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For-Profit Colleges Must Prove That Students Can Pay Back Loans

A recent US district court ruling reaffirms that the US Department of Education has a right to require colleges to prove that graduates earn enough money to pay back their student loans in order to be eligible for federal student aid dollars. This ruling is the second in a push-back via gainful employment regulations to hold these schools accountable for a return on students' tuition investment. Here's what you need to know.

A recent US district court ruling reaffirms that the US Department of Education has a right to require colleges to prove that graduates earn enough money to pay back their student loans in order to be eligible for federal student aid dollars. This ruling is the second in a push-back via gainful employment regulations to hold these schools accountable for a return on students’ tuition investment. Here’s what you need to know.

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(Photo Credit: Tax Credits/Flickr)

1. This action stems from an effort by the US Department of Education to protect students.

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The Education Department introduced gainful employment regulations because they want to hold for-profit colleges accountable for the quality of the education they provide. The for-profit college industry has been accused of overcharging students and then leaving them with debt along with insufficient skills and training for entering the job market.

2. Some wonder if for-profit colleges are unethical by nature.

Traditionally, institutions of knowledge are not for-profit, but many of these schools started to pop up around the US in the late 20th century, and today they serve hundreds of thousands of students. Some question the ethical implication of running colleges like companies – operating under the demands of investors and stockholders, for example. Critics suggest that these schools be inappropriately motivated to earn money for their investors first and educate their students second. To complicate matters, for-profit colleges can receive up to 90 percent of their revenue from federal student aid. As the debate raged, the US Department of Education started to get involved.

3. One for-profit college’s executives have been charged with fraud.

In May, the Securities and Exchange Commission charged the operator of ITT Educational Services and two of the firm’s top executives with fraud. The for-profit college company operates more than 130 campuses nationwide that offer associate’s and bachelor’s degrees in a variety of programs.

4. The new regulations are in effect, as of July 1.

The federal court that issued the ruling wasted no time instituting the regulations. They went into effect less than 10 days after the case was decided. According to the new rules, schools have to show the estimated annual loan payment of a typical graduate is not great than 20 percent of the student’s discretionary income or 8 percent of total earnings.

5. Some defend for-profit colleges, and some worry this could affect community colleges adversely.

Although the administration has said that around 99 percent of the programs affected come from the for-profit sector, concerns still exist that other career training programs from other sectors in higher education could be affected adversely by the decision. Others defend for-profit schools, viewing them as institutions that allow access to training programs for a wide range of students in need during a time when the cost of higher education has become nearly crippling.

But, ensuring that students receive a reasonable benefit from completing their training programs, that they are rewarded for the time, effort, and financial investment with better opportunities, remains an important priority for the US Department of Education.

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