US Education Dept Releases Higher Education Rule Package

The U.S. Department of Education on Thursday will release a series of new rules governing higher education, including restrictions on recruiter compensation and new requirements on disclosing graduation and job placement rates at career-focused programs.

The rules, which have been in the works for more than a year, go into effect July 1. The department said it is still on track to release the so-called gainful employment rule early next year for implementation in summer 2012. That regulation, which attempts to measure how well non-degree certificate programs prepare students for work, ties their access to federal student aid to graduates' debt loads.

"These new rules will help ensure that students are getting from schools what they pay for: solid preparation for a good job," Education Secretary Arne Duncan said in a statement.

While some of the final rules are only slightly different from their earlier iterations, released this summer, the Education Department softened the regulation regarding new non-degree certificate programs, a proposal that had been a serious concern for some schools. Beginning in July 2011, institutions must notify the department of new programs before opening them, and some may need to formally apply for approval.

However, schools will not be required to provide the department with documentation from employers showing the programs' curriculum will prepare students for relevant work and that there is a demand for such graduates, as an earlier proposal had recommended. The department said many states and accrediting bodies already require such information.

As expected, the rules also tighten incentive compensation guidelines by eliminating 12 "safe harbors" that had allowed student recruiters to be paid in part--but not solely--on their success in enrolling students. Incentive payments now cannot be based "in any part" on enrollment or financial aid metrics. Some for-profit schools have already rolled out new recruiter payment plans in advance of the change.

Other rules are intended to clarify the timeline in which schools must return federal student aid after a student withdraws, define a credit hour for the purpose of awarding federal student aid and require for-profit and vocational schools to provide prospective students with easy-to-find graduation and job placement rates and tools by which to calculate potential debt.

Schools will need to use calculations from a state, accrediting body or the National Center for Education Statistics to determine employment rates. Some institutions have come under fire, including at a recent U.S. Senate hearing, for alleged inflation of job placement figures.

For-profit colleges have opposed a number of the proposed rules, arguing the regulations could limit access to higher education as the schools are forced to slow enrollment growth, shut programs or make other changes. The schools' stocks, which have been volatile throughout the rule-making process, are all negative year-to-date.

Although the slew of rules released Thursday will quell some fears, the schools--and their investors--likely will remain anxious until the final version of the gainful employment regulation is issued. A number of institutions have already predicted slowing new-student enrollment, and Apollo Group Inc. (APOL) earlier this month withdrew its earnings guidance because of regulatory uncertainty.

The Education Department said that over the next few weeks, it will hold a series of public hearings and meetings with more than 30 organizations and individuals who submitted comments on the early version of that rule. The department said it received more than 90,000 comments on the proposal.

-By Melissa Korn, Dow Jones Newswires; 212-416-2271; melissa.korn@dowjones.com

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