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Education Stocks Pull Back After Gainful Employment Ruling

Education regulations proposed last summer cover everything from restricting incentive-based recruiting practices, the need for new job-training courses, taking action against schools which fail to advertise honestly, to requiring schools to notify students of graduation and job placement rates . Institutions would also be required to limit student enrollment to those who have high school diplomas or can readily demonstrate their readiness for university-level education. Schools must also comply with what is called the 90:10 rule in fiscal 2012, a rule stipulating that no more than 90% of a for-profit education provider's revenue may be generated from the DOE's federal student aid program.

Federal aid to for-profit education providers came to nearly $150 billion in the last academic year and is among the primary sources of income for these education providers.

"These new regulations will help ensure that students at these schools are getting what they pay for: Solid preparation for a good job," Secretary of Education Arne Duncan said Thursday. "We're giving career colleges every opportunity to reform themselves but we're not letting them off the hook, because too many vulnerable students are being hurt."

The Obama administration's final regulations on requiring for-profit schools to better prepare students for "gainful employment" -- or risk losing federal student aid revenue -- stipulated that a program would qualify for federal aid if it meets at least one of the following three metrics:
  • A minimum of 35% of former students are able to repay their loans (defined as reducing the loan balance by at least $1);
  • Estimated annual loan payments of a typical graduate do not exceed 30% of his or her discretionary income;
  • The estimated annual loan payment of a typical graduate does not exceed 12% of his or her total earnings.
  • Programs could become eligible for federal aid as early as 2015 based on performance in fiscal years 2012 through 2014.

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