Trump Defends Obama's For-Profit College Crackdown

(Bloomberg) -- For-profit colleges were supposed to thrive under a Trump administration staffed by officials known to be friendly to the industry. President Donald Trump and Republican allies in Congress had made broad promises either to revisit or to repeal federal rules governing the schools. That gave hope to for-profit colleges and their investors, driving up their stock prices. Meanwhile, consumer protection advocates worried about a resurgent for-profit college sector unburdened by Obama-era rules.

A legal filing from last week suggests perhaps those assumptions were premature.

In late March, the Trump administration offered a forceful defense of the so-called gainful employment rule, the 2015 regulation that threatens to shut off the spigot of normally free-flowing federal funds that sustain career programs if the typical graduate's annual loan payments exceed 20 percent of her discretionary income or 8 percent of total earnings. It also called on suspect career programs to warn prospective students if they risked running afoul of the guidelines. Colleges mostly opposed the rule.

“The regulations are intended to protect students and taxpayers by providing warnings about programs with relatively high loan debt compared to the earnings their students could hope to achieve after graduating from those programs,” Justice Department attorneys wrote in their brief on behalf of Education Secretary Betsy DeVos. Students benefit from the warnings, Trump administration lawyers wrote, “because it could prevent them from taking on debt that they will not be able to repay, and they could more reasonably evaluate whether they would prefer to enroll in programs that have been more successful in enabling their students to find employment that would allow them to repay their loans.”

Taxpayers would benefit, too, they wrote, because of the likely corresponding fall in defaults on federal student loans. “The public interest is served by allowing the department to go forward with implementing the [gainful employment] regulations,” the Trump administration added.

The legal filing came in response to a February lawsuit by the American Association of Cosmetology Schools, which argued that the rule shouldn't apply to beauty schools because its graduates tend to underreport their earnings to the Internal Revenue Service by not including all their cash tips. It stands in stark contrast to a March 6 memorandum from the U.S. Department of Education that lessened some of the rule's bite and encouraged Career Education Colleges & Universities, the main for-profit college lobby in Washington. Just a few days ago, that delay caused student advocates to worry about whether the Trump administration would enforce the Obama administration's rules.

The gainful employment rule is meant to push colleges either to reduce their prices so that graduates aren't burdened by crippling debt or to shut them down if it's shown that employers aren't paying their graduates enough money to justify the investment students made. For-profit colleges enroll relatively few students yet produce an outsize share of student debt and loan defaults.

Higher education observers expected the Trump administration to be sympathetic to the beauty schools' lawsuit, especially after the DeVos-led Education Department hired a former for-profit college lobbyist and a for-profit college lawyer to help her evaluate various higher education rules. But Trump administration lawyers asked the judge in the case to effectively dismiss the lawsuit.

Education Department spokesmen Matt Frendewey and Jim Bradshaw didn't respond to several messages seeking comment.

The seeming about-face gave hope to groups claiming to represent college students and student debtors.

“There were troubling signs,” said Pauline Abernathy, a former official in Bill Clinton's White House who now works for the Institute for College Access & Success. “But it's encouraging that the Trump administration may be going in a different direction.”

To contact the author of this story: Shahien Nasiripour in New York at snasiripour1@bloomberg.net.

To contact the editor responsible for this story: Francesca Levy at flevy6@bloomberg.net.