Congress needs to regulate for-profit colleges

A week after the Department of Education issued watered down rules regulating for-profit colleges, the New York Times urges Congress to step in with tougher regulations.

The Obama administration is right to tighten rules for for-profit colleges, which have come under scrutiny for deceptive practices and burying students in unreasonable debt. But the Department of Education is limited in its regulatory authority. It is up to Congress to rein in abuses by toughening the laws that govern this industry.


The for-profit system, which enrolls only about 12 percent of all students in higher education, absorbs about a quarter of the federal government’s $155 billion student aid budget. These schools, some of which get as much as 90 percent of their money from federal student aid, earn a profit partly by charging higher tuition than public colleges and by driving their students into debt. Among bachelor’s degree recipients, for example, nearly a quarter of 2008 graduates from for-profit colleges owed $40,000 or more, compared with just 6 percent of graduates from public colleges.


According to Congressional testimony this week, the debt burden is higher because for-profit schools sometimes encourage students to borrow privately from the school, rather than from federal programs, which often have lower rates and loan forbearance for those who fall ill or become jobless. The private loans are often subprime, with high rates and almost no consumer protections.


Even though the for-profit system serves only a little more than a tenth of those in postsecondary education, it accounts for nearly half of student loan defaults. The losses are generally of little concern to the companies themselves, because most of the tuition is paid by federal loans backed by the taxpayer. The defaulting students often end up with their lives in financial ruin.


Bankruptcy makes it possible to escape credit card and gambling debt but nearly impossible to escape student loan debt. As a result, students who default on school loans may never be able to have that weight lifted and can end up with creditors garnishing their wages.


The Obama administration has tried to address these problems with new rules to make programs with especially high levels of student debt and very low repayment rates ineligible for federal student aid. But these rules are insufficient.


Congress should rewrite the law so that the Department of Education is allowed to consider a school’s student loan default rates over a period of up to a decade or more in determining sanctions. Similarly, Congress should make it illegal for companies to drive students into costly private loans when they are eligible for more affordable, federally guaranteed loans.