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Examining Gainful Employment in Career Education

The effectiveness and approach of for-profit colleges has been questioned, resulting in efforts to define the legal requirement that the programs lead to gainful employment.

Carl Tabb, a 36-year-old father of 10 who hopes to earn a bachelor's degree in information technology from the University of Phoenix, takes apart a computer as his children watch. (AP/Jeff Roberson)
Carl Tabb, a 36-year-old father of 10 who hopes to earn a bachelor's degree in information technology from the University of Phoenix, takes apart a computer as his children watch. (AP/Jeff Roberson)

Earning a college degree or other postsecondary credential is critical to achieving economic mobility. Career-focused education programs, often run by for-profit colleges, are eligible to participate in federal student-aid programs with the expectation that they will help students achieve meaningful employment after graduation. Unfortunately, some for-profit colleges have taken advantage of students by promising postgraduation employment but instead leaving them worse off, saddled with debt and no job prospects.

Consider a recent story in The Boston Globe: A student comes to Boston to get a college degree and graduates from a for-profit college owing more than $180,000 in student loans with little hope of being able to repay them. Or this example: A former service member who spent seven years in the military nearly exhausted his G.I. Bill benefits and took out an additional $40,000 in student loans to attend a for-profit college. Later, he learned that the school’s recruiter deceived him, and the degree he earned was worthless for the career in law enforcement that he wanted to pursue. Or this: A veteran suffering from post-traumatic stress disorder enrolled in an online photography program from a for-profit art institute. But he failed to complete his degree because the institution did not provide the kind of supports he needed to leverage his veterans benefits along the way.

All of these stories have one thing in common: The students attended for-profit colleges.

These institutions should be judged based on their performance in preparing students for employment. This ensures that poor performing programs, with a minimal return on investment, improve or cease to receive support under the federal student-aid or G.I. Bill programs.

Studies by reputable organizations, such as the National Bureau of Economic Research, found that students from for-profit colleges have higher unemployment rates, make roughly $2,000 less annually than students from other types of institutions, and leave with far greater burdens of student debt. The Senate Health, Education, Labor and Pensions, or HELP, Committee found that for-profit schools fail to create meaningful outcomes for students and waste billions in federally funded financial aid dollars annually. Additionally, the U.S. Department of Education found that students from for-profit institutions default at much higher rates than students that attended comparable public and private nonprofit institutions and that nearly half of a defaulters had attended for-profit schools. The department’s data also demonstrate that students enrolled at for-profit colleges are much more likely to be low income: 61 percent of those students come from families with incomes below 150 percent of the federal poverty line compared with 38 percent at public and nonprofit colleges.

Today, U.S. Secretary of Education Arne Duncan published the final regulation implementing the Higher Education Act of 1965. The regulation defines what it means to provide an educational program that leads to gainful employment in a recognized occupation. The regulation will lead to greater accountability for institutions of higher education while creating better value for students.

Since the 1970s, career-oriented educational programs have been required to prepare students for employment in a recognized occupation in order for the programs’ students to be eligible to receive federal student aid. However, there was no attempt to define the term “gainful employment” until President Barack Obama took office. In 2009, he committed to ensuring the highest levels of accountability and integrity in the expenditure of federal funds by, for example, requiring lobbyists to put requests for funding in writing and requiring federal officials to disclose any meetings they held with a lobbyist. But how could the issue of accountability and integrity be assured in programs that provide funds directly to individual students? This dilemma gave rise to a set of program integrity rules that included gainful employment in a recognized occupation.

Today’s final regulation is actually the administration’s second attempt at defining the phrase. The administration ran into roadblocks in 2012, when the first gainful employment rule was defeated in a lawsuit brought by the Association of Private Sector Colleges and Universities, an organization that represents for-profit schools. Without a clear standard for assessing gainful employment, the requirement that for-profit colleges adequately train students for a job in a recognized sector of the economy could not be enforced.

However, as a result of other regulatory changes, increased options, more informed consumers, and aggressive enforcement action by state attorneys general and the U.S. Department of Education, there have been significant positive changes in the for-profit industry. In 2010, for example, the Obama administration reinstated a strict prohibition against paying recruiters a bounty for the students they enroll. It explicitly banned the kind of misleading advertising that led the veteran to enroll in the criminal justice program that did not appropriately prepare him to become a police officer; it also required disclosures about the outcomes for former students, leading to greater transparency and allowing students to more effectively compare programs.

In addition, over the past several years, state attorneys general have brought lawsuits against for-profit colleges that lured students into programs under false pretenses of high earnings that did not materialize. Other lawsuits targeted programs that falsified records sent to accreditors, states, and the U.S. Department of Education that listed jobs held by graduates; these colleges overstated graduates’ ability to get the very jobs for which their programs ostensibly prepared students.

Aggressive enforcement by the U.S. Department of Education has played a significant role in ending the deception and poor outcomes faced by so many low-income students. Trace Urdan, an analyst with Wells Fargo Securities LLC who follows the for-profit education sector, noted that a specific enforcement action by the department against Corinthian Colleges Inc. was a “big deal.” Urdan went on to say, “people who want to isolate it and say that it only applies to Corinthian are kidding themselves. … Everyone has to be more careful with their cash and take their interactions with the department more seriously.”

Enrollment at 2-year and 4-year for-profit colleges has fallen 10 percent since 2010, and tuition and fees have declined 15 percent in terms of real dollars since 2006. In addition, graduation rates at for-profit, bachelor’s-degree-granting colleges have stabilized for first-time, full-time undergraduates—not the majority of students at these institutions. Previously, these rates declined horrifically from 46 percent in 2004 to 32 percent in 2010.

Hidden within the national statistics are encouraging signs: For-profit colleges and universities are working to improve the value they deliver to students. For example, Strayer University announced last fall that it will reduce tuition 20 percent beginning in the 2014 winter academic term. In part, this reflects growing market pressure, as new and existing online providers—such as the University of Maryland University College and Southern New Hampshire University—offer high-quality programs that give students more options. A number of for-profit colleges have also begun to offer free trial periods that allow students to test-drive their program before spending any money. The negative attention and the prospect of additional oversight and regulation undoubtedly influenced the drive to make improvements.

It is important keep up the pressure, and the gainful employment rule that the Obama administration published today does just that. Under the regulation, each program will be evaluated by examining graduates’ incomes and debt levels several years after graduation to determine whether or not the program prepares students for gainful employment. The regulation also requires institutions to provide all students with important information about their programs, including the institution’s success in retaining and graduating students, the student-loan repayment rates for graduates and other former students, the amount of debt with which their graduates and other former students typically leave, and what their former students earn.

In writing this rule, the Obama administration has worked hard to produce a balanced rule that does not condemn for-profit colleges but instead accepts the premise that they can dramatically improve and better meet the needs of students. Undoubtedly, for-profit colleges will fight the rule in court, but they run the risk that the next regulation will be stronger still than the one published today. Over the course of the past few years, policymakers and the public alike have learned more about how some students have been harmed rather than helped by enrolling in for-profit colleges. As a result, the regulation published today is significantly stronger than the one struck down by a federal judge in 2012.

Some advocates for students will no doubt argue that the rule should have been stronger, but there is value in striking a middle ground. The best rule is one that shutters bad programs while giving for-profit colleges incentives to improve the performance of their programs. Since 2010, there has been evidence of a ripple effect based on the prospect of a future rule. This rule will keep the pressure on for-profit institutions to improve—and the nation’s students will be better served as a result.

David A. Bergeron is the Vice President for Postsecondary Education at the Center for American Progress.

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David A. Bergeron

Senior Fellow