(Bloomberg Opinion) -- In recent years, few companies have earned more deserved scorn than for-profit colleges. Unscrupulous educational chains have collapsed from mismanagement, saddled students with mountains of debt and paid out vast sums in consumer-fraud settlements — including $25 million by a defunct university bearing the name of a certain former New York City real estate developer.
Despite such failures — or perhaps because of them — President Donald Trump’s administration has gone out of its way to help the industry. Education Secretary Betsy DeVos, a longtime backer of for-profit education, has overhauled two rules meant to hold these schools accountable and rein in excessive student debt. Without further reform, these changes are likely only to empower bad actors, harm students and discredit legitimate for-profit schools.
The first measure, known as the gainful-employment rule, established debt-to-earnings benchmarks for graduates of vocational programs. When it was initially applied, more than 2,000 of the 8,637 programs evaluated either failed to meet the government’s criteria or were at risk of doing so. Of those, 98% of the failing schools and two-thirds of the struggling ones were operated by for-profit companies. Under the regulation, programs that couldn’t meet the government’s benchmarks were cut off from federal student-aid money — a potentially crippling blow to many proprietary chains, which despised the rule. DeVos duly repealed it in June.
The second regulation made student-loan debts dischargeable if borrowers could prove that they’d been defrauded by the industry. At the end of August, DeVos made final a substantially revised policy — one that requires students to meet significantly higher burdens of proof, halves the amount of time permitted for filing claims, and allows institutions to impose mandatory arbitration agreements, thereby limiting transparency about potentially abusive business practices. Meanwhile, the administration has been collecting on debts owed by former students of a for-profit chain that went bust in 2015, despite government assurances that the students would get a refund. Last month, a federal judge fined DeVos $100,000 for violating a court order in the case.
What both these reforms have in common is that they help the shadiest companies in the industry at the expense of students and the general public.
Abolishing the gainful-employment rule is a gift to poorly performing schools, which can continue collecting student-aid cash even if the degrees they issue are effectively worthless. By the government’s own estimates, the decision will cost taxpayers $6.2 billion over 10 years in grants and loans that would’ve been withheld from failing programs. And because almost half of all students at for-profit schools default on their loans, the long-term cost to taxpayers will undoubtedly be higher. DeVos defends the rollback by arguing that the rule targeted only for-profit vocational programs, without imposing comparable mandates on traditional colleges. She’s right — but that’s an argument for strengthening accountability across the board.
Instead of gutting these safeguards, the administration should encourage states to create benchmarks for all occupational programs. Policy makers should work with employers and schools to create a system of credentials that students could earn alongside conventional degrees, while Congress could experiment with issuing federal Pell Grants for short-term, nondegree programs — such as coding “boot camps” — but limit eligibility to those schools that have demonstrated success in preparing students for good-paying jobs.
Lawmakers should also insist that the administration continue to allow students to seek remedies when they’ve been defrauded. At a minimum, the government should reinstate its ban on arbitration clauses that restrict students’ rights to pursue claims in court. And DeVos should be held accountable if she fails to follow through on pledges to halt the department’s collection of debts from students whose schools have already collapsed.
With proper oversight, innovative for-profit providers could play a valuable role in strengthening the higher-education system. The government should be focused on helping those startups succeed — not giving the industry’s worst actors another chance to exploit students at taxpayer expense.
Editorials are written by the Bloomberg Opinion editorial board.
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