* Education Dept gives colleges more time to comply
* Denies tuition aid if high pct of prior students default
* First programs to be declared ineligible in 2015
* Dept expects 5 pct of for-profit programs to lose funds
By Diane Bartz
WASHINGTON, June 2 A rule that threatens to cut
off tuition aid to some programs run by for-profit colleges was
softened in the final version issued by the U.S. Education
Department on Thursday.
Officials delayed until 2015 before a program can be denied
tuition loans over too many former students in the same course
having defaulted on their loans.
The draft rule had said students in troubled programs would
lose their aid as early as the 2012-2013 school year.
The modified final rule could give a boost to the stocks of
for-profit education companies such as Apollo Group APOL.O,
Career Education Corp (CECO.O) and the Washington Post Co
WPO.N, parent of Kaplan Higher Education.
The S&P education index .GSPEDUS of such companies gained
1.7 percent on Wednesday after it was reported the final
version of the so-called "gainful employment" rule was near.
"Many of the for-profit career colleges do a great job of
preparing students for work," Education Secretary Arne Duncan
told reporters on a conference call, but "there's been some
whose intentions we frankly doubt."
Duncan said there were "bad actors who recruit
aggressively" in the industry and he hoped to give them "plenty
of time to improve."
Nevertheless, the government expects 5 percent of
for-profit education programs to fail under its new requirement
and 2 percent of all programs, once private and public colleges
For-profit schools remain unhappy about the prospect of
programs potentially losing access to federal loans, arguing
that the proposed rule is outside the Education Department's
authority, said Harris Miller, president of the Association of
Private Sector Colleges and Universities.
The association has not decided yet whether to appeal the
rule in court, but has already filed suit against other new
rules that would curb deceptive advertising by schools and bar
recruiters from being paid based student enrollment numbers.
"Our final opinion will be based on a factual analysis on
our students and our programs," he said. "We're going to need
to trust but verify."
Miller did give the department credit for confining the
latest rule to debt used to pay for tuition, after schools
complained they should not be responsible when students take
out oversized loans to cover other expenses.
The Education Department under President Barack Obama has
been cracking down on the for-profit learning sector, arguing
that some of the vocational schools and colleges they run fail
to educate students while burdening them with unpayable debt.
Other new rules require schools to disclose graduation
rates and job placement rates to new students.
Under the latest rule, which is due to go into effect
mid-2012, at least 35 percent of graduates and dropouts of
programs must be paying back loans, or their loan payments must
equal 30 percent of discretionary income or 12 percent of total
Schools which fail to meet this standard three years out of
four will no longer be allowed to accept students who pay with
federal loans. And for the first year they fail to meet the
standard, they must tell new students of that failure.
Under the original proposal, programs would have been
barred from taking students with federal loans after just one
year of missing the target.
Students who attended for-profit schools defaulted on their
school loans at considerably higher rates than students who
went to private or publicly funded colleges and universities,
according to draft U.S. Education Department data issued last
The Education Department blames the default rate at some
schools on poor quality teaching while schools say their
students come from poorer backgrounds with fewer resources to
repay loans in a sluggish economy.
Some schools have already tightened their enrollment
standards in a move to reduce loan defaults and increase
(Reporting by Diane Bartz; Editing by Tim Dobbyn)