For-profit colleges will now have to prove their students have achieved gainful employment after graduation according to a new law.
In order to qualify for federal student aid, the law requires that for-profit colleges and certificate programs at nonprofit schools prepare students for gainful employment in a recognized occupation.
The new requirements are geared toward for-profit universities that charge high tuition rates, but fail to provide adequate education or training. Students are unable to increase their earning potential and end up deep in student loan debt, eventually defaulting. Students with loans for for-profit colleges make up 44 percent of all loan defaulters.
To be considered a program that leads to gainful employment, the estimated annual loan payment of the typical graduate cannot exceed 20 percent of his or her discretionary income or 8 percent of his or her total earnings. Programs that exceed these levels could lose their eligibility to participate in publically funded student aid programs.
The benchmark could be a tough reach for some for-public schools. The Department of Education estimates that 1,400 programs would not pass the accountability metric.
Critics of the law say that it doesn't go far enough to protect the students that enrolled in for-profit colleges but never graduated.
"Although default and the inability to graduate are the most serious risks faced by for-profit college students, the final rule dropped a provision that would have considered default rates of all program attendees," Maura Dundon, senior policy counsel at the Center for Responsible Lending, wrote in a statemen. "Instead, the rule considers graduates' debt burden relative to their income, and does not consider the fate of students who leave without a degree."
The law will go into effect on July 1, 2015.