For-Profit College Scrutiny: The Latest Government Crackdowns on Predatory Lending

If you are paying attention to higher education news, you have likely noticed a major shift in how the government handles for-profit colleges. Federal agencies are actively tracking down institutions that leave students with low graduation rates and high debt. Here is exactly what the latest federal regulations mean for students, borrowers, and schools.

The Rebirth of the Gainful Employment Rule

One of the most powerful tools the Department of Education uses to regulate for-profit schools is the Gainful Employment rule. Originally introduced during the Obama administration, it faced years of legal battles and was rolled back in 2019. Now, the Biden-Harris administration has reinstated and significantly strengthened this rule. The updated regulations officially went into effect on July 1, 2024.

The core purpose of this rule is simple. It forces career programs and for-profit colleges to prove their graduates actually get good jobs. To keep receiving federal student aid (like Pell Grants and federal loans), programs must pass two specific tests:

  • The Debt-to-Earnings Ratio: Graduates must have student loan payments that account for no more than 8% of their annual earnings, or 20% of their discretionary income.
  • The Earnings Premium: At least half of a program’s graduates must earn more than the median earnings of young adults in their state who only have a high school diploma.

If a program fails these tests in two out of three consecutive years, the Department of Education will cut off its federal funding. Since many for-profit colleges rely on federal aid for up to 90% of their revenue, losing this funding usually forces the school to shut down.

Expanding Borrower Defense to Repayment

The government is not just looking at future regulations. It is also addressing the financial damage caused by past predatory lending. The Borrower Defense to Repayment program allows you to request federal loan forgiveness if your college misled you or engaged in illegal misconduct.

The Department of Education has been aggressively clearing the backlog of these claims. As of early 2024, the administration has approved over $22 billion in loan forgiveness specifically for more than 1.3 million borrowers who were cheated by their schools.

A major catalyst for this relief was the Sweet v. Cardona class-action lawsuit. This settlement required the government to discharge about $6 billion in loans for roughly 200,000 students who attended one of over 150 specific institutions. Schools on this list included heavily scrutinized brands like DeVry University, Grand Canyon University, and various campuses of The Art Institutes.

Closing the 90/10 Loophole for Veterans

For years, predatory colleges aggressively targeted military veterans. This happened because of a loophole in a federal regulation known as the 90⁄10 rule.

Historically, for-profit colleges could receive no more than 90% of their revenue from federal student aid. They had to secure at least 10% from other sources to prove they offered a product people were willing to pay for out of pocket. However, a loophole allowed GI Bill benefits and Department of Defense tuition assistance to count toward that 10% requirement instead of the 90% federal aid cap.

This created an incentive for bad actors to aggressively recruit veterans, often leaving them with drained benefits and poor job prospects. In 2021, Congress passed legislation closing this loophole. As of 2023, the updated rules require all federal education assistance, including GI Bill funds, to be counted in the 90% cap. Schools that violate this rule for two consecutive years lose their eligibility to receive federal student aid.

Major School Closures and Penalties

When federal funding dries up or legal penalties mount, for-profit colleges often close their doors abruptly. The list of collapsed institutions has grown significantly over the last decade.

  • The Art Institutes: In September 2023, the remaining eight campuses of The Art Institutes closed permanently with zero prior notice to students. In May 2024, the Department of Education approved $6.1 billion in automatic loan relief for 317,000 borrowers who enrolled at any Art Institute campus between January 1, 2004, and October 16, 2017.
  • Corinthian Colleges and ITT Tech: These massive networks collapsed in 2015 and 2016 after facing federal investigations for lying about job placement rates. The government has since discharged all remaining federal student loans for attendees of both institutions.
  • Center for Excellence in Higher Education (CEHE): This network operated Stevens-Henager College and College America. It lost its accreditation and faced a massive lawsuit in Colorado for deceptive marketing. It officially shut down its campuses in 2021.

How to Protect Yourself

If you are considering a career training program or a for-profit college, the government has provided tools to help you make informed decisions. The Department of Education runs the College Scorecard website, which allows you to look up specific schools. You can view their graduation rates, the median debt of graduates, and the typical earnings of alumni after graduation.

Avoid schools that pressure you to enroll immediately, promise guaranteed job placements, or refuse to give you clear information about total tuition costs.

Frequently Asked Questions

What exactly is a for-profit college? A for-profit college is an educational institution operated by private, profit-seeking businesses. Unlike public universities or non-profit colleges, which reinvest extra money into the school, for-profit schools return profits to their owners and shareholders.

How do I apply for Borrower Defense to Repayment? You can apply directly through the Federal Student Aid website (StudentAid.gov). You will need to fill out an application detailing exactly how your school misled you about things like job placement rates, transferability of credits, or the true cost of attendance. You should also include any evidence you have, such as emails, brochures, or enrollment agreements.

What happens to my loans if my school closes while I am enrolled? If your school closes while you are enrolled, or within 180 days after you withdraw, you may be eligible for a Closed School Discharge. This process forgives 100% of your federal student loans for that specific program. Alternatively, you can attempt to transfer your credits to another school to finish your degree, but doing so might make you ineligible for the closed school loan discharge.