Feb 05, 2014 - 11:30am

Will New Department of Education Regulation Stifle Higher Ed Opportunity?

Univ. of Phoenix.JPG

Photo: Joshua Lott/Bloomberg

Speaking at the University of Michigan last January, President Obama made the case for more affordable college education as a key to economic advancement. The president spoke movingly of how higher education opportunities were central to his and Mrs. Obama’s successes.

“The only reason that we were able to achieve what we were able to achieve was because we got a great education. That’s the only reason,” he said. “And we could not have done that unless we lived in a country that made a commitment to opening up opportunity to all people.”

But a proposed regulation from the Obama Department of Education would undermine educational opportunity for millions of American students. It’s known as the “gainful employment rule,” and like many misguided federal rules, its innocuous name belies its true nature. The rule would rate for-profit educational programs based upon student debt ratios, loan repayment rates and other metrics. Programs and institutions that fail to meet the government’s standard would see cuts to federal financial aid for students.

But critics of the rule note that it would be destructive to private-sector educational institutions. The Obama administration has trained its sights on the burgeoning “for profit” sector, such as online universities. But the rule would also strike at a wide array of existing two-year schools and vocational progams—think barber and cosmetology schools, massage schools, technology programs, and training programs for welders, auto mechanics and HVAC technicians.

Under the “gainful employment” rule, these schools would be rated based on their students’ debt and income after leaving the program—even students who drop out and fail to complete their course of study.

Supporters of the rule argue the new regulation is needed to “rein in” private-sector educational institutions, which they accuse of saddling students with large amounts of debt and few job opportunities. Of course, the same could be said of many public sector institutions, law schools and virtually all post-graduate humanities programs, none of which would fall under the “gainful employment” rule’s purview and many of which would fail to meet that test.

There’s little question that college affordability and student debt are serious problems.

A study published this month by the New York Federal Reserve found that an estimated  “70 percent of U.S. students who graduated in 2012 had student loan debt, with the average borrower owing $29,400, up from $26,000 the previous year,” while the job outlook for new graduates remains grim, Reuters reports.

But rather than seeking wide-ranging reform of the federal student loan process to protect students across the board, the Obama Department of Education is seeking to scapegoat and target a narrow sector of the higher education world.

Bob Kerrey, a Democrat who served as governor and U.S. senator from Nebraska and former president of New York’s New School, and Jeffrey T. Leeds, president of Leeds Equity Partners, rightly describe that approach as “incoherent” in a recent op-ed for The Wall Street Journal.

“Clearly, if [Education Secretary Arne] Duncan really believed that the proposed regulations would make college more affordable, he would apply the rules to all institutions of higher education, regardless of their tax status,” Kerrey and Leeds write. “Not doing so is incoherent public policy. It betrays a bias against private enterprise. And it's unfair: Since when did being a business land you in the penalty box?”

Which is not to say that private-sector programs are without flaws. A November study by economists with the New York Federal Reserve Bank explored both the promises and challenges of for-profit education.

Among their findings were that while graduation rates at private-sector educational institutions were “respectable,” there remain questions about earnings and student debt loads. But even so, the Fed researchers wisely note that it’s “too early to pass judgment on the sector.”

“Their remarkable enrollment growth during the Great Recession suggests that for-profits have allowed laid-off workers to train in new skills, and young adults to receive a college degree, which they may not have otherwise accomplished,” economist Rajashri Chakrabarti and senior research analyst John Grigsby writes. “As the economy evolves and recovery takes hold, it remains to be seen how the increase in enrollment will affect human capital formation and, by extension, our economy.”

The fact is that the dramatic growth of private-sector educational institutions has stemmed from strong consumer demand from non-traditional student populations seeking an avenue to develop new skills and expertise. And by fostering competition and expanding opportunity within the higher education sector, these programs have served as real drivers of innovation.

But the “gainful employment” rule would jeopardize that role, Chamber President and CEO Tom Donohue suggested in his State of American Business speech on January 8, emphasizing the valuable role that for-profit education plays in extending opportunity to less privileged students.

“These institutions can play a major role in helping our nation close a serious skills gap,” Donohue said. “We’re going to do everything we can to change or stop the rule as it is currently written.”

In their Wall Street Journal piece, Kerrey and Leeds suggest “gainful employment” is yet another unwelcome top-down mandate that would decrease educational opportunity while failing to rein in costs—a cure worse than the disease. They suggest the rule would distort the education sector in the same way that Obamacare is distorting the health care market.

“And as with ObamaCare, the federal government is insisting it knows better, will do better, and gets to make not only the rules, but the decisions previously made by individuals with their families,” Kerrey and Leeds write. “The gainful employment rules will, in fact, make it harder rather than easier for low-income families to send their kids to college.”

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