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Obama aims to tighten rules on for-profit career colleges

U.S. President Barack Obama speaks before signing a Presidential Memorandum on modernizing the overtime system to help insure workers are pa
U.S. President Barack Obama speaks before signing a Presidential Memorandum on modernizing the overtime system to help insure workers are pa

WASHINGTON (Reuters) - President Barack Obama will issue rules on Friday aimed at cracking down on low-performing for-profit career training colleges the administration says bury students under mountains of debt and fail to prepare them for a well-paying job.

The Department of Education will announce rules making it harder for "predatory, poor performing" schools to get federal funds, White House and department officials said on Thursday.

The government provides $26 billion in federal loans and $10 billion in grants annually to schools that prepare students for gainful employment, officials said. The vast majority of that funding goes to for-profit institutions that attract students with extensive marketing.

But the administration says the track record of many such schools in preparing students is poor even as it proves costly for enrollees, many of whom are low-income or military veterans.

"Students in these low-performing programs often end up worse off than before they enrolled," Education Secretary Arne Duncan told reporters.

The trade association representing for-profit colleges argues that administration efforts to rein them in would limit access to job training for hundreds of thousands of students.

White House officials said the average debt for the graduate of a for-profit program was over $23,500, yet almost three-quarters of the programs analyzed by the administration produced graduates who on average earned less than high-school dropouts.

While students at for-profit colleges make up only about 13 percent of the total higher education population, they account for 31 percent of all student loans and nearly half of all defaults, officials said.

The administration would take away federal funding for career training colleges if a graduate's loan exceeds 8 percent of earnings or if the loan default rate exceeds 30 percent.

The White House estimates that 1 million students are enrolled in programs that would either lose their funding under the new rules or face the loss of government support unless they improve their performance.

A U.S. district judge struck down the administration's first efforts to tighten rules on the for-profit career training industry in 2012, calling them arbitrary. The administration says the rules to be announced on Friday use clearer standards to judge whether career colleges are delivering quality training.

The Association of Private Sector Colleges and Universities says on its website that restrictions on the career colleges would disproportionately affect minorities, veterans, and at-risk students.

(Reporting by Mark Felsenthal; Editing by Peter Cooney)

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