New Federal Regulations Target For-Profit Colleges

The U.S. Department of Education on Thursday will release finalized regulations targeting for-profit colleges that give the government a stronger hand overseeing the fast-growing sector — including new rules reining in how recruiters are paid and a controversial attempt to define credit hours.

Still to come early next year is the most fought-over proposal: a rule that would cut off federal aid to college vocational programs with high student-debt levels and poor loan repayment rates.

The department put off finalizing those "gainful employment" regulations until early next year, although Thursday's package of rules includes one scaled-down gainful employment provision that has eased industry worries.

A full review will not be possible until the final regulations are published online Thursday and in print Friday in the Federal Register. But department officials are portraying themselves as good listeners, saying they made 82 changes in response to comments and criticisms of 13 new "program integrity" rules that will go into effect in July 2011.

"These new rules will help ensure that students are getting from schools what they pay for: solid preparation for a good job," Secretary of Education Arne Duncan said in a statement.

On recruiter pay, admissions officers at for-profit colleges have been barred since 1982 from receiving incentive pay based on securing enrollments. But since then, a dozen loopholes have been put in place allowing the practice, with limits.

The regulations to be released Thursday will eliminate such "safe harbors."

"It closes the loopholes that led to boiler room-style sales tactics at some colleges, with recruiters doing and saying whatever it took," said Pauline Abernathy, vice president of the Institute for College Access & Success, an advocacy group for tighter regulations.

Other new regulations strengthen the department's authority to take action against schools engaging in deceptive advertising, marketing and sales practice. Those are common complaints against for-profit colleges, which are facing intense scrutiny this year for their huge reliance on federal aid and high student-loan default rates, among other things.

Industry officials are eager to see specifics on the department's attempts to define a credit hour, the metric used to determine a student's eligibility to receive federal aid. The education department said a standard definition is necessary because some schools are gaming the system, inflating student credits to get more federal money.

The regulations define a credit hour and establish procedures for accrediting agencies to determine whether an institution's assignment of credit is acceptable, the department said.

Although the department said it is not intruding into academics, others say they are not so sure.

"It's quite likely they've federalized the definition of credit hour," said Terry Hartle, senior vice president of government and public affairs for the American Council on Education, an umbrella group that represents higher education. "Our position is that no successful and diverse industry is improved by federalizing important aspects of it."

The education department significantly scaled back one part of the gainful employment rule, doing away with a proposal that would have required schools wanting to start aid-eligible occupational programs to provide five years of enrollment projections and get documentation from employers showing the curriculum aligns with job needs.

Under the final regulations, schools instead will be required to notify the department 90 days in advance of starting a new program. If the department has concerns, schools will be asked to apply for new program approval, a scenario department officials said would be rare.

The department said it was important to get that on the books by next summer, because the full gainful employment regulations are not scheduled to go into effect until summer 2012.

Otherwise, institutions could quickly start new programs or restructure existing ones, eliminating a data trail and skirting the new rules, the department said.

Harris Miller, CEO of the for-profit college industry's main lobbyist, Association of Private Sector Colleges and Universities, called the change "a much more reasonable and pragmatic approach."

Lanny Davis, a lobbyist for a group for several large privately held for-profit colleges, called it a step in the right direction.

Earlier Wednesday, Davis held a conference call criticized the original proposal, saying it would block career college students from learning about new technologies and getting training for green jobs.