The U.S. Department of Education is proposing rules that would make it easier to cut off funding to low-performing for-profit schools or force colleges to help borrowers saddled with large debts and low earnings. The department is involved in a rulemaking process for determining whether a school prepares students for “gainful employment.” Schools shown not to do so could lose access to federal student loans or even be forced out of business. Earlier this year, the Education Department proposed to measure gainful employment with two calculations that compare what graduates earn with their student loan debt. Consumer advocates note, however, that this metric does not account for loans incurred by students who drop out of the program and have no degree.
Agency officials now have added two additional measures of a school’s performance that factor in how well students repay loans. One measure is the “program cohort default rate,” or the percentage of students who fall behind on their loans within three years; and the second considers the loans taken out by students in a program to see if they make at least the required interest payments. Under the proposal, a college failing the tests would have to pay to lower borrowers' debt to 8 percent of their income.