Higher Ed | Daily Report

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The U.S. Department of Education last week released revised regulations on "gainful employment" – rules designed to hold for-profit colleges and some vocational programs at nonprofit universities accountable for their students' debt levels and employability.

Even though the rules have been widely viewed as weaker than earlier drafts, for-profit college officials and lobbyists still oppose them. Part of their argument has been that their students have more trouble repaying their loans because their colleges enroll more low-income and minority students – not because their programs are weaker or less effective.

But the Education Department did a regression analysis that suggests there's only a "modest relationship" between repayment rates and an institution's demographics.

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Under the new regulations, to qualify for federal financial aid, a program would have to meet one of three requirements:

• At least 35 percent of former students are repaying their loans.
• A typical student's annual loan payment is no more than 30 percent of his or her discretionary income.
• A typical student's annual loan payment is no more than 12 percent of total earnings.

Several critics of for-profit colleges, such as the Institute for College Access and Success, said the rules didn't go far enough [PDF] to hold poor-performing programs accountable. A handy chart by Inside Higher Ed helps explain how the new rules are more lax than the earlier proposal.

Meanwhile, the Association of Private Sector Colleges and Universities maintained its position that the Education Department is outside its statutory authority and will penalize programs that have "great outcomes" while allowing under-performing programs to continue, according to a release on the organization's website.

The Education Department received more than 90,000 comments on the draft proposal published last summer. According to an analysis that accompanied the regulations released June 2, the impact of the rules on low-income students was a hot topic among commenters.

"Several commenters observed a link between the demographics of an institution's student population and either its repayment rate or its debt-to-earnings ratios," the report reads. "Some commenters believed that the debt measures are primarily determined by the characteristics of a program's student body."

The for-profit sector has made the same argument about the rates of students who default on their student loans. In an interview with California Watch last fall, Kent Jenkins Jr., a spokesman for Corinthian Colleges Inc., said that default rates have much more to do with student demographics than they do with the institutions themselves.

He was responding to news that a Corinthian-owned campus, Everest College in San Bernardino, had the highest default rate of any college in the state. But the data showed another college with similar demographics and program offerings in the same city had a dramatically lower student loan default rate.

And now the Education Department has done its own regression analysis illustrating that the percentage of students receiving Pell Grants – federal loans for low-income undergraduates – explains about 23 percent of the total variance in loan repayment rates. The percentage of minority students only explains 1 percent of the total variance in repayment rates.

As Erin Dillon, a senior policy analyst at Education Sector put it, "That leaves a lot of variation unexplained – variation that might, just maybe, have to do with the quality of the education and the value of the degree students receive."

Curious about student loan repayment rates? The Education Department last year released repayment rates that give a general idea of how many students at different colleges and universities are paying down their student debt one to four years into repayment, a sample of which is provided below.

But it's important to note that these rates are not going to determine the impact of the gainful employment regulations on any institution. For one thing, the rules will look at repayment rates at the program level (for example, how many culinary arts students are repaying their debt), not at an institution level. And the new regulations changed the way the repayment rates are calculated.