(Reuters) – The Department of Education has briefly delayed proposing “gainful employment” rules that investors in for-profit colleges feared could have cut off federal grants and loans to students.
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Under proposals unveiled on Tuesday, the department partially addressed the issue by requiring for-profit schools to release data to students on graduation and job placement rates.
But it stopped short of requiring for-profit institutions to demonstrate that they prepare students for jobs before students would be eligible for federal grants and loans, a step advocated by Robert Shireman, a deputy undersecretary at the Department of Education.
Education Secretary Arne Duncan said in a statement that the gainful employment issue was complicated: “we want to get it right so we will be coming back with that shortly.”
Proposals affecting all colleges and universities would tighten rules against deceptive advertising and would close loopholes on paying recruiters in hopes of removing incentives for them to enroll unqualified people or deceive prospective students.
The institutions would be required to ensure that their students have a valid high school diploma or otherwise show that they are ready for college.
Shireman has repeatedly called for tightened regulation of companies such as Corinthian Colleges Inc and Career Education Corp.
Shares in the for-profit sector got a boost last month on word that Shireman plans to step down on July 1, although he will remain an advisor to the department.
Jeff Silber, a stock analyst with BMO Capital Markets, said a delay in the gainful employment rule should be welcomed cautiously.
“If this thing is being delayed, it doesn’t mean that it’s going away,” he said. “I don’t think it’s bad news. (But) I wouldn’t declare victory here.”
Corinthian Colleges spokesman Kent Jenkins called the announced rules and the delay on gainful employment “a step in the right direction.”
“We don’t know where they will come down (on gainful employment) but the fact that they are being very careful and very cautious speaks well for them,” he said.
Efforts to reach other for-profit schools for a reaction to the proposed rules were unsuccessful.
The schools, which offer higher education programs in fields like healthcare and criminal justice, have been criticized for their student loan practices and the quality of the education students receive.
The for-profit industry has also been criticized because students, who tend to be low-income, are most likely to end up with outsized — and sometimes unpayable — debt.
Fifty-three percent ended up owing more than $30,500, compared with 12 percent for students who attended a public four-year college, according to a study by the College Board.
U.S. Senator Tom Harkin, an Iowa Democrat, said he was pleased with the announced rules.
“The federal government must ensure that the more than $20 billion in student aid that these schools receive is being well spent and students are being well informed and well served,” he said. “For-profit colleges must work for students and taxpayers, not just shareholders.”
The draft regulations will be put out for public comment on Friday. There will be a 45-day comment period. The goal is to issue a final rule by November 1, which would go into effect on July 1, 2011.
(Reporting by Diane Bartz and Amulya Nagaraj; Editing by Tim Dobbyn)
