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Too much student debt could limit for-profit college's aid access

June 2, 2011 12:00:00 AM PDT
The U.S. government is cracking down on for-profit schools, aiming to protect students from taking on too much debt.The Department of Education said most students attending vocational schools or career colleges take out student loans, and many of those students have a hard time finding jobs once they graduate, causing them to default on their loans.

The department is cracking down on taxpayer dollars that fund for-profit schools. The "gainful employment" rule will ban schools, such as DeVry University or the University of Phoenix, from accessing federal aid dollars if too many of their graduates owe too much relative to their incomes or if too few of them are paying back their loan on time.

The Department of Education said students at for-profit schools, such as culinary or technical programs, account for 12 percent of higher education students, but they default on 46 percent of student loans.

To maintain access to federal loan dollars, schools must meet at least one of the following criteria:

  • At least 35 percent of former students are paying down their tuition loans
  • Average graduate's annual loan payments are below 30 percent of discretionary income
  • Annual loan payments total less than 12 percent of salary typical for graduates in their chosen fields

The National Black Chamber of Commerce and the Hispanic Leadership Fund said the new rule could hurt minority and low-income students.

A spokesperson for the University of Phoenix said he has not seen the new funding regulations and has no comment.

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