Time to clean up the for-profit college hustle

Too many for-profit colleges bury students in debt in exchange for worthless degrees.

These operations use hardsell tactics to ensnare a steady flow of new students whom they convince to take out government-backed loans. They charge tuition that far exceeds the value of the education they provide. Students default on the loans in droves, leaving taxpayers on the hook.

Not every for-profit institution is bad, but the sector has a terrible track record stretching back to the GI Bill. Without taxpayer-funded loans, the industry’s flimflams would dry up, and you might think Uncle Sam would have cut off the flow of money by now. In fact, lawmakers and federal regulators finally are floating some good ideas, including a provision in the Biden administration’s Build Back Better package that would exclude for-profit schools from expanded financial aid.

Should it survive, Biden’s Build Back Better bill would make new funding for Pell Grants, the federal financial aid program for undergraduates, available only to nonprofit institutions. That makes sense considering the high default rates in the for-profit sector. Still, the provision may not survive the objections from Democrats, especially since the entire package of legislation is now in limbo.

A more promising, underthe-radar effort is happening at the U.S. Education Department, where the Biden administration is beginning to overhaul higher-education policies. A rule-making committee has made progress on some relatively easy matters, such as loan forgiveness for borrowers with severe disabilities.

The committee has yet to reach a consensus on forgiving loans for borrowers defrauded by their colleges or restoring a ban on mandatory arbitration agreements in higher education, which was lifted under the Trump administration at the urging of the for-profit sector.

In 2022, the panel is expected to consider more rigorous policies. One overdue step is reinstating the Obamaera “gainful employment” rule scrapped by the Trump administration. Under this rule, career-education programs were required to “prepare students for gainful employment in a recognized occupation” to be eligible for federal student aid.

The committee also will figure out how to implement the so-called 90/10 rule that Congress revised in a COVID19 stimulus bill earlier this year. For-profit schools would be barred from making more than 90% of their revenue from federal funding. At least 10% would have to come from out-of-pocket payments made by students, or other sources besides Uncle Sam’s education assistance programs, including those for veterans.

If that 10% threshold seems as absurdly low to you as it does to us, welcome to the world of for-profit education at taxpayer expense.

The truth is, whatever can be done to tighten the standards for student loan programs and start to wean higher education off government-sourced tuition money can only help impose some spending discipline, clean up abuses and make college more affordable and sustainable in the long run.