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New rules to clean up for-profit schools

A University of Phoenix sign.

TEXT OF INTERVIEW

TESS VIGELAND: If you find yourself awake in the middle of the night and you pad out to maybe watch a little TV, you are almost guaranteed to come across something like this: For-profit colleges promising career training and a better life. But critics of these schools say their students often leave with a lot of debt and not a whole lot to show for it. The Obama administration just released a bunch of new rules aimed at these colleges.

Our Education correspondent Amy Scott joins us from WYPR in Baltimore. Hi Amy.

AMY SCOTT: Hi Tess.

VIGELAND: So tell us a little bit about these new rules. What will these for-profit colleges have to do differently?

SCOTT: Well starting next July, they'll have to disclose their graduation rates and job placement rates so students have a better sense of what they're getting for their money. They'll also no longer be able to pay their enrollment counselors or financial aid officers based on the number of students that they get to sign up. There have been a lot of reports in the last year, including on Marketplace, of aggressive and sometimes deceptive tactics to get students enrolled in these schools. Here's one example we heard in an investigation with ProPublica last year. This is a former admissions counselor at the University of Phoenix named Brandon Burke.

Brandon Burke: One thing we would be told to do is call up a student who was on the fence and say, "All right, I've only got one seat left. I need to know right now if you need me to save this for you." Well, that wasn't true.

VIGELAND: Wow.

SCOTT: And there have been other accounts of students being misled about financial aid or whether their credits could transfer to other schools, their job prospects upon graduation, and so these new rules are meant to clean up some of those projects.

VIGELAND: But I understand that the most controversial rule was put off for a while?

SCOTT: Right. This one is called the gainful employment rule because these career-training programs are supposed to prepare students for gainful employment. There was a proposed rule that programs could lose access to federal aid if too many of their graduates don't earn enough to pay off their loans. Now the Department of Education got more than 90,000 comments from the public on that rule, and after some heavy lobbying by the industry, the department said it would spend a little more time finalizing it. It's now due out next year and will take effect in 2012.

VIGELAND: So what does this mean for the students?

SCOTT: The for-profit college industry warns that it will limit access to college. I talked to one graduate of a for-profit college, American Military University. John Duffy of Crewe, Va., worked full time and he says programs at other community colleges and other state schools he looked at didn't really work for him.

JOHN DUFFY: With the online private college, I was able to go to school on my schedule, still work, still take care of my wife and children, our responsibilities, and still finish my degree. It just took me longer, and of course cost more money.

That degree cost Duffy about $23,000. All of it paid for with federal loans. But he says that's a choice that he should be allowed to make. And the industry is warning that a lot of programs could be forced to shut down as a result of the gainful employment rule. And the rules are already having an impact. The University of Phoenix and others are tightening enrollment standards even before the new rules kick in.

VIGELAND: Well, Amy, let me ask you this. The gainful employment rule, why is that only being targeted at for-profit colleges? I mean, there are plenty of students out there from UCLA down the street to Harvard, where students are spending ungodly amounts of money on degrees, and they're not going to get jobs where they can easily pay that back.

SCOTT: This gainful employment rule only applies to for-profit colleges and so-called non-degree programs, so Harvard isn't going to offer something like that. But their real target is definitely these for-profit schools. And there are a few reasons for that. For one, many of these schools make 80-90 percent of their revenue from federal student aid programs, like the Pell Grant and various loan programs. And their students are much more likely to default on their loans, so the taxpayer's under consideration here. Also career colleges advertise as just that, their whole purpose is to prepare students for jobs. So that's why they're being held accountable if those jobs don't pay enough so that these students can afford their loans.

VIGELAND: I guess with a traditional university or college, they're preparing you for... life?

SCOTT: Well, you could say there may be some other reasons some people go to a more expensive college. But it's a good point, and Republicans in Congress have been saying 'Why aren't we paying more attention to traditional higher ed too and what those schools are delivering to their students?' And with the change in power this election, we may see more scrutiny of all kinds of higher ed.

VIGELAND: All right. Marketplace's Amy Scott. Thank you so much.

SCOTT: You're welcome.

About the author

Amy Scott is Marketplace’s education correspondent covering the K-12 and higher education beats, as well as general business and economic stories.

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