Thank goodness it appears that the Dept. of Education will FINALLY crack down on the massive abuses in this sector:

Any day now, the federal Department of Education will formally propose new regulations that would cut off federal aid to for-profit colleges whose graduates cannot earn enough to repay their student loans.

The regulations, known as the "gainful employment" rules, are an effort to rein in the high debt loads students take on when they enroll in for-profit colleges that offer certificates or degrees in fields like nursing or culinary arts. Students at for-profit colleges are much more likely than others to default on their loans.

Under the regulations, a draft of which came out in February, for-profit colleges would not be eligible to receive federal student aid if their graduates' debt load was too high to be repaid, over 10 years, with 8 percent of their starting salary.

Steve Eisman nails it here:

Mr. Eisman, whose early awareness of structural problems in the housing market is described in Michael Lewis's bestseller "The Big Short," said the for-profit education industry, like the subprime mortgage industry, has rested on the proliferation of loans to low-income people who would not be able to repay them.

Without tighter government regulation, Mr. Eisman predicted, students at for-profit colleges will default on $275 billion of student loans over the next decade.

"Until recently I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry," said Mr. Eisman, of FrontPoint Partners, a unit of Morgan Stanley. "I was wrong. The for-profit education industry has proven equal to the task."

In an interview last week, Mr. Eisman said the gainful employment regulations help change the for-profits' business model of aggressively recruiting needy students eligible for maximum federal aid.

For-profit colleges typically get three-quarters of their revenues from federal grants and loans — and some, like Apollo Group, which owns the University of Phoenix, nearly 90 percent, the legal limit. Federal aid for students at for-profit colleges has more than quintupled, to $26.5 billion, since 2000.

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June 4, 2010

Facing Cuts in Federal Aid, For-Profit Colleges Are in a Fight

By TAMAR LEWIN

www.nytimes.com/2010/06/06/education/06gain.html