Obama plans new rules to reduce amount of federal financial aid received by for-profit colleges
Business Week
May 4, 2010
The Obama Administration is gearing up to produce tougher regulations that may reduce the amount of federal financial aid flowing to for-profit colleges, cutting the companies’ annual revenue growth by as much as a third.
In response, the $29 billion industry and its supporters including Republican Senators have enlisted top Washington lobbyists and are courting black and Hispanic legislators to fight the proposed rules scheduled to be released as early as this month. The companies draw students from low-income and minority communities.
Federal aid to for-profit colleges has become an issue as it has jumped to $26.5 billion in 2009 from $4.6 billion in 2000, according to the Education Department, prompting concern that these students are taking on too much debt. Twelve higher- education stocks fell an average of 7.4 percent for the week ended April 30, according to Bloomberg data, following an April 28 speech by an Education Department official critical of for- profit colleges. In the same period, the Standard & Poor’s 500 Index dropped 1.7 percent.
“There’s an attempt to manage” for-profit colleges by the Obama administration, Robert Wetenhall, an analyst with RBC Capital Markets in New York, said in a telephone interview. The education companies’ influence in Washington has “radically changed,” from the years of the Bush administration, he said.
