By Julia Edwards
WASHINGTON (Reuters) - For-profit colleges on Friday criticized the Obama administration's proposal to deny federal funding to career-training institutions that students leave with high levels of debt.
The Association of Private Sector Colleges and Universities, which represents more than 1,400 for-profit schools, called the proposed rules discriminatory, saying they would disproportionately affect low-income students.
The Department of Education announced the proposed regulations on Friday, saying students should not be buried under mountains of debt by low-performing for-profit career training colleges that fail to prepare them for a well-paying job.
"Our students are juggling work, family and school and desperately need focused academic delivery and flexible schedules," Steve Gunderson, president of the Association of Private Sector Colleges and Universities, wrote in a letter to the Department of Education.
"We should be working together to increase opportunities for these very students, instead of creating barriers to access and choice," said Gunderson.
The administration's proposed regulations were "nothing short of financial discrimination," he added, speaking to reporters on a conference call.
Gunderson's group successfully challenged a similar crackdown on for-profit career training colleges in federal court in 2012, but has not decided whether it would pursue legal action against the latest rules.
Friday's proposal would impose tougher regulations than those blocked in 2012, restricting federal loan eligibility from for-profit programs in which the average debt for a graduate is more than 8 percent of his or her annual income and more than 20 percent of discretionary pay.
Additionally, for-profit colleges would be ineligible for federal aid if over a three-year period, 30 percent or more of their former students were defaulting on student loans. Schools would also have to publicly disclose program costs and what graduates typically earn.
Secretary of Education Arne Duncan told reporters at the White House on Friday that an estimated one-quarter of the 8,000 programs targeted by the proposal would have to close if the regulation were to take effect today.
The proposal could go into effect as early as July 2015 and schools would have until the end of 2016 to meet the requirements, Duncan said.
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.
Some of the largest for-profit colleges are run by publicly traded companies such as Apollo Education Group, which owns University of Phoenix, Corinthian Colleges Inc, and Devry Education Group.
The proposal will enter a 60-day public comment process before the Department of Education issues a ruling.
Mark Brenner, Apollo Education Group's chief of staff, said the company plans to tell the administration the for-profit education sector is being unfairly targeted.
"We maintain that for these regulations to meet the goal of providing a more transparent framework for students to make informed decisions, they should apply equally and equitably to all students at all institutions," Brenner said.
Duncan said for-profit college students absorb a disproportionate amount of federal student aid. According to Department of Education data, the schools enroll only 13 percent of higher education students but account for 31 percent of all loans and nearly half of all defaults.
"It's a good business model," said Duncan. "But it's not good for taxpayers and not good for the people joining it."
(Reporting By Julia Edwards; Editing by Tom Brown)