Last week, after an 18-month negotiation with the higher education community, the Obama Administration released final rules relating to financial aid for higher education. Although some of the rules apply to nonprofit and public institutions of higher education, the bulk of the rules are aimed at the for-profit higher education industry, which has been under scrutiny by the Administration over the past year.

The regulations, effective July 1, 2011, only partly address the most contentious of the rules proposed by the Administration, the so called "gainful employment" rule. That rule as proposed would eliminate federal aid for programs that create high student debt and have low loan repayment rates. As we reported in an earlier FR Alert, the full final rule on "gainful employment" is expected to be released in early 2011, but will also take effect on or around July 1, 2011. With respect to the "gainful employment" issue, the final rules issued last week require proprietary institutions to report information to the U.S. Department of Education (DOE) about students, including costs, debt levels, graduation rates and job placement rates after graduation.

The final rules also, among other things:

  • Require proprietary institutions to disclose graduation and job placement rates to prospective students, and disclose to the DOE information regarding student debt levels and incomes after graduation; seek pre-approval from the DOE before adding new programs; and develop and follow procedures to verify a student’s high school diploma if there is reason to think it is not valid or if it was issued by a school that also provides secondary school education;
  • Prohibit proprietary institutions from paying "incentive compensation," or payments to recruiters based on the number of students they enroll;
  • Strengthen the authority of the DOE to take action against proprietary institutions for deceptive advertising, marketing and sales practices;
  • Define "credit hour" and establish procedures for review of an institutions’ assignment of credit hours to certain courses or activities; and
  • Limit the ability of postsecondary institutions to enter into written arrangements to provide a portion of another institution’s educational program.