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For-Profit Colleges Score a Win in Federal Funding Fight

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In the past, the U.S. Department of Education had a rule that prevented for-profit colleges from allowing students to rack up significant loans to pay for classes, but that regulation has now been eliminated by a judge.

U.S. District Judge Rudolph Contreras recently ruled that a Department of Education policy that required for-profit colleges to have at least 35 percent of graduates repaying student loans so that the institution can receive federal grants was “arbitrary,” and therefore struck it down, according to a report from Bloomberg News. This rule also applied to online career training programs.

“No expert study or industry standard suggested that the rate selected by the department would appropriately measure whether a particular program adequately prepared its students,” Contreras wrote in the ruling, according to the news agency. “The entire debt measure rule must therefore be vacated and remanded to the department.”

At the same time, though, Contreras also allowed the government’s disclosure rules, which require programs to report graduation and replacement rates, as well as students’ average debt loads, to stand, the report said.

For its part, the Department of Education claimed to have put the rule in place based on what it called a need for career colleges to prepare students at prices they could afford to pay, and would deny federal funding to those programs who could not do so, the report said. However, by implementing the 35-percent rule, more than 90 percent of programs for security guards and medical assistants would have been ineligible, in addition to 80 percent of criminal justice programs.

On the other hand, for-profit colleges can make as much as 90 percent of their total overall revenue from just federal grants and loans students acquire to cover tuition costs, the report said. Studies show that for-profit institutions received nearly $32 billion in student aid from the federal government during the 2009-10 school year, the most recent period for which data was available.

Recent studies show that these days, college students graduate with an average of nearly $45,500 in education loan debt to their names, in addition to several thousand dollars in credit card debt spread across a number of accounts. This can make it extremely difficult for young adults to achieve financial independence, particularly given that the job market for recent college graduates remains somewhat troubling.

Image: raganmd, via Flickr

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