Disdainful Employment Rule

This article originally appeared in WSJ

The election and President Obama ’s left-turn response have dominated the news, but there’s still some policy business from before Nov. 4 that deserves more attention. To wit, the Department of Education chose the Friday before Election Day to release its latest “gainful employment” rule punishing for-profit colleges.

The rule continues the most sustained political assault on a legal industry since the tobacco campaign. The pretext is the Higher Education Act of 1965, which authorizes federal student aid for programs that “prepare students for gainful employment in a recognized occupation.” The department’s etymologists devote 213 new Federal Register pages to deconstructing two words of an 846-page law.

In 2012 a federal court struck down the Administration’s first attempt to interpret “gainful employment.” At the personal direction of President Obama, DOE took the rebuke as an invitation to write a tougher rule. The department estimates that about 1,400 programs educating 840,000 students won’t meet its new standards, more than seven times as many as under its first rule.

These schools will lose access to federal student aid if their graduates’ annual loan payments exceed 8% of their total earnings or 20% of their discretionary income, compared to 12% and 30%, respectively, under the scrapped standard. So if students graduate with an average of $25,000 in debt, they would have to earn upward of $33,000 three years out for a program to avoid sanctions.

The Administration’s stated goal is to “protect students.” DOE says students at for-profit colleges make up 11% of the higher education population but 44% of federal student loan defaults. Yet for-profits also educate a disproportionate number of poor and minority students. Their enrollees are also twice as likely to lack parental financial help as students at nonprofit and public schools.

If the department were merely trying to protect students, then Mr. Obama’s “Pay As You Earn” plan that caps loan payments at 10% of discretionary income would make the rule moot. This is why the rule doesn’t measure graduates’ actual loan payments, but rather the median amount of debt they incur amortized over 15 years for bachelor’s degrees. Many students take up to 25 years to repay their loans.

Education Secretary Arne Duncan also says the rule is necessary “to ensure that colleges accepting federal funds protect students, cut costs and improve outcomes.” So then why isn’t the White House applying the same medicine to nonprofit and public institutions, which educate 90% of students and collect 80% of federal student aid? DOE says it lacks the legal authority, as if that’s ever stopped this Administration.

In fact a large swath of nonprofit and public colleges would lose access to federal aid under the new rule. According to a report last year by the federal National Center for Education Statistics, the average monthly loan payment-to-income ratio for 2009 graduates was 13% at for-profits, 12% at public colleges and 16% at nonprofits. Low earnings and high debt aren’t unique to for-profits.

This economic reality is why the Administration is steering students toward loan forgiveness plans like Pay As You Earn. Grads who find non-gainful employment in government or at a nonprofit can get their loans forgiven after 10 years of modest payments. So the White House is encouraging graduates to pursue low-paying jobs in “public service” even as it punishes for-profit colleges whose graduates do precisely that.

For example, most nursing and home health aides, dental assistants and pre-school teachers with an average of $25,000 in debt wouldn’t earn enough to meet the new definition of gainful employment, according to Bureau of Labor Statistics wage data. Why isn’t the President encouraging them to pursue higher-paying jobs?

Also ironic is that many of the rule’s strongest opponents are minority Members of Congress. In May 18 Democrats including Reps. Alcee Hastings, Bobby Scott, Loretta Sanchez, Gregory Meeks, Tony Cardenas and Joe Garcia signed a letter with 18 Republicans endorsing a “bipartisan provision that prohibits the Department of Education from promulgating the final gainful employment regulation.”

As the letter explained, the rule would “severely limit some students’ ability to use federal student aid at the college of their choice” and institutions “affected by this regulation predominantly serve lower-income students from nontraditional backgrounds.”

So the White House has jammed through another destructive regulation opposed by a bipartisan majority in Congress. The industry’s lobby recently announced that it will sue again to block this new rule, but the unhappy truth is that not even legal defeats will stop Mr. Obama’s ideological hostility to for-profit education.

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