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Education Stocks Pull Back After Gainful Employment Ruling

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The DOE expects 18% of for-profit school programs to fail its compliance regulations, with 5% losing eligibility for federal funding under the finalized new law.

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"We're asking companies that get up to 90% of their profits from taxpayer dollars to be at least 35% effective," Duncan said. "This is a perfectly reasonable bar and one that every for-profit program should be able to reach."

The Civil and Human Rights Coalition, a non-profit advocacy and outreach organization, said "the release of the final 'gainful employment' rule is an important and necessary step for protecting students and taxpayers from being ripped off by unscrupulous career education programs, including those for-profit colleges that are more focused on revenues than providing the level of education that their marketing brochures and recruiters promise."

"While the rule does not include many important protections urged by civil rights, student, women's, labor and consumer organizations, it sends a strong message to many for-profit career education programs to start putting students first," the group added.

"Regulation is urgently needed to hold these institutions accountable given the rising tide of debt and default rates faced by students enrolled in for-profit programs -- a majority of whom are women, minorities, low-income individuals, veterans and service members. For-profit colleges are a viable option for many of these students, but that doesn't give these businesses the right to exploit those they serve."

Sen. Tom Harkin, a Democrat from Iowa who has been a vocal critic of the for-profit education sector, said "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."

Pauline Abernathy of the Institute for College Access & Success, an education advocacy group that has pushed for stricter industry regulation, said "the only programs that would lose funding would be programs that are consistently failing to provide students with gainful employment, and are providing them with insurmountable debt."

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