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Gainful Employment Regulations Are About Changing Incentives

The Washington Monthly’s Daniel Luzer responds to my write-up of an event put on by the advocacy arm of Campus Progress that highlighted the stories of a student, Adam Gonyea, and a financial aid administrator, Rashidah Smallwood, both of whom had bad experiences with branches of ITT Technical Institute. The event was pegged to the House’s vote to de-fund the Department of Education’s proposed “gainful employment” regulation, which seeks to gain greater accountability from for-profit schools by threatening to pull funding from schools that have too-high default rates or leave students with an unbalanced debt-to-income ratio after graduation.

Luzer writes:

The event demonstrated that some things are wrong. It’s not really clear that the gainful employment rules will improve things however.

Part of the problem here is that what Smallwood is alleging is just straight-up fraud. That’s illegal now. It’ll be equally illegal once gainful employment regulations go into effect. It’s unclear what one has to do with another. Even Gonyea’s “high price for a low-quality education” wouldn’t necessarily be fixed by the regulations.

It’s true that the gainful employment regulations won’t do much to help the egregious practices of falsifying aid documents, which Rashidah Smallwood said she was told to do during her time as an ITT Tech aid administrator. But it’s also true that such practices, while always illegal, now have stronger opposition as part of the Department of Education’s regulations implemented late last year that targeted bad recruitment practices that include, among other things, recruiting students at homeless shelters.

A couple of for-profit lobbying groups, including the Association of Private Colleges and Universities (APSCU), formerly the Career Colleges Association, sued [PDF] the Department to roll back the implemented regulations.

Then Luzer says:

This is one of those strange things about of the way Washington works. There is a problem. The problem has a solution. Some are opposed to that solution and propose a measure to defund that solution. The measure will never be enacted. But those who oppose it go through the motions anyway.

It is likely that the Senate will not follow suit and the provision won’t be in the final bill, but the lobbyists for the for-profits are trying to prevent that outcome.  But ultimately, Luzer is missing the point. Gainful employment is part of a larger attempt by the Department of Education to demand that money going toward student aid is money well spent.

The stories of these two individuals aren’t as unrelated as Luzer might lead you to believe. The rule would demand that for-profit schools make a better effort to provide quality education to students and entrap fewer of those students in debt—what this rule is ultimately about is changing the incentives of for-profit colleges and universities.

Right now, the schools have the incentive simply to enroll as many students as they possibly can so they can get as much financial aid as they possibly can—and what eventually happens to those students doesn’t really matter. But if, instead, those schools have to curb default rates and offer an education that’s more reasonably priced in comparison to expected earnings, then the rule has the potential change the whole incentive structure for for-profit colleges and universities. The schools will hopefully place more emphasis on providing a quality education that will make students employable and help them with job placement—something these schools are supposedly designed to do in the first place.

That would hopefully mean fewer people in the situations that Adam Gonyea and Rashidah Smallwood found themselves in.

Kay Steiger is the editor of

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