Here’s how the new rule works. A student applies for and receives a federal loan. The student can use the federal loan to pay for a traditional public or private school—no questions asked. But, under the new DoEd rule, if the student wants to use their federal loan to pay for certain for-profit colleges, those schools must meet DoEd’s new arbitrary metrics. The term gainful employment comes from the rulemaking which states that a percentage of for-profit’s students must receive “gainful employment” by a certain date. With the federal government unfortunately dolling out billions in student loans annually, this puts for-profit colleges at a marked disadvantage and further skews America’s higher education sector.
Amongst conservatives, there is a near consensus that the DoEd’s education loan programs need to be eliminated or at least significantly scaled back. The DoEd will authorize $116 billion in direct loans this year and has backed $450 billion in loans issued with private capital through its Federal Family Education Loans program. The gainful employment rule, however, does nothing to limit the amount of money spent by the federal government, only who can receive it. All colleges should be able to compete for students with federal loans, not just the schools the DoEd likes.
While the gainful employment regulation itself is dreadful policy, the process surrounding the rulemaking has propelled the rule to infamy. There is a disconcerting amount of evidence showing that Wall Street investors may have worked with Department of Education officials to write the gainful employment rule and then profited from its implementation. At the fulcrum of these accusations is Steve Eisman, a hedge fund manager for FrontPoint Financial Services.