Our system of higher education is built on the notion of risk and reward.
College students often take enormous risks when they go into debt with hopes of building rewarding and fruitful careers. But for this system to survive, it must also protect students from unreasonable risks.
That’s why the U.S. Department of Education’s proposed elimination of the “gainful employment” regulations on for-profit colleges and universities represents an existential threat to this system.
In place since 2015, the rule is intended to protect students who attend for-profit institutions by ensuring that students do not graduate with enormous amounts of debt and poor employment prospects.
The objective is to “prepare students for gainful employment in a recognized occupation.” Importantly, this rule can cut off federally guaranteed student loans to for-profit colleges — a prospect that can often be fatal to these institutions — if their students are unable to repay their loans after employment.
Having spent more than 30 years as a business executive in the for-profit corporate world, I believe strongly in free enterprise with minimum government interference. The fundamental driver of my business career was the profit motive — to maximize returns for shareholders. But after 16 years in the academy as a dean at three business schools and now as president of a small nonprofit university in Southern California, I believe that student success, not profit, should be the primary objective in higher education.
This objective does require government regulation and rules to protect our students and the system itself.
What do I find appalling? A section from a report released last October by the National Center for Education Statistics spells it out in no uncertain terms. Among students who took out loans in the 2003–04 cohort, consider the percentage of them who defaulted within 12 years:
• 17 percent for those who first attended a public four-year institution
• 18 percent for those who first attended a private, nonprofit four-year institution
• 26 percent for those who first attended a public two-year institution
• 52 percent for those who first attended a private, for-profit institution
A default rate of 52 percent is simply unacceptable.
The for-profit education sector has been battered by several highly publicized scandals. Some institutions have been accused of engaging in predatory practices, charging high tuition and making promises about jobs that they can’t keep. ITT Technical Institute shut down all 130 of its campuses in 2016, leaving taxpayers on the hook for potentially hundreds of millions of dollars in federal loans and forcing more than 35,000 students to look for other avenues to complete their educations.
My concern is that a shareholder-first, profit-motive philosophy, in a lightly regulated environment, could easily lead these institutions down a path of preying on unsuspecting students and their parents through high-pressure marketing tactics.
Those of us in higher education have a responsibility to inform consumers of our services, and be transparent about expected outcomes. In fact, I applaud the Department of Education’s proposal to update its College Scorecard to include median student debt and median earning potentials for all higher-education programs. This move will hold institutions more accountable and make it difficult for them to misrepresent program outcomes.
While I remain an ardent supporter of free enterprise and limited government, ending this gainful employment rule by the U.S. Department of Education could open the door to false promises for a new generation of students. The research and the recent negative record of many for-profit institutions are indicators of the clear and present danger of a nationwide default crisis affecting students and taxpayers alike.
In the absence of a public uproar, this important safeguard will be eliminated on July 1, 2019. Make your voice heard. The risk of inaction is unacceptably high. The proposed rule includes a 30-day comment period that will begin once it is published in the Federal Register. In the interim, an unofficial version of the proposed rule is available.
This story on for-profit colleges and policy was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for our newsletter.
David Steele-Figueredo, Ph.D., is the president of Woodbury University in Burbank, California.