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Career colleges—also known as for-profit, proprietary or private sector colleges—provide an important avenue to post-secondary education and upward mobility for at-risk nontraditional student populations. The career college sector is also the country’s best hope, through its efficiency and innovation, to substantially expanding Americans’ access to the higher education that enables individuals to pursue the fastest growing and emerging occupations.
The career colleges sector is now under harsh scrutiny by Washington. The U.S. Department Education has decided that rapid growth in enrollment, rising student debt levels, and a relatively high level of default rates has created a need for new rules around “gainful employment” for graduates from career colleges. The Department’s proposed rules are not only unnecessary, they are certain to cause harm.
For decades, the Higher Education Act has required that career colleges and training programs prepare students for gainful employment in recognized occupations in order for students to qualify for federal financial aid (Title IV programs). This condition has not applied to the other channels of post-secondary education—nonprofit and public institutions. The Department is authorized by Congress to set rules on federal financial aid for education. Historically, it has never attempted to define gainful employment, but now proposes doing so in order to evaluate and sanction private sector colleges using a three-part test based on student debt-to-income levels and loan repayment rates.
The proposed gainful employment regulations were published in July 2010, but final regulations were pushed out to March or April 2011 by a flood of public comment and lobbying. The delayed rules have led to a heated debate, which has been characterized by a surfeit of confusing, frequently contradictory “report cards” on career colleges. Critics of for-profits schools have used inflammatory rhetoric, going so far as to compare career colleges with the much-maligned subprime loan industry.
The Department justifies its proposal on the grounds that, while career colleges now account for 10 percent of the nation’s post-secondary enrollment, they account for a disproportionate 23 percent of federal loan dollars and 44 percent of federal student loan defaults. However, as this paper makes clear, the Department’s case for the rule is fundamentally fl awed. Commonly drawn comparisons between career colleges and traditional schools are less meaningful than many suggest, because of the significant demographic differences in the student populations, programmatic variances, and major disparities in taxpayer subsidies between the distinct institutional sectors.