tons of articles about this from credible news sources, I just selected the first one]

    One of the things that makes capitalism great is competition. Not-for-profit universities have competition for admittance, grades, etc. For-profit universities don't--they want to maximize student enrollment. So this current gov't subsidized market is almost completely backwards.

    I'm assuming everyone here likes the idea of for-profit colleges and hates taxpayer subsidies of them. But it really seems like a senior editor at Reason is shrugging, saying "Since the state is stealing our money, we might as well let the free market steal it, too." Whether or not the free market can make a buck from Uncle Sam is not the point, the point is all that money is being taken from us at gunpoint. Whether it goes to the worst gov't program or the best capitalist venture, it's still ours, not theirs.

  • Drax the Destroyer||

    Yep. On the other hand, I think the writer has entered the cynical fatalist stage of libertarianism (like myself), where the only way out is to cause the collapse to come quicker. Death in the ensuing chaos(worst case scenario), sometimes seems preferable to being robbed behind your back on a daily basis.

  • ||

    where the only way out is to cause the collapse to come quicker.

    That sounds like some Marxist strains of thought. "Capitalism will eventually collapse and lead to Communism, so let's hurry it [capitalism] along." So, you have the seemingly odd position of a Marxist also being a strong supporter of capitalism not because he thinks capitalism is good, but because it's phase we have to get through and supporting it will cause the collapse that much sooner and usher the new golden age of communism.

  • Some Guy||

    The problem is that the system allows them to do that. Even with these new rules it doesn't seem to be prohibited.

    The solution is to stop subsidizing loans - or at the very least to do it more intelligently.

  • ||

    taking classes with names like “Art, Love, and Beauty” or “Tragedy and Political Theory”

    The latter seems like a spot-on description of events in DC since at least 2000.

  • Joshua||

    Weak article. I don't know why that qualified for more than a standard blog post.

    The obvious alternative is purely private investment in education. Why not some thought experimentation in that direction?

    By the way, I'd like to take this opportunity to thank the people of the state of Oklahoma for subsidizing my education.

  • Colonel_Angus||

    For profit degree services are the only reasonable solution to getting people the worthless paper they need to obtain a career UNDER THE CURRENT SYSTEM where the workforce market is distorted by college subsidies and the government enforcing credentialism to benefit the elitest academians.

  • Prophet||

    Not only do for-profit universities not offer useless degrees like art or history, they also don't offer useless degrees like mathematics, engineering, physics, biology, economics, and many other useless academic disciplines.

  • Drax the Destroyer||

    I'm not sure about the rest, but engineering schools/programs supposedly need to be "accredited" and the board involved would probably have a difficult time giving those for-profit scoundrels the thumbs-up. Moreover, accredidation is at least partially dependent on personnel and luring the best, tenured, fat-assed, University professors away from their tenured, fat-assed positions is easier said than done.

  • Colonel_Angus||

    This is what subsidized education and research does- it concentrates power toward arrogant academians. Look at the various engineering academic-professional organizations (really lobbying groups). They are all about keeping the PHDs in charge, increasing the schooling required, making it difficult for engineers to work within different fields, and most of all making it almost criminal for an engineer to have an oppinion on something that an enlightened better has not approved of.

  • Raven Nation||

    Not to mention academics who decry "special interests" while lobbying state legislatures to increase funding for higher education.

    Full disclosure: I'm a (voluntary) member of the local AAUP chapter based on a personal decision connected to the specific nature of employment where I work.

  • Spartacus||

    They offer whichever programs (a) are in demand (see Forensic Studies) and (b) have good margins. It is difficult to run a profitable program in any laboratory science because of the overhead for building labs (have you priced a GCMS lately ?), plus the withering maintenance costs. Business and education require little in the way of facilities and can be run with lots of part time instructors.

  • Some Guy||

    This actually sounds liek a pretty good rule (pending details), it just needs to be applied to all schools.

    Philosophy major, huh? What's 8% of a McDonald's wage?

  • Alice Bowie||

    I'm in IT.

    I see most IT jobs outsourced by 2015-20 or so. Even Project Manager positions will be shipped out. It's just much cheaper to do any job that can be done at a desk i India, China, Eastern Europe, etc.

    Any company with a sizable IT department will have to outsource in odder to compete.

    I SEE NO PURPOSE FOR THESE 'FOR-PROFIT' computer schools I see everywhere.

  • ||

    I SEE NO PURPOSE FOR THESE 'FOR-PROFIT' computer schools I see everywhere.

    Maybe it has something to do with making a profit?

  • Barack Obama||

    Let me be clear -- I am a tool of the teacher's unions.

    Now, some will say we can't keep overpaying my political allies and enabling their incompetence, but I am here today to tell you those bitter gun-clinging cynics are wrong! Yes.. We... Can!

  • Mike||

    As a financial aid advisor, I see this problem all the time. Non-resident students with a 2.0 gpa trying to get a t-com degree rack up around $35,000 per year for 4 years of getting trashed and "growing as a person." I'm guessing the education bubble is going to burst withing 10 years. Say goodbye to any value your BA had and say hello to another $100,000 in grad school debt. Yay.

  • ||

    Get govt. out of our lives. JUST LEAVE US ALONE!

  • ||

    Communist assholes. Pay fer yer own shit.

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    good article

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  • JD | Internet Marketing Tools||

    Just another part of the debt crisis getting out of hand. Good article. Thanks.

  • Helen - ultrasound courses||

    Healthcare training will soon only be affordable to the very select few, and we'll suffer the consequences in years to come as treatment costs spiral!

  • colleges for medical assistant||

    Spot on Katherine! We've already seen a huge drop in the number of medical assistants applying to training colleges.

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