For-profit education rule heads for final U.S. review

WASHINGTON (Reuters) - The U.S. Education Department has sent the final version of a controversial rule aimed at reining in low-quality trade schools and colleges to the White House budget office for review, an agency spokeswoman said on Tuesday.

The for-profit education lobby and the Obama administration have been in a pitched battle over rules designed to curb student loan abuses.

The "gainful employment" regulation is the last of many rules introduced by the Education Department to be finalized. The goal of this and other rules is to make for-profit schools such as Apollo Group's University of Phoenix more accountable for the billions of dollars of taxpayer money used to fund student loans.

In its original form, the rule would make a school program ineligible to accept students paying with federal loans if fewer than 35 percent of former students are paying them back after three years. An exception would be made for programs where students are able to pay back loans, but fail to do so.

The Education Department spokeswoman said she did not know when the final version of the rule would be announced. It had been expected early this year.

Rules are often weakened between the announcement of the first draft and implementation of the final version.

The White House budget office reviews proposed regulations to ensure they meet regulatory principles and policies. When an initial draft of the gainful employment rule was submitted to the Office of Management and Budget on October 15, the review took about 10 days.

The Education Department has already finalized rules banning the practice of basing recruiters' pay on how many students they enroll and requiring disclosure of graduation rates and job placement rates to new students.

For-profit colleges have been lobbying heavily over the last few months to get the gainful employment rule scrapped or weakened.

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

Some have already tightened their enrollment standards in a move to reduce loan defaults and increase graduation rates.

Apollo Group, the biggest company in the sector, said it saw a 45 percent drop in new enrollments in the quarter ended on February 28.

With enrollments down, Apollo, Career Education Corp and Washington Post's education unit Kaplan Higher Education have all cut jobs.

The Standard & Poor's education index was up 0.3 percent in afternoon trading on Tuesday, while the broad S&P 500 stock index fell 0.6 percent.

(Reporting by Diane Bartz and A. Ananthalakshmi; Editing by Lisa Von Ahn)