As Public Schools Face Cutbacks, Federal Funds Flow to For-Profits

While state and local governments cut back funding to public higher education institutions, the volume of federal government subsidies to for-profit colleges and universities continues to increase, reports Floyd Norris in today’s The New York Times.

And community colleges — which, as we reported two years ago in College Inc., were already struggling to keep up with the number of students who want to take classes — are facing some of the most severe cutbacks.

“That trend has been welcome news to the proprietary colleges,” writes Norris, who cites Kevin M. Modany, the chief executive of ITT Educational Services, as describing an improving “competitive landscape” for the for-profits.

The Obama administration has written rules to keep loans from going to students at the most exploitative for-profit schools. The new rules, which were weakened after a furious lobbying fight, require for-profits to meet at least one of the following three requirements to be considered able to offer “gainful employment” and qualify for federal aid:

• At least 35 percent of former students must be repaying their loans, reducing the loan balance by at least one dollar.
• A typical graduate’s estimated annual loan payment cannot exceed 30 percent of their income, or
• A typical graduate’s estimated annual loan payment cannot exceed 12 percent of their earnings.

Schools will only be disqualified from federal student aid programs if they fail the debt measures three times in a four-year period, instead of losing eligibility immediately.

The Association of Private Sector Colleges and Universities, a trade group, has sued to block the new rules, arguing the Department of Education “exceeded its statutory authority” with the gainful employment regulations.