The federal government will soon start cutting off financial aid to career colleges that saddle students with excessive debt in exchange for worthless degrees or certificates.
The controversial "gainful employment" regulation, which goes into effect Wednesday, mostly targets expensive for-profit colleges, which get up to 90 percent of their revenue from federal financial aid.
"I think this sector has grown markedly and has impacted students more than it did 10 years ago, so we need to up our game and protect those students," says Education Undersecretary Ted Mitchell.
Under the new law, vocational programs must show that they are providing students with affordable training that leads to well paying jobs. They must start reporting their enrollment, tuition, and employment data to the Department of Education, which will determine if they can continue to receive taxpayer-funded financial aid for their students.
A career education program could become ineligible for student aid if graduates have to use more than 20 percent of their discretionary income to pay off student loans. About 1,400 programs that serve 840,000 students would probably fail to meet the new standards, according to a one-year snapshot of data collected by the Department of Education.
For-profit colleges have fought to block the regulation, arguing that it unfairly targets the private sector and will make it harder for students to pay for college.
Last week, the U.S. District Court for the District of Columbia upheld the Department's approach to the gainful-employment regulations against a challenge from the Association of Private Sector Colleges and Universities, a for-profit industry trade association.
"The primary impact of the regulation will be to deprive hundreds of thousands of students of access to higher education," Sally Stroup, an attorney for Association of Private Sector Colleges and Universities, said in statement after the ruling.
Sen. Lamar Alexander, head of the Senate committee in charge of education legislation, has been an outspoken critic of the gainful-employment rule. The Tennessee Republican called it "horrendously complicated" and an "impossible maze of rules" at a National Journal event in June. He said he would prefer to see an incentive program that challenges colleges to keep student-loan debt low by giving them the responsibility of repaying some of the loans if their students can't. "We need to clear out the jungle of red tape that is regulating higher education," Alexander said.