Biden Pursues Regulation of For-Profit Colleges on Own Terms

The president is trying to reel in an industry given a long line by his predecessor but declined to reinstate tough Obama-era policies while new ones are negotiated.

June 14, 2022 · Updated on June 14, 2022

Edited by Darlene Earnest
Biden Pursues Regulation of For-Profit Colleges on Own Terms
Higher Ed Policy Opinion & Analysis
Photo by JIM WATSON / Contributor / AFP / Getty Images

  • Like the Obama administration, Biden has focused on regulating for-profit colleges.
  • Former for-profit students have been granted billions of dollars in loan discharges.
  • Policy changes make it likely future for-profit college students will also qualify for relief.

In his first 18 months in office, President Joe Biden has prioritized reeling in for-profit colleges and universities given a long line by the Trump administration.

His Education Department (ED) proposed new rules that would deny federal funds to higher education programs that saddled students with unmanageable debt and closed a loophole that allowed for-profits to fill their coffers with federal financial aid.

The department has also aggressively prosecuted borrower defense claims where former students claimed their school defrauded them.

But as he rebuilds the department's regulatory authority over for-profit schools, Biden has opted to leave Trump-era policies in place while new rules are negotiated — with for-profit schools occupying a seat at the table.

His policy approaches to regulating for-profit schools have likewise been thwarted in some instances. The approach has sometimes left both for-profit colleges and student advocates frustrated.

Gainful Employment 2.0

Obama-era gainful employment (GE) rules forced institutions to prove the value of their degree and certificate programs. They also sought to ensure students at these schools could secure jobs that would earn them enough money to repay their federal student debt.

The Trump administration chose not to enforce these rules and then rescinded them in July 2019.

Instead of reinstating the Obama rule, which had gone through a lengthy rulemaking process and survived multiple legal challenges, Biden's Education Department pushed to leave the GE repeal in place while crafting an entirely new rule.

Biden's new GE rule largely mirrored the Obama-era rule, but added an income threshold in an attempt to ensure college graduates earned more than those with only a high school diploma.

Negotiators failed to reach consensus in March on new gainful employment rules, with the for-profit representative leading the dissent to the department's proposal.

Without consensus, ED will now be able to modify and/or draft new GE rules before filing the rule in the Federal Register for public comment. And the language of those rules will likely remain similar to the draft that negotiators rejected.

A new rule likely won't go into effect until the 2023-24 academic school year.

Negotiated Rulemaking Allows Compromise on 90/10 Rule

The Biden administration's commitment to negotiated rulemaking has also allowed the for-profit industry to compromise on regulations closing a loophole that allowed for-profits to make almost 100% of its revenue from federal financial aid.

The so-called 90/10 rule prohibits for-profit institutions from receiving more than 90% of their revenue from federal financial aid. However, a loophole allowed these schools to circumvent the rule by applying federal military education benefits — such as the GI Bill — on the 10% side of the ledger.

ED sought to close this so-called loophole during negotiated rulemaking in March.

The for-profit institution representative worked with ED to find language that worked for both sides, and the loophole will soon be closed. Altmire, president of Career Education Colleges and Universities (CECU), which advocates on behalf of the for-profit industry, told BestColleges that the industry is content with the final language.

"Given where the administration could have been," he said, "we feel like it was a pretty good outcome."

Regulation by Omission Fails

Another approach Biden has taken to rein in for-profit institutions is leaving them out of the expansion of education-focused policy. However, these efforts have been stymied by congressional lawmakers who insisted for-profit colleges be treated the same as nonprofit institutions.

Altmire of CECU said there were four instances since Biden took office where for-profits stood to lose benefits.

First was the issue of Higher Education Emergency Relief Fund (HEERF) grants. The president was set to distribute the third round of COVID-19 relief to schools, but Biden's would have been the only plan that excluded for-profits from receiving grants, Altmire said.

Ultimately, the final legislation included all types of higher education institutions.

Next, Biden's proposed Pell Grant expansion for the 2022 budget would have excluded students at for-profits. These students still would qualify for Pell Grants, but not the new maximum Biden proposed.

Again, the proprietary industry convinced legislators to include these schools in the final bill, Altmire said.

Reauthorization of the Workforce Innovation and Opportunity Act (WIOA) would have excluded for-profit schools from the program in an early version of a bill proposed in late March. That issue has since been worked out and proprietary institutions will not be struck from the program, he added.

A similar situation remains with short-term Pell Grants. A modified version of the program would scratch for-profits from inclusion. Industry lobbyists are working to prevent the change as they did with previous Biden administration moves.

Borrower Defense Claims Land a Blow

Biden's administration moved to extend what might constitute a borrower defense claim during negotiated rulemaking in December.

Most notably, ED's proposed changes would make it so that former students no longer need to prove that they relied upon misleading information from their school when making enrollment-related financial decisions. Borrowers would no longer need to prove that their former school intentionally misled them, only that they were financially harmed.

The department would also add "aggressive recruitment" as a category that could lead to a successful claim.

Negotiators did not reach consensus during rulemaking, but the department is likely to move forward with the language as presented in December.

Historically, the overwhelming majority of borrower defense claims are filed against for-profit colleges. A 2017 analysis from the Century Foundation found that of over 98,000 borrower defense claims studied, nearly 99% of claims were made against for-profit schools.

Under the Trump administration, former Secretary of Education Betsy DeVos stopped adjudicating borrower defense claims, leading The Project on Predatory Student Lending to file a lawsuit against ED in June 2019. According to the organization, the case is scheduled for trial next month.

The Biden administration has picked up the pace in recent months.

Ed has forgiven approximately $7.9 billion in loans for 690,000 borrowers whose institutions took advantage of them through discharges related to borrower defense and school closures.

The most expansive relief came in early June when ED granted discharges to all former students of Corinthian Colleges schools enrolled between 1995 and 2015.

The administration's proposed rule change would also allow for group borrower defense claims, something the for-profit industry opposed.