For-Profit College Stocks Soar As Watered-Down New Federal Rules Are Announced

It’s a heartening example of government working for you–if “you” means a team of lobbyists.

It’s a heartening example of government working for you–if “you” means a team of lobbyists. Shares of Apollo Group (Phoenix U), the Washington Post Co (Kaplan U), and other publicly traded for-profit colleges rose sharply yesterday as the Department of Education released new regulations for the sector, significantly softened from a draft version published last July.


The original idea behind the “gainful employment” rules was to impose a little basic accountability on the kinds of colleges that advertise on the bus, by the crude measure of whether their graduates are able to pay back their student loans. Besides the obvious public interest, the federal government has significant skin in the game here: it underwrites these loans, to the tune of almost three quarters of a trillion dollars. And for-profit students, who make up only 12% of all college students, account for 46% of loan defaults.

Under the new rules, colleges with pretty crappy results will remain eligible for federal student aid. As long as at least 35% of grads are paying back their loans, the college is A-OK. It even counts if the former students are on an interest-only payment plan, which can keep students indebted for 25 years or more. No colleges will be kicked out of the program until at least 2016, and there’s a three-strikes rule, meaning they must fail three out of four years. Only 5% of for-profits are predicted to be put out of business by the new rules, compared to 55% that would have been in a marginal “yellow zone” under the draft rules. 

The take-home is that for-profit education–what I call the “subprime” education sector–is due to remain a thorn in the side of American higher ed (or if you prefer, an unpopped bubble) for a while longer. While for-profits deserve credit for the mainstreaming of online education, and for innovations like Kaplan’s new “Knext” program for lifelong learning, the abuses, lawsuits, and subpar performance are far too much the norm. Without real regulation, the sector will never grow up into an industry that could actually help expand access to quality education for a world that desperately needs it. 

About the author

She’s the author of Generation Debt (Riverhead, 2006) and DIY U: Edupunks, Edupreneurs, and the Coming Transformation of Higher Education, (Chelsea Green, 2010). Her next book, The Test, about standardized testing, will be published by Public Affairs in 2015.