Education’s ObamaCare

The Administration goes after colleges that serve poor, minority students.

With White House pomp, President Obama and the first lady in January launched their campaign to make it easier for minorities and the poor to go to college. Now his Administration has made it harder with a regulatory assault on some of America’s most innovative and affordable schools.

Capping a five-year assault on for-profit colleges, the Department of Education last week tightened oversight over this—and only this—corner of higher education, claiming sweeping powers to close “poor-performing” schools based on its own abstruse criteria. Sound familiar? The people who gave the world ObamaCare think they also know the best educational options for students.

At least with health care the Administration consulted Congress. After months of internal wrangling and an insincere outreach to the for-profit schools, the new “gainful employment” rule comes down hard on the University of Phoenix, Strayer University and dozens like them. The department says it will use student loan and graduate income data to decide which schools get to stay in business.

As legal cover, the Administration cites the 1965 Higher Education Act’s stipulation that colleges can get federal student aid as long as they “prepare students for gainful employment in a recognized occupation.” Some 8,000 “career training” programs run by a few non-degree vocational community colleges and overwhelmingly for-profits are covered by the rule. Traditional private and public universities aren’t included.

After the rule takes effect in 2015, the average annual loan payments of graduates of these programs won’t be able to exceed 8% of their total income or 20% of discretionary income. The default rate of former students isn’t supposed to go above 30%. Schools that fail these tests repeatedly over three years will lose federal student aid—in effect, a death sentence.

A fifth of today’s programs would likely fail, Secretary of Education Arne Duncan told reporters.

The regulators say government needs to weed out “training programs that saddle students with debt but provide few opportunities for success.” But that’s far too modest. If implemented, the 845-page rule will limit choice in higher education, punish entrepreneurs, and wallop the very students the Obamas say they want to help.

This new rule is merely the latest front in what has become a White House war to kill for-profit private education. Apparently private schools that, unlike Harvard or Columbia, pay taxes and offer a non-elite education to regular folks offend their liberal sensibilities. Three years ago, a previous draft of the rule was struck down by a federal judge, who called one of the tests arbitrary. The new income and loan thresholds look arbitrary too.

The Administration says students at for-profits make up 13% of the higher education population but account for 31% of loans and nearly half of loan defaults. It fails to point out that for-profits serve a larger share of older, poorer and working people, who can’t draw on family support and disproportionately rely on loans to pay for college.

They shouldn’t be compared to graduates of Mr. Obama’s Ivy League alma maters, but to schools that serve similar students such as community colleges. About 15% of borrowers at community colleges defaulted within two years after starting to pay off a federal student loan, compared with 13.6% at for-profits. There are plenty of bad schools, both for- and nonprofit. But students and parents aren’t dumb. If Phoenix graduates didn’t get good jobs, its campuses would empty out fast.

The Administration fails to acknowledge how the profit motive has spurred creativity in education. President Obama last summer said that, “We’re going to encourage more colleges to innovate, try new things, do things that can provide a great education without breaking the bank.” He could check out how Strayer has done it for years. The online revolution discovered only recently by brand-name schools started with for-profits offering Internet courses a decade ago.

Not all Democrats agree with this hostility to for-profit schools. The new rule “will disproportionately harm non-traditional and lower-income students who have no choice but to rely on student loans in order to pursue a postsecondary education, and need the flexibility career colleges provide,” says Rep. Alcee Hastings, a senior member of the Congressional Black Caucus. If the rule goes through, for-profits will respond by limiting the enrollment of the riskiest students. Many have done so already.

The White House cited the gainful employment rule as an example of the President implementing his domestic agenda by executive order. Over to you, Congress. The Higher Education Act of 1965 is up for reauthorization this year, which is a perfect opportunity to drop this “gainful” nonsense and ensure that all rules apply equally to all schools. We’d prefer that Congress reduce subsidies generally for higher education, but there’s no excuse for singling out schools simply because they aren’t run by government.