For-Profit Education Reg: Flawed Process = Flawed Policy

The Department of Education today released its highly controversial rule tightening regulation of for-profit trade, technical and career colleges. While the final regulation was softened from the initial proposed rule, it still is a textbook example of a flawed regulation created by an unethical process.

There are four solid reasons why this regulation should not be allowed to take effect.

First, the major push for this regulation came from a group of Wall Street investors and hedge funds that stood to profit by short-selling the listed stocks of corporations that provided trade, technical and career education. This crass motivation should have no impact on how educational policy is made.

Second, the short-sellers worked hand-in-glove with the Department of Education to produce a regulation designed to do one thing: destroy the share value of for-profit education companies. Thanks to Freedom of Information Act requests filed by the Committee for Responsibility and Ethics in Washington and others – FOA requests which the Department of Education did everything in its power to stall and evade – we now know how closely the short-sellers were working with the bureaucracy on the regulation. An investigation by the Department of Education Inspector General is underway currently.

Third, the regulation has such far-reaching effects that it is clear this policy should have been addressed by Congress, not a group of secretive bureaucrats working behind closed doors with financial special interests. Of course, nothing remotely close to this controversial regulation would have passed Congress since the House recently voted overwhelmingly with a bi-partisan majority to not fund implementation of the flawed regulation.

Four, the regulation will hurt the most vulnerable students of all. Trade, technical and career school students include high numbers of individuals who are poor, members of minority groups, come from families with no previous college graduates, and truly are in need of better job skills to compete. This regulation would look at default rates and expenses-to-income ratios to determine whether loans can go to future students of those schools. At a time when the unemployment rate is extremely high and shortsighted government policies have hurt small businesses, to penalize students because the repayment rates of previous students is unconscionable.

If there were a Hall of Shame for unethical regulations, the regulation released today would easily qualify. Because many of the stocks of education companies sank while this regulation was being pushed, the short-sellers who were betting on the stocks going down have made a killing. Their financial gain was made at the future expense of students struggling to get additional education.


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