The Obama Administration’s Unprecedented Assault On For-Profit Education

On July 1, the Obama administration’s gainful employment rules are scheduled to come into effect. These regulations will effectively destroy for-profit post-secondary education in the U.S. — making an entire industry fall victim to President Obama’s reflexive distrust of a profit motive in education and his disturbing enthusiasm for picking winners and losers in the private sector.

At first glance, the gainful employment regulations may seem reasonable. In order for a higher-education vocational program to qualify for federal lending (the primary source of revenue for most vocational schools), students graduating the program must have annual loan payments less than 8 percent of total earnings or less than 20 percent of discretionary income. These rules will apply to vocational programs (both certificate and degree programs) at for-profit institutions and some certificate programs at two-year public institutions but will not apply at all to any degree-granting programs at public or non-profit institutions. Furthermore, these benchmarks will be based on graduates’ income earned in the three years immediately following their graduation, neglecting the positive effects a vocational degree has on graduates’ long-term career prospects.

Ostensibly, these regulations are supposed to be about holding educational institutions accountable for the education they are providing and ensuring that taxpayers are not getting a bad deal from federally-funded student loans. However, if that were the case, then why is the government exempting public and non-profit private institutions from this oversight? Clearly, numerous degree programs at four-year colleges and institutions, from social work degrees to law and medical school degrees, produce graduates whose annual loan payments well exceed the arbitrary 8 percent cutoff immediately following graduation. Yet the government does not seem to find that troubling at all.

It is important to note that in order to qualify for federal funding, for-profit institutions are monitored and accredited. This legislation expands the government’s role from regulating the quality of the education provided — the only thing students pay for — to holding these institutions responsible for students’ career outcomes. That there are many exigent factors — from structural economic realities to students’ fiscal choices — that affect graduates’ debt-to-earnings ratios, does not enter into the regulatory equation at all (despite the fact that the Department of Education itself acknowledges that external factors account for at least 44 percent of the variance in debt-to-earnings ratios).

And though public institutions are costlier to taxpayers than for-profit colleges, they are not held accountable for graduates’ career outcomes. In 2012, public post-secondary institutions received over $70 billion in direct subsidies from federal, state, and local governments (the figure is much higher today) even before including billions of dollars in federally-subsidized loans and grants that comprise a significant portion of public institutions’ tuition revenues. In return, students at two-year public institutions have a graduation rate of 20 percent, compared to a graduation rate of nearly 63 percent at for-profit institutions. Moreover, for-profit institutions take on the burden of educating far riskier and more needy students. At for-profit schools, 39 percent of students are minority, 64 percent are women, 67 percent are adult learners, and 46 percent are living in poverty — far higher ratios than their public or non-profit equivalents.

It is disturbing enough that the federal government assumes that low-income students are incapable of deciding for themselves where to study and how to manage their finances. Even sadder is that these students will suffer most when the gainful employment rule inevitably leads to mass closures of for-profit schools. For-profit colleges are more likely than their public counterparts to offer programs in the STEM fields that are most in-demand in the 21st  century workforce. Moreover, for-profit colleges are far more flexible than public institutions in offering relevant degree programs. Just 12 percent of students pursing certificates at for-profit schools could find a similar program at a non-profit institution in the same zip code. The Department of Education itself acknowledges that over 800,000 students in for-profit programs — mostly poor, minority, or adult learners — will be deprived of federal lending for their education because of these new regulations. Charles River Associates projects that number rising to between 2 and 7.5 million students when the gainful employment rule is extrapolated over 10 years.

Many for-profit colleges have already fallen victim to this administration’s witch hunt. Corinthian Colleges has declared bankruptcy after one year of intense legal and financial pressure from the government, but not before the Department of Education brokered a fire sale of 53 Corinthian College campuses for the bargain price of $17 million to ECMC, a “non-profit” student loan repayment agency that has never operated a college, has a decades-long relationship with the Department of Education, and pays its CEO a million-dollar salary. Crony capitalism at its finest. Meanwhile, for-profit schools will continue to close, billions of dollars in invested capital will be destroyed, American employers will have a harder time finding skilled labor, and millions of American students will be left without a pathway to a better career.

Patrick Elyas, Egypt/USA


Patrick Elyas is a JD/MBA candidate in the Class of 2018 at the Wharton School and University of Pennsylvania Law School. Patrick, an Egyptian-American from Los Angeles, graduated from the Huntsman Program in International Studies and Business at the Wharton School of the University of Pennsylvania in 2012. His senior thesis, "No Longer Dhimmis: How European Intervention in the 19th and Early 20th Centuries Empowered Copts in Egypt" was published in the College Undergraduate Research Electronic Journal. Patrick went on to spend two years working as a management consultant for McKinsey & Company in its Dubai office and one year in a secondment role as Chief of Staff of a U.S.-based education reform organization. Patrick has a deep interest in American and Egyptian politics and private sector development in the Middle East and Africa.

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