Are For-Profit Colleges in Danger Under Gainful Employment Rule?

New gainful employment rule holds for-profit colleges to higher standards.

By Kathryn Knight Randolph

July 02, 2015

Are For-Profit Colleges in Danger Under Gainful Employment Rule? Are For-Profit Colleges in Danger Under Gainful Employment Rule?

Are you currently attending a for-profit college or considering it? You may want to think again. For-profit colleges, and even some career schools, are under quite a bit of scrutiny these days as the U.S. Department of Education implements its gainful employment rule.

The gainful employment rule, which officially went into effect on July 1, helps to guarantee that once students leave an institution of higher learning, they will have the skills to find the employment necessary to pay off their student debts, as stated by a press release from the U.S. Department of Education. These days, the concern is that for-profit colleges and career schools are failing students in this endeavor. According to that same press release, students at for-profit institutions make up 11% of those enrolled in institutions of higher learning but account for 44% of federal student loan defaults.

As a result, the U.S. Department of Education has instituted the gainful employment rule that a student’s annual estimated loan payment does not exceed 20% of his or her discretionary income or 8% of total earnings. If institutions fail to help students achieve this, they’ll lose federal funding, as stated by the U.S. Department of Education.

The Chronicle of Higher Education estimates that about 1,400 programs are likely to be affected by the new rule if they don’t take measures to improve their educational and career resources. And though for-profit institutions and affiliated organizations have been fighting the gainful employment rule, they have met with little success.

If you are currently attending a for-profit institution or considering it, keep these things in mind:

Don’t overborrow for your education. Research the job, or career, that you’re hoping to attain after graduation and make sure you are borrowing less than your expected annual salary. Obviously, the less you borrow for your education, the better.

Look at community colleges. Tuition at a for-profit, online college can cost almost $10,000, whereas tuition at a community college could be just a few hundred or thousand dollars, depending on how many credit hours you take each semester. Plus, you get the added bonus of attending classes on a physical campus, interacting with students and professors and utilizing campus services like the career center.

Defer loan payments if they become overwhelming. If you’ve already graduated and your loan payments are too expensive, do something about it – don’t just stop making payments. Talk to your loan provider about your financial hardship or defer the loan until you can find employment. Usually, the loan provider will work with you to find a payment solution that works within your budget. After all, they would rather receive a little loan payment versus no loan payment.

The new rules and regulations set forth by the U.S. Department of Education aren’t to say that for-profit colleges are bad. Rather, they’re hoping to hold them to a standard that makes the educational process beneficial to students, rather than a burden. Because that’s what education is really all about.

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