college girl with laptop - federal student aid rulesWhen the U.S. Department of Education published its new set of student aid rules recently, many education commentators saw a series of small tweaks to the current student aid system that came amid a few minor controversies -- and one glaring hole where a major controversy should have been.

That glaring hole would be the department's proposed new "gainful employment" rule on federal student aid, which regulators delayed issuing in its final form after they received some 90,000 comments -- a record-shattering number for a law-making effort in higher education -- from both supporters and opponents to the rule during the 60-day window for public comment.

The new provision, which would cut off federal financial student aid to for-profit colleges that don't properly prepare students to find "gainful employment" as defined by the department, would have been announced on Nov. 1 and gone into effect in July 2011, along with the rest of the rules package.However, in September the Department of Education announced it would hold back the final version of the "gainful employment" rule and deliberate until early 2011 for a July 2012 enactment date in the wake of the firestorm over the rule's potential effects.

The for-profit college industry, which includes extensive, well-known international school networks like the University of Phoenix and Kaplan, Inc., made headlines throughout 2010 as the Department of Education raised concerns that some for-profit schools that Education Secretary Arne Duncan dubbed "bad actors" were burdening students with excessive debt in service of short-term training programs that provided relatively worthless degrees. Portions of the new student aid rules package are intended to crack down on these programs, with the "gainful employment" rule grabbing the most attention among them.

Of course, many of the objections to the "gainful employment" rule have come from the corner of the for-profit industry, who face significant losses in federal student aid cash. But in the debate over the new provision, another, less-obvious source of resistance cropped up as well: minority leaders including the Rev. Jesse Jackson and members of the Congressional Black and Hispanic caucuses, who have criticized the rule for the potential side effect that it may cut off federal Pell Grants and other forms of aid to a disproportionate number of minority students.

In order to figure out which for-profit colleges meet its "gainful employment" criteria, the Department of Education will employ a two-part test: the first part measures students' incomes after graduation against the debt they incur in their education, and the second examines how many enrollees end up repaying their student loans on time, regardless of whether they completed their degree program. Duncan estimated in July that 5% of for-profit colleges would lose their eligibility for federal financial aid if the rule went into effect immediately.

That sounds like a relatively small number, and students might find it difficult to work up much sympathy for the for-profit college industry after an August government undercover inquiry of 15 for-profit colleges found examples at every school of campus officials lying about or misrepresenting programs to applicants; in some cases, school officials even encouraged applicants to commit fraud.

However, National Black Chamber of Commerce president Harry C. Alford, writing for online black culture magazine The Root, makes a compelling point: minority students as a group tend to need more financial aid to complete their educations, and although the rule is aimed at career-oriented schools in the for-profit college industry, 93%t of historically black colleges and universities that don't operate for profit would fail the "gainful employment" test if it were applied to them because of unacceptable student loan repayment rates.

Based on that figure, minority leaders' concerns over the new rule becomes apparent: the "gainful employment" provision might inadvertently target for-profit colleges that enroll the highest proportions of minority students, instead of simply isolating the "bad actors" that the Department of Education aims to single out.

So would the new rule only create further obstacles for minority students seeking an education? They would, according to Huffington Post education writer and documentary filmmaker Bob Bowdon. Bowdon, whose 2010 documentary about corruption in American public education, "The Cartel," received praise from outlets including the Chicago Tribune, USA Today and The Los Angeles Times, told Money College that the new Pell Grant provision would not only limit higher education choices for minority students, but make it more difficult for students to weigh their options at for-profit schools in general.

"[The new Pell Grant provision] is another triumph of the education establishment paper pushers," Bowdon said. "Rather than allowing students to make their own decisions about college, the new rule would endeavor to bureaucratize the process -- as if too few rules are the real problem faced by 21st century American students."

Still, the Department of Education seems intent on battling at least some of the more flagrant abuses in the for-profit college industry in the wake of the August investigation. Although the "gainful employment" rule nominally remains up in the air, the Nov. 1 rules package already began to tackle the for-profit issue with a provision that requires for-profit colleges receiving federal aid to get approval from the U.S. government before offering new courses, and another that strengthens the government's authority to take action against aggressive recruiting tactics and misrepresentation from for-profit college officials.

"Let me be clear: we're moving forward on gainful employment regulations," Education Secretary Arne Duncan said in announcing the revised timetable on the new ruling. "While a majority of career colleges play a vital role in training our workforce to be globally competitive, some bad actors are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use."

Of course, lest students grow too confident that the Department of Education bears nothing in mind except their best interests, Senators Richard Burr (R-N.C.)and Tom Coburn (R-OK) last week asked the department's Inspector General to probe into the possibility that employees of the department leaked the proposed student aid rules early to short-sellers who stood to profit from the for-profit college industry's decline.

Looks like the list of "bad actors" lining up to score from the for-profit college quagmire just got a bit longer.

Increase your money and finance knowledge from home

Understanding Credit Scores

Credit scores matter -- learn how to improve your score.

View Course »

How to Buy a Car

How to get the best deal and buy a car with confidence.

View Course »

Add a Comment

*0 / 3000 Character Maximum