Proposed new rules on borrowing have student advocacy groups, for-profit colleges at odds

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With worries about a financial meltdown of college loans on the horizon, the U.S. Department of Education has come up with a plan to limit student borrowing that also may kill programs at for-profit colleges.

The rule would end the flow of federal money to programs for which the debt incurred is too high for students to realistically repay.

The proposal has set off a firestorm between student advocacy groups and for-profit colleges that's being played out in front of the government officials. In the middle of the battle zone stands Pittsburgh-based Education Management Corp., the company that runs the Art Institute colleges as well as other for-profit schools around the country.

This battle started after the Department of Education began a process known as negotiated rule making to try to address various issues with industry representatives.

Federal officials met with representatives of colleges and advocacy groups to work out rules for some issues in higher education that are cloudy, such as how to define high school diplomas and college credit hours, and how to define satisfactory academic progress. A tentative agreement was reached on several issues.

But the hottest issue raised in the rule making procedure was one in which the department sought to define "gainful employment in a recognized occupation."

Advocates for students and those for the colleges could not agree what that should mean. Now everyone involved in the discussions is waiting to see what rule the U.S. Department of Education will propose.

The education department's original idea was to institute a rule that would not allow federal loans to be used for programs in which the average debt load of students required the graduates to pay more than 8 percent of their expected salary.

Lauren Asher, the president of the Institute for College Access and Success in Oakland, Calif., said the issue was timely because students these days have to borrow more to cover college costs than they ever did.

"Family incomes have not increased at the same pace as college costs, and grant income has not kept pace, either," Ms. Asher said. "So the amount of debt is increasing."

Even 10 years ago, she said, there were enough federal grants available to significantly cover college costs, but as college tuition has gone up, grants have not.

The for-profit sector is the target of the rule because "these are career education programs that are designed to teach students for a specific career," she said.

She is concerned about schools that pull students into seemingly glamorous careers with few prospects. Night after night she sees television commercials recruiting students to programs such as those teaching video game design, a career path with lots of training but few jobs.

Ms. Asher said more realistic programs, such as those training people for nursing, would not have a problem under the rule because they prepare graduates for a field in which the jobs are plentiful and tend to pay more than $60,000 a year.

She said both students and the taxpayers who wind up footing the bill for the federally guaranteed students loans that go unpaid should be assured that a student who looks to improve his job prospects in a career program won't wind up owing exponentially more than that job would ever pay.

The rule on gainful employment would not apply to nonprofit colleges, so the $40,000-a-year bachelor's degree in philosophy is still safe.

"We just think it's poor public policy," said Anthony J. Guida Jr., a senior vice president of Education Management Corp., which is headquartered Downtown and owns the Art Institute.

Mr. Guida said the gainful employment rule is biased against programs that offer degrees instead of certificates. He noted a full-degree program takes longer to complete, and thus the student also leaves with more debt.

"Ninety-two percent of our students are in degree programs," he said. Argosy University, which has a number of U.S. campuses and also is owned by Education Management, offers graduate degrees; yet, he said, the gainful employment rule favors the shorter certificate programs.

Mr. Guida conceded that private for-profit colleges tend to be more expensive than public colleges, such as Indiana University of Pennsylvania, which receive state subsidies.

But, he said private for-profit colleges, which charge an average cost of $81,000 for a bachelors degree, were more affordable than private nonprofit colleges, such as Carnegie Mellon University or Robert Morris University, where degrees cost an average of $102,000.

"If, as a nation, we're trying to lead the world" in education, Mr. Guida said, "why would the Department of Education propose a rule that is biased against degrees and blind to academic achievement?"

He said the rule, which has not been formally proposed, but was suggested during the rule-making discussions, would mean that 360,000 students would not be able to attend for-profit schools. Many of those students are from low-income homes.

Ms. Asher also points to the income levels of students who attend for-profit colleges to show they cannot handle the debt-to-earnings ratio that they will be carrying after graduation.

The formula suggested by the Department of Education would determine the average debt level of students for a particular program based on the average of three years worth of students graduating from a program.

The employment earnings for occupations are based on numbers obtained by the federal Department of Labor's Bureau of Labor Statistics. Under that formula, aid would stop for students who will wind up having to come up with more than 8 percent of their earnings for loan repayments.

Mark Kantrowitz, a financial aid counselor in Cranberry and the publisher of the college financing advice website, said the 8 percent threshold for cutting off loans was too low.

He said the ability to repay loans falls off dramatically at 13.8 percent of earnings, so the 8 percent rate should be raised, which would allow more programs to survive. He expects a draft rule to be issued by the Department of Education this summer.

"The 8 percent rate would eliminate bachelor degree programs at every for-profit college," Mr. Kantrowitz said. "Somewhere between 10 and 15 percent would be an appropriate number."

Currently, he said, there are no limits set on what colleges can charge for their programs, so students just keep borrowing more and more.

He has his own guidelines for what students should borrow. By his standards, students should not borrow more than their expected annual salary. A student with a reasonable expectation of earning $40,000 a year should not take out more than $40,000 in loans.

One of his more general rules is not to borrow more than $25,000 to finance an associate's degree or $45,000 for a bachelor's.

Mr. Guida would like to see more disclosure to students about what their debt will be when they graduate and let them make an informed decision about whether the degree is worth the cost.

He said a college financial aid counselor should sit down with each student and family and go through the numbers: "This is what your debt payments are going to be in relation to your starting salary."

Then, he said, students can decide.

Ann Belser: or 412-263-1699.


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