Lawmakers protest for-profit schools rule

WASHINGTON (Reuters) - A bipartisan group of 113 lawmakers has written to President Barack Obama, urging the withdrawal of a rule aimed at reining in for-profit trade schools and colleges.

The for-profit school sector has been battling the Education Department's so-called "gainful employment" rule that would refuse federal loans to students if former students in the same programs fail to pay back loans.

The department accuses some schools of helping students apply for federal loans and then failing to educated them.

"While the regulations attempt to address real problems, they miss the target," the lawmakers wrote in the letter. "Instead, the implementation of these new rules will be so burdensome and the projected impact so broad that many reputable schools, particularly those serving the most at-risk students, will be adversely impacted."

They argued that poor and part-time students disproportionately opt for the for-profit schools, and these students would be hardest hit if the schools were declared ineligible for loans.

The proposed regulation would make a school program ineligible to accept students paying with federal loans if fewer than 35 percent of former students are paying back loans after three years. The rule is slated to take effect in mid-2012.

Losing access to the loans could put some schools out of business.

Lawmakers that signed the letter include Democratic Representatives Alcee Hastings, Carolyn McCarthy and Jim Matheson, along with Republicans, including Virginia Foxx, Michele Bachmann, Vern Buchanan, Jeff Flake, Howard P. "Buck" McKeon and Ron Paul.

According to Education Department data, 25 percent of students who either graduated or dropped out of for-profit schools in 2008 defaulted on their loans within three years, compared with 10.8 percent of public schools and 7.6 percent of private schools.

The department has finalized other rules aimed at reforming the sector, including a rule to ban the practice of basing recruiters' pay on how many students they enroll.

Other new rules require disclosure of graduation rates and job placement rates to new students and strengthen the department's hand in taking action against schools that fail to advertise honestly.

Schools are responding to the proposed rules by tightening up on enrollments, which is hurting their bottom line.

Apollo Group, the biggest company in the sector and owner of Phoenix brand schools, said it saw a 45 drop in new enrollments in its fiscal second quarter that ended February 28.

New enrollments at Apollo have dropped by an average of 32 percent over the last three quarters.

Other companies in the for-profit education sector include Career Education Corp, which owns the Sanford-Brown schools; Corinthian Colleges, DeVry Inc; Education Management Corp and ITT Educational Services.

(Reporting by Diane Bartz; Editing by Tim Dobbyn)