Rethinking Equal—and Effective—Regulatory Treatment

The fact that for-profit schools should sometimes be regulated differently than other schools is not at odds with the idea that all sectors of higher education should also face universal and uniform regulations. All postsecondary institutions, for example, should be evaluated and accountable for their student loan outcomes with federal dollars and all postsecondary institutions need financial monitoring.

But the reality is that any uniform federal law or universal regulation that sets effective minimum performance standards for repayment of student debt or establishes market-value tests for federal loans and debt (like the Obama administration’s 2014 gainful employment rule) will overwhelmingly affect for-profit schools. In the 1992 HEA Amendments, for example, Congress created a system of cohort default rates for sanctioning and eliminating schools with high student loan default rates from the federal student aid program. Over 80 percent of the more than 1,000 schools that lost access to federal student aid under the 1992 law were for-profit schools.

Once the curtain is pulled away from the false idol of “institutional equity” it opens the opportunity to explore universal regulations that would better protect taxpayers and students. Two universal approaches are particularly promising for assessing and shutting down very low-performing programs.

The first is establishing minimum loan repayment rates, such as evaluating if students have paid down at least one dollar of the principal on their federal student loans three years after entering repayment. A second approach would be to establish a threshold earnings-rate benchmark for all programs to demonstrate a minimum return on federal investment.

Michael Itzkowitz and his colleagues at Third Way have proposed (among other measures) that no higher education program should be funded through federal grants and loans if most of its graduates end up in poverty. Itzkowitz has also explored a more demanding threshold earnings-rate standard that would bar programs from federal student aid if most of the program’s graduates fail to make more than a high school graduate.

Equal institutional treatment is the wrong litmus test for future legislation and regulation. Effective regulatory treatment that protects students and taxpayers is the better measuring stick. Yet for far too long, the for-profit industry has wielded faux equity claims about “leveling the playing field” to draw attention away from the sector’s uniquely bad student debt record and uniquely troubling history of misleading and fraudulent marketing.

Here is hoping that this year, the Biden administration and Congress will judge new regulations and laws by their effectiveness in protecting taxpayers and students from having federal dollars used at debt-trap programs, at career schools with lousy job placement records, and at predatory institutions that use fraudulent marketing and advertising to attract students. Regulation and law must be first and foremost about protecting students, not institutions. It is time to retire the industry’s equity ruse.