WASHINGTON — The Obama administration announced new regulations Thursday requiring for-profit colleges to demonstrate they’ve prepared students for “gainful employment in a recognized occupation,” putting the schools’ federal funding at risk if they cannot.

The regulations prompted Minnesota Republican John Kline, who chairs the House Education and the Workforce Committee and is a strong defender of for-profit schools, to warn against “regulation [that] could undermine an entire sector of colleges in the name of rooting out a few bad actors.”

According to the Department of Education, for-profit schools that receive federal aid must demonstrate that the meet at least one of the following guidelines: “At least 35 percent of former students are repaying their loans; the estimated annual loan payment of a typical graduate does not exceed 30 percent of his or her discretionary income; or the estimated annual loan payment of a typical graduate does not exceed 12 percent of his or her total earnings.”

If a school consistently fails to meet those goals, they are required to send out a series of letters to students explaining why they failed, warning them about post-school debt loads and explaining potential transfer options. If a school fails to meet the new standards three out of four years, it will lose its federal funding.

The new rules, called gainful employment regulations, take effect on July 1, 2012. The first year a school could lose its federal funding is 2015.

The politics of for-profit schools
The regulations were announced after a months-long back and forth between the White House and Congress, in which Democrats, lead by President Obama and Iowa Sen. Tom Harkin, called for more regulation of for-profit schools while Republicans warned it could hurt the schools’ effectiveness.

Harkin is the chair of the Senate’s education committee, which has conducted investigations into the for-profit college industry. The investigation found that for-profit schools took in nearly $24 billion in 2008-09, about 23 percent of all federal student aid dollars. But students at for-profit schools still account for almost half of student loan defaults.

Rep. John Kline

Harkin greeted the regulations, but indicated he hopes to see more coming in the future.

“The Department of Education’s gainful employment rule is a modest and important first step to protect students and taxpayers from subprime academic programs that have a demonstrated track record of failure,” he said in a statement.

Kline and Republicans on his committee, meanwhile, condemned the regulations, saying the Department of Education has “failed to adequately address the harmful impact the gainful employment regulation could have on students and the workforce.”

In March, Kline’s committee heard testimony on an early gainful employment proposal from the Department of Education. Jeanne Herrmann, the COO of the Minnesota-based Globe University, called the then-proposal, “anti-student,” “anti-employer” and “anti-taxpayer.”

On Thursday, a spokesman for Minneapolis-based Capella University said “the first and most important step in measuring the return on investment for students and taxpayers begins with measuring academic quality, not just debt.”

According to spokesman Michael Walsh, Capella had submitted several recommendations to the Department of Education regarding the gainful employment rule, and it appeared the final regulations wove in some of them.

Industry organizations and think tanks were quick to respond to the new regulations. The Association of Private Sector Colleges and Universities said it “remains very concerned” about the gainful employment standards, and is specifically worried, like Capella is, that they could end up punishing programs with strong academic results.

Campus Progress of the progressive Center for American Progress said the new standards are “important reforms,” but they don’t go far enough.

“We believe that, collectively, the rules issued by the Administration, ongoing investigations by state attorneys general, and increasing scrutiny by Congress and the media will ultimately compel for-profit schools to clean up their act or else shut their doors.”

Devin Henry is an intern in MinnPost’s Washington Bureau.