What are the New Rules for Online Colleges?

The Obama administration recently released new rules for online colleges, requiring so-called “career colleges” to do a better job at preparing students for gainful employment. Failure to do so could jeopardize a college’s access to federal student aid. What are these new rules and what do they mean for online college students and online degree programs?

Online Education and Career Success

The new rule, Program Integrity: Gainful Employment-Debt Measures, is an amendment to the Student Assistance General Provisions regulations. The rule involves the Higher Education Act of 1965, which provides federal financial aid to students of post-secondary programs that lead to gainful employment in a recognized occupation. The amendment, which takes effect on July 1, 2012, is intended to provide students with a meaningful measure of a career program’s ability to lead to gainful employment. With access to critical information about a program’s performance, students can make better decisions about their futures.

According to the executive summary of the new rule posted on FederalRegister.gov, the rule’s goals include ensuring that:


  • Students enrolled in gainful employment programs are equipped to secure gainful employment instead of getting stuck with unaffordable student debt and poor job prospects
  • Federal student aid dollars are well spent

Programs that fail to meet minimum requirements will be removed from eligibility for federal student aid.

Measuring Online Degree Programs

An important performance measure for online, for-profit, and other career colleges involves student debt repayments. For example, students who cannot find gainful employment tend to default on their student loans. Under the new rules, programs with a debt repayment rate of at least 35 percent are considered programs that lead to gainful employment. If a program’s annual loan payment under the debt-to-earnings ratios is 12 percent or less of annual earnings or 30 percent or less of discretionary income, it is also considered a program that leads to gainful employment.

New Rules for Online Colleges – How Do They Help You?

What do these new rules mean to you? Because they identify poor performance and require colleges to disclose gainful employment measures, you will be able to make better decisions before enrolling in a campus or online degree program. For example, if you’re interested in a career program but find out that most students leave with excessive debt and poor job prospects, you’ll likely keep looking until you find a program that has successfully prepared its graduates, right?

Meanwhile, expect online and for-profit colleges to respond by improving program performance, developing more affordable, quality programs and offering post-training job placement services. In Part 2 of this two-part series, we’ll take a more detailed look at how students will benefit once the new rules for online colleges go into effect as well as how online colleges are responding.



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