Hundreds of programs at for-profit colleges are at risk of losing federal funding unless their graduates start earning better wages, federal officials say.
On Monday, the Education Department issued its first round of data measuring whether graduates of 8,700 career programs earn enough money to repay their student loans. It stems from the Obama administration’s new “gainful employment” rule, which aims to weed out programs that leave students with heavy debt and light income.
Under the rules, programs are considered failing if their graduates on average pay at least 12 percent of their yearly earnings on student loans, or 30 percent of their discretionary income. Programs can lose access to federal funding if they fail twice within three years, or if they fall into a lower “warning zone” for four consecutive years.
In the first round of ratings, based on students who graduated between 2010 and 2012, more than 800 programs failed and 1,200 others were in the warning zone. Although for-profit colleges represented only 66 percent of all programs that were evaluated, they accounted for more than 98 percent of those that failed.
Department officials said their data is further proof that community colleges, which generally fared well in the ratings, offer a better value than for-profit colleges.
“We are giving career colleges an opportunity and in some cases a warning to improve the quality of their programs,” Education Secretary John B. King Jr. said in a conference call with reporters. “Far too many hardworking students are graduating with certificates or degrees that have little or no value in the job market.”
The findings drew outrage from many in the for-profit college industry, which has ardently opposed the new rules since they were proposed in 2014. Steve Gunderson, president of Career Education Colleges and Universities, an industry lobbying group, said the findings should have been withheld while schools appeal the data.
“The Department’s action today is disappointing and disrespectful,” Gunderson said in a statement, adding that “this is all about political motivations and harming institutions, and has nothing to do with expanding higher education access and opportunity or creating sound public policy.”
Even before the new standards took effect, many for-profit colleges began closing programs that were expected to fail. In October, the University of Phoenix chain told investors that it would stop enrolling students in programs that would likely fall short, an array that represented 15 percent of the school’s enrollment.
Ted Mitchell, undersecretary at the Education Department, said the national number of vocational programs dropped from 38,000 to 29,000 since the new rules were proposed.
“This is the right thing to do,” Mitchell said about schools that preemptively closed programs. “Institutions have improved their existing programs, making them shorter, making them better, so students finish them faster, accumulate less debt and leave with higher-quality certificates.”
Schools that failed have 30 days to notify students that they’re at risk of losing federal funding.
The gainful employment rule is the latest in a series of measures by the Obama administration meant to hold for-profit colleges accountable. The department has also worked to smooth out “borrower defense” rules to help students who are defrauded by schools, and it has taken action that forced the closure of major chains like ITT Technical Institute and Corinthian Colleges.
As Donald Trump takes office, though, some experts question whether measures, including the gainful employment rules, will survive. Many for-profit colleges see Mr. Trump as a friend to the private sector and are optimistic that he’ll be better for the industry.
On Monday, King said he wouldn’t speculate on what the next administration will do.