CREW: Department of Education: Regarding For-Profit Education: 4/15/11 - Manheimer Emails

Pedersen, AnnMarie
From: Manheimer, Ann

Sent: Thursday, July 01,20101 :39 PM
To: Kvaal, James
Subject: FW: Huffington Post Op-ed by LaGuardia Community College President Gail Mellow: "Racing
to the Bottom With For-Profit Colleges"
Forwarding - left you a message that Pauline called - the number is on your desk - Ann
-----Original Message-----
From: Pauline Abernathy [mailto:pabernathy@ticas.org]
Sent: Thursday, July 01, 2010 12:48 PM
To: Hamilton, Justin; Arsenault, Leigh; Manheimer, Ann; Kvaal, James; Kanter, Martha;
Madzelan, Dan; Smith, Zakiya; Gomez, Gabriella; Yuan, Georgia
Cc: Jennifer Webber; Jose L. Orengo; Debbie FrankIe Cochrane
Subject: FW: Huffington Post Op-ed by LaGuardia Community College President Gail Mellow:
"Racing to the Bottom With For-Profit Colleges"
FYI--I thought you'd be interested in reading LaGuardia Community College President Gail
Mellow's op-ed in the Huffington Post (link and text
below) in which she discusses the implications for community colleges of the rapid growth in
publicly traded for-profit colleges. Pauline
http://www.huffingtonpost.com/gail-mellow/racing-to-the-bottom-with_b_63
0003.html
Racing to the Bottom With For-Profit Colleges

By Gail Mellow, President of LaGuardia Community College
Posted: June 29, 2010
Much attention has been paid to "Race to the Top," the Obama Administration's multibillion
dollar grant competition that promises states desperately needed funds if they implement
systemic reform in their K-12 schools. The funding is robust, the goals are admirable and the
challenge has engaged lawmakers and school districts to embrace critically essential changes
in the way they educate youth.
Unfortunately, we are headed in the wrong direction - a "Race to the Bottom" so to speak -
when it comes to funding our nation's public colleges and universities. Government support
for public higher education has been decreasing every year over the last 15 years, but is
shrinking even more rapidly during the Great Recession. As a result, tuition keeps rIsIng.
Faculty are being furloughed, and course offerings are being cut, making it hard for students
to stay on track towards graduation. Most importantly, community colleges across the nation,
including mine, are being forced for the first time to close admissions.
And having to shut our doors is especially damaging to our nation's future because community
colleges educate almost half of all undergraduates, and are responsible for the start of 20%
of all American born doctoral degrees.
Exacerbating matters is that just when a college degree is becoming the basic credential for
entry into the middle class, billions of taxpayer dollars are being diverted to a
questionable and expensive new player on the higher education scene: for-profit, investor-
owned colleges. These institutions, with heavy investments in marketing, have enjoyed
explosive growth. They also made enormous profits for their shareholders, with stock prices
outperforming the S&P by about 400 percentage points for the last two years.
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Of course, as we've learned from the banking industry, what's good for investors may not be
good for the average American. That is certainly the case with the for-profits. Their
startling growth has come at great cost to their students, taxpayers and public colleges.
Students who attend for-profits pay about seven times more than students attending a
publicly-run community college. For-profits are masters at tapping government programs, such
as Pel 1 Grants and subsidized student loans, to help students pay their bills. While they
educate about 9% of Americans, they receive 21% of Pell money and federally subsidized
student loans.
For students, the bottom line is much worse. They leave for-profits heavy in debt and at
great risk of defaulting on their loans. Almost one out of four bachelor's degree recipients
from a for-profit graduates with more than $40,000 in debt, compared to 6% of public
students. With such heavy debt load, the default rate for for-profit students is simply
extraordinary. Nearly one-quarter of students default after four years, compared to less than
10% of borrowers from public colleges.
When students default, the for-profits come out unscathed. Taxpayers guarantee the loans,
protecting lenders and the colleges. But students in default have their wages garnished, are
ineligible for future student aid, and stand virtually no chance of ever securing a mortgage.
More than leaving students crushed under punish ing debt, for-profits also don't make heavy
investments in actually educating their students.
Less than one-third of every dollar they spend goes into instruction, while the bulk is
allocated for marketing, executive compensation, and shareholder profits.
DeVry University, not even the biggest of these for-profits, had income of $1.4 billion,
spent over $250 million on advertising, and made a tidy profit of $165 million in 2009. Yet
almost 90% of its operating money came from public tax dollars.
Moreover, without full-time faculty, for-profits are able to cut corners, while students lose
out on having the opportunities to engage with professors over the course of their academic
career. Serious questions have also been raised about the value of the credits earned and
degrees conferred at the for-profits. Students seeking to transfer too often are told their
credits won't count and news reports have drawn attention to the worthless degrees granted by
some of the shadiest players in this market.
Our nation's public colleges and universities also end up being harmed by the rapacious
growth of the for-profits. The explosion in their enrollment wasn't by government design.
Because we do not have a clear vision of what higher education in America should look like,
the for-profit colleges rushed into an unregulated marketplace, garnered the interest of
investors, spent heavily on advertising and grew by drawing on publicly-funded grants and
loans. These national giants are sapping the public dollars that should be invested in our
nation's community colleges to build labs, hire faculty, and purchase computers.
Perhaps some balance among investments and results will come from the just announced hearings
being convened by Senator Tom Harkin to examine federal education spending at the for-
profits, and the request for investigation into these institutions made this week by
Democratic lawmakers to the Government Accountability Office. But these moves represent just
a first step. If our nation is once again going to lead the world in the highest proportion
of colleges graduates - America now ranks tenth and we are falling fast - and if we are once
again going to be the engine that powers the global economy, we need a national commitment to
what we know works.
Indeed , America's startling growth in the 20th century was the result of government's
investment in public higher education. The G.I. Bills, Pell grants, funding for scientific
2
research} the extraordinary creation and growth of community colleges all propelled our
nation to lead the world economically} socially} politically} and culturally.
Today} we need a similar investment. The question is where's the funding going to come from
in this time of record high deficits? I would argue that maybe it isn't a matter of new
spending} but spending those dollars more wisely. The public dollars that go to the for-
profit colleges would be far better spent by increasing the capacity of our public colleges}
especially her community colleges} to better serve more students. The over $1.3 billion that
the top five for-profits get in Pell grants alone
- not to mention the overall $26.5 billion the for-profits took in federal money last year -
would be a good place to start.
***
Dr. Gail o. Mellow is President of LaGuardia Community College (of the City University of New
York) and co-author of Minding the Dream: The Process and Practice of the American Community
College.
Pauline Abernathy
Vice President
The Institute for College Access & Success www.ticas.org and www .projectonstudentdebt .org
TICAS: 51e .318.7gee Direct: 51e.318.7ge3
3
Pedersen, AnnMarie
Subject: Lunch
Location: TBD
Start: Wed 6/30/2010 11:45 AM

End: Wed 6/30/2010 1:15 PM
Show Time As: Tentative
Recurrence: (none)
Meeting Status: Not yet responded
Organizer: Manheimer, Ann

Required Attendees: Shireman, Bob
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Pedersen, AnnMarie
From: Manhe imer , Ann

Sent: Thursday, June 03, 2010 9:13 AM
To: Gilcher, Kay
Subject: FW : reoKvaai/inside higher Ed
forwarding
- - - - "- -- -- - - - ---------------- -- --- - - ---- - - - -- - - --

From: Glickman, Jane
Sent: Thursday, June 03, 2010 8:58 AM
To: Hamilton, Justin; Shireman, Bob; Madzelan, Dan; Greene, Chris; Babyak, Stephanie; Manheimer, Ann; Arsenault,
Leigh
Subject: reo Kvaal/lnside higher Ed
http://www.insidehighered.com/news!2010/06/03/kvaal
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Pedersen, AnnMarie
From: Sellers, Fred
Sent: Tuesday, May 18, 2010 12:16 PM
To: Fine, Stephanie
Cc: Manheimer, Ann; McCullough, Carney; Smith, Kathleen; Kolotos, John
Subject: RE: need for conference call on reg package
I forgot to add that David Bergeron is free from 2-4 even though his calendar looks busy.
Thanks.
From: Sellers, Fred

To: Fine, Stephanie
Cc: Manheimer, Ann; McCullough, Carney; Smith, Kathleen; Kolotos, John
Subject: RE: need for conference call on reg package
FYI. Stephanie, per my call, we need to resolve some outstanding issues from comments by Tony and Bob Shireman and
are hoping you and Ann Manheimer can help in finding a time to set this meeting up. The addressees below are in order
of most needed, I think unlike my initial listing to Ann.
Thanks for your help.
Fred
Miller, Tony; Shireman, Bob; Bergeron, David; Kolotos, John; Finley, Steve; McFadden, Elizabeth; Yuan, Georgia; Sann,
Ronald; Sellers, Fred; Klock, Dan; Chesley, Susan; Jablonski, Sandy; Higgins, Shannan; Jenkins, Harold; McCullough,
Carney; Guthrie, Marty; Madzelan, Dan; Manheimer, Ann; Fine, Stephanie
From: Sellers, Fred

Sent: Tuesday, May 18, 2010 11:47 AM
To: Manheimer, Ann
Subject: need for conference call on reg package
Am calling you.
Madzelan, Dan; Bergeron, David; Shireman, Bob; Finley, Steve; McFadden, Elizabeth; Jenkins, Harold; Kolotos, John;
Jablonski, Sandy; Yuan, Georgia; Miller, Tony; Chesley, Susan; Manning, James; Fine, Stephanie; McCullough, Carney;
Jablonski, Sandy; Guthrie, Marty; Higgins, Shannan; Klock, Dan; Sann, Ronald
Fred Sellers
Senior Policy Analyst
U.S. Department of Education
1990 K Street, NW, Room 8021
Washington, DC 20006
Phone: (202) 502-7502
Fax: (202) 502-7874
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Pedersen, AnnMarie
Subject: Use of Testors
Location: 7E312
Start: Thu 5/20/2010 3:00 PM

End: Thu 5/20/2010 4:00 PM
Show Time As: Tentative
Recurrence: (none)

Required Attendees: Shireman, Bob; Woodward , Jennifer; Wolff, Russell
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Pedersen, AnnMarie
SUbject: Topic for your 8:30 mtg
Location : @ 8:30 mtg
Start: Thu 5/ 1312010 8:15 AM

End: Thu 511312010 8 :45 AM
Show Time As: Free
Recurrence : (none)

Required Attendees: Shireman, Bob
(b)( 5)
Pedersen. AnnMarie
From: Lehr, Susan M. [SLEHR@fscj.edu]

Sent: Wednesday, May 05, 2010 3:37 PM
To: Manheimer, Ann
Subject: RE: Susan from FLORIDA !
Attachments: image001 .jpg
Sure, I will get right on it!
From: Manheimer, Ann [mailto:Ann.Manheimer@ed.gov]

Sent: Wednesday, May OS, 2010 3:36 PM
To: Lehr, Susan M.
Subject: RE: Susan from FLORIDA!
Susan - thanks for writing - I have not forgotten your request - may I trouble you for some information - 2 or three
success stories where student aid has helped turn around the life of a student. Thx much - ann
- - - - ---- -_._ -_._- -._ -_
From: Lehr, Susan M. [mailto:SLEHR@fscj.edu]
__ .
Sent: Thursday, April 29, 2010 9:35 AM

To: Manheimer, Ann
Subject: Susan from FLORIDA!
Hi Ann,
Great to meet you last week in our meeting with Pauline Abernathy. We are thrilled today to see the article in Inside
Higher Education on Shireman's speech. WOW! Tomorrow is last day of our legislative session so next week I can really
tune into the ways we, in Florida can help . I will also be doing a guest post at Inside Higher Education.
Now, I have two requests if you can help. First, can DE provide us any info on the 8% impact on community colleges? Jim
Simpson and I are working on colleges in other states and such info will help us convince them and AACC to come on
board in support. Second, if it is possible to do any "student secret shoppers" in Florida we can suggest some locations
where we believe there are many "irregularities" going on. Here is my list:
• Jacksonville. Florida: Everest University (located in suburb of Jacksonville called Orange Park, FL), Concorde
Career Institute, Advanced Career Training, Sanford Brown Institute, Florida Technical College
• Orlando: lIT Technical Institute in Lake Mary, Everest University, Florida Technical College, Centura Institute
• Miami: Everest institute (2 locations), Florida career college, ATI College of Health
• Tampa: Concorde Career Institute, Florida Career College, Everest Univers ity, Gulf Coast College
Thanks Much!
Susan M. Lehr
Vice President, Government Relations
Florida State College at Jacksonville
Office: 904.632.3391 Cell: 904.537.7195
slehr@fscj.edu
FLORIDA
n ..lf C O t l( ~
. , J.. c 11. • • " . 1111 ·
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Florida's verybroad public records law, mostwritten communications to or from Collegeemployees regarding College business are public records, available to the public and media upon request.
Therefore , this e-ma il communication may be subject to public disclosure.
16
Pedersen, AnnMarie
From: W iley, Debra

To: Taggart, Bill; Manning , James ; Minor, Robin; Leon, Geneva
Cc: Barth, John; Greene, Chris; Manheimer, Ann
SUbject: FW: Reason to watch PBS tonight
Hi all. See John's note and the link describing the program to air this evening about for-profit colleges---a top ic that
makes some of us feel th is is deja vu ....
Thanks,
Deb
Debra Wiley
FSA Ombudsman
U.S. Dept. of Education
830 First St. NE, MIS 5144
Washington , DC 20202-5144
202-377-3801
202-377-3800 general office number
202-275-0549 FAX
visit our website at www.ombudsman.ed.gov
CONFIDENTIALITY NOTICE : This e-ma il message , including any attachments, is for the sole use of the intended
recipient and may contain confidential and privileged information . Any unauthorized review, use, disclosure or distribution
is prohibited. If you are not the intended recipient , please contact the sender by reply e-ma il and destroy all copies of the
original message
From: Barth, John

Sent: Tuesday, May 04, 20109:28 AM
To: Wiley, Debra; Turpenoff, Mike; McDade, John; Jennings, Corwin; Bartkowiak, Thaddeus
Subject: Reason to watch PBS tonight
Frontline will air a program this evening on for profit colleges.
http://chronicle.com/article/Financial -Affairs-TV/65393/?sid=at&utm source=at&utm medium=en
John Barth
U.S. Department of Education
Federal Student Aid
Office of the Ombudsman
Room 41F5
830 First St., NE
Washington, DC 20202-5144
(202) 377-3913
FAX (202) 275-0549
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john.barth@ed.gov
visit our website at: www.ombudsman.ed.gov
Confidentiality Notice: This e-mail message, including any attachments, is for the sole use of the intended
recipient and may contain confidential and privileged information. Any unauthorized review, use,
disclosure or distribution is prohibited. If you are not the intended recipient, please contact the sender
by reply e-mail and destroy all copies of the orignial message.
18
Pedersen, AnnMarie

Sent: Tuesday, May04,2010 11:16AM
To: Gilcher, Kay; Shireman , Bob
Cc: Estrella-Lemus, Angela ; Manheimer, Ann
Subject: materials for potential briefing on accreditation
Attachments: Accreditation Recognition4.pptx; NACIQI Nominees.doc
Any further comments/changes needed? - A
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(b)(5)
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Pedersen, AnnMarie
From: Pauline Abernathy [pabernathy@t icas.org]

Sent: Thursday, April 22, 2010 3:48 PM
To: Manheimer, Ann
SUbject: FW: materials for meeting tomorrow
Attachments: QA on Gainful Employment - Final.pdf; Neg Reg Fact Sheet - Final.pdf; TICAS memo on CRA
Report 4_15_1 O.pdf
You could give these to those attending . We've sent many other things to the neg reg negotiators
and Bob since January as well.
Will it just be the Dep Secy and Dep General Counsel attending for ED?
From: PaulineAbernathy
Sent: Wednesday, April 21, 2010 7:10 PM
To: PaulineAbernathy
Cc: 'Patrice.willoughby@mail.house.gov'; 'Patricia.villarreal@mail.house.gov'; 'Gloria,Chan@mail.house.gov'; Connie Myers; Debbie Frankie Cochrane; 'Angela
M. Peoples'; 'Deanne Loonin'; Jamienne S. Studley; Barmak Nassirian
Subject: Gainful employment fact sheet, memo and Q&A
Tri-Caucus members:
In response to several questions about "gainful employment," the Project on Student Debt worked with student,
consumer and higher education organizations to create the attached fact sheet and Q&A. Produced jointly by
the U.S. Student Association, National Consumer Law Center, Public Advocates, American Association of
Collegiate Registrars and Admissions Officers, and Institute for College Access & Success, the attached provide
background on gainful employment and incentive compensation, as well as answers to common questions about
the regulatory process and gainful employment. Also attached is a two-page memo to interested parties
regarding the recent Career College Association paper on gainful employment.
We hope you find these materials helpful and will contact us with any questions related to college access and
success.
«QA on Gainful Employment - Final.pdf» «Neg Reg Fact Sheet - Final.pdf» «TICAS memo on CRA Report
4_15_1O.pdf» .
Pauline Abernathy
Vice President
The Institute for College Access & Success
www .ticas.org and www.projectonstudentdebt.org
We moved! TICAS' main number is now 510.318.7900. My direct line is 510.318.7903.
1
NCLC ~ t he institute for
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Q&A on Gainful Employment

April 2010
Q. Will defining gainful employment hurt good schools offering quality programs?
A. No! Schools that provide meaningful education and training that students can afford will
benefit, while schools that do not will have to improve their programs or lower their prices in
order to remain eligible to participate in federal aid programs.
Q. Will it hurt minority and low-income students by reducing their access to college ?
A. No! To the contrary, defining gainful employment will help poor and minority students by not
subsidizing unscrupulous schools offering programs that leave students deep in debt with no
ability to repay. For example, one major for-profit school is making private loans directly to its
students while telling investors it expects nearly 60% to default.
The for-profit sector made the same claim about college access when Congress first proposed
limiting federal aid for schools with high student-loan default rates. In fact, the cohort default
rules did not reduce student access but did reduce students loan defaults. Similarly, defining
gainful employment will protect students and taxpayers from being ripped off while prompting
some schools to improve their programs and/or charge less if they want to continue receiving
federal aid.
Q. Why not give the industry and Department more time to study the issue andjointly develop a
proposal?
A. The Department repeatedly solicited input during the three month long negotiated rulemaking
process, and the for-profit sector never offered a single proposal for defining gainful
employment. Instead, it focused its efforts on arguing that the Department did not have the
statutory authority to define gainful employment. Existing law has long required certain
programs to prepare students for gainful employment, but without a definition, the Department
cannot enforce the law.
Q. Does federal law require only for-profit programs "to prepare students for gainful
employment " ?
A. No, the law applies to any vocational program ofless than two years, including those offered by
nonprofit and public colleges. Most community colleges offer such programs, but have nothing
to worry about. This is because fewer community college students borrow, and those who do,
borrow much less than students in other sectors. As a result, most community college programs
would easily meet the gainful employment tests currently under consideration. By contrast,
students attending for-profits have the highest average debt levels of any sector and are the most
likely to default on their student loans.
Q. Would improving consumer disclosures be a better solution?

A. Without a definition of gainful employment, the Department cannot enforce the law or protect
students and taxpayers. With students attending for-profits now accounting for such a large and
rapidly growing share of federal student aid, enforcing this statutory requirement is more
important than ever before.
NCLC®
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Protecting Taxpayers & Students:
Incentive Compensation & Gainful Employment Regulations
April 2010
Last spring, the Obama Administration initiated a negotiated rulemaking process to update and
strengthen regulations intended to prevent the exploitation of students and protect taxpayer
investments in college financial aid. Based on input at public hearings around the nation, the
Education Department identified areas needing revision, including incentive compensation and
gainful employment.
While these financial aid regulations apply to public , nonprofit and for-profit colleges, the stakes
for students and taxpayers are highest in the for-profit sector:
• Nearly half of student loan borrowers who entered repayment in 2007 and defaulted by
2009 attended for-profit schools (44 percent), even though only 7 percent of students
attend these schools. I
• Nearly one in/our Pell Grant dollars went to students attending for-profit schools in
2008-09 (24% or $4.3 billion), almost double the share a decade earlier?
• Students at for-profit institutions are more likely to borrow, and to borrow much more,
than students in other sectors:
o At for-profit institutions, 96 percent of bachelor's degree recipients had student loans
in 2008, and their average debt was $33,050. At public and non-profit colleges, 65
percent of bachelor's degree recipients had loans, and their average debt was $22,750.
o At for-profit institutions, 98 percent of associate's degree recipients had loans in
2008, and their average debt was $19,700. At public and non-profit colleges, 40
percent of associate's degree recipients had loans, and their average debt was
$10,900. 3
Incentive Compensation: To protect students from high-pressure and deceptive sales tactics,
federal law has long banned colleges from providing "any commission, bonus , or other incentive
payment based directly or indirectly on success in securing enrollments or financial aid."
• The Bush Administration undercut this prohibition by allowing such payments if they
were not based "solely" on the number of students recruited or aid received.
• Since this change in 2002 , egregious examples of overly aggressive recruiting have
emerged. One for-profit recently paid $78 million to settle a whistleblower False Claim
Act lawsuit and paid an additional $10 million to the Department of Education to resolve
claims over improper incentive compensation to recruiters.
• The Obama Administration proposed making the regulations consistent with the statutory
ban on incentive compensation, while providing colleges with public guidance to help
I TICAS analysis of U.S. Department of Education three-year Cohort Default Rate data for FY 2007.
2 U.S. Department of Education, Office of Postsecondary Education (OPE), "Pell End of Year Report," 2008-09,
1998-99, http://www2.ed.gov/finaid/prof/resources /data/pell-data.htmI
3
Calculations by TICAS on U.S. Department of Education, Nat ional Center for Education Statistics (NCES),
National Postsecondary Student Aid Study (NPSAS), 2007-08, http://nces.ed.gov/surveys/npsas /
them comply and allowing them to pay employees based on performance unrelated to the
number of students enrolled or amount of aid awarded .
• A group non-federal negotiators, including representatives of public, non-profit and for-
profit colleges, met throughout and between negotiating sessions to debate and discuss
new regulations for incentive compensation. Their shared agreement formed the
backbone of the draft regulations discussed by the larger group of negotiators, but the for-
profit representative changed position and blocked consensus on the revised regulations
in the final minutes of the last session.
Gainful employment: In order to be eligible for federal student aid programs, federal law
requires most programs offered by for-profit institutions, and any program of less than two years ,
to "prepare students for gainful employment in a recognized occupation." Yet the current
regulations include no official definition of "gainful employment." As a result, some
unscrupulous schools are recruiting students for expensive programs that do not train people for
jobs that pay enough to cover the cost of attending the program. Such programs leave students
deep in debt they cannot repay, and cost taxpayers millions of dollars in Pell Grants and
defaulted student loans.
• The Obama Administration has proposed defining gainful employment to ensure that
students and taxpayers get their money's worth, and that students have a fair shot at being
able to repay their student loans after graduating.
o Defining gainful employment will prevent students and taxpayers from getting ripped
ofJ, not limit access to quality programs. Just as it has before, the for-profit sector is
falsely claiming that any changes will deny students access to vital programs. When
Congress first proposed limiting federal student aid for schools with extremely high
student default rates, the for-profit sector also claimed it would reduce student access.
However, the cohort default rules did not reduce student access and did reduce loan
defaults. Similarly, defining gainful employment will simply require some schools to
improve their programs and/or charge less.
o A recent analysis by UBS concluded that many schools could afford to lower prices
and still make a healthy profit given their high operating margins, including a 37%
operating margin at ITT, 34% at Strayer, and 28% at Apollo. UBS found that any
impact from the Department's gainful employment proposal would be more than
offset by for-profits ' gains from state budget cuts for public colleges, which create
lucrative opportunities to recru it students to for-profit institutions.4
• The Obama Administration has welcomed suggestions for how best to measure gainful
employment.
o During the three-month-long negotiated rulemaking process that began last fall, the
for-profit sector never offered any proposals for defining gainful employment.
o The Education Department plans to issue a draft regulation in May, after which there
will be a public comment period . After comments are received, final rules will be
issued by November I, 2010, and the new rules will begin to take effect July 1, 2011.
4 vas Investment Research, Education 101, March 18,2010, by Andrew Fones.

MEMO
TO: Interested Parties

FROM: The Institute for College Access & Success
DATE: April 15, 2010
RE: Charles River Associates Report on Gainful Employment prepared for the
Career College Association
The Career College Association (CCA) recently commissioned a study of how their
institutions and programs would fare under an Education Department proposal for defining
gainful employment.' As a condition of participating in federal student aid programs ,
federal law has long required most programs offered by for-profit institutions and any
program of less than two years to "prepare students for gainful employment in a
recognized occupation." Yet there is no official definition of "gainful employment." With
enrollment in these programs rising rapidly-now accounting for nearly 1 in 4 federal Pell
Grant and federal student loan dollars-the Obama Administration has proposed defining
gainful employment.
Using data provided by CCA and not publicly available, Charles River Associates (CRA)
found:
• Students from for-profit colleges are much more likely to default on student loans.
According to their own analysis, even after controlling for demographic differences
among students, for-profit college students are twice as likely as other college students
to default;
• Few for-profit programs would be affected by proposed definition. Their own
analysis found that only a small minority of for-profit programs currently do not meet
the proposed 8-percent median debt-to-income ratio test; and
• No loss of student access to college. Their study indicates that other colleges would
be well positioned to absorb the students who might have enrolled in programs that
failed to meet the test-and would serve them much better.
Their own findings therefore further support the Administration's proposing a clear and
enforcable definition of gainful employment that will prevent taxpayer dollars from being
used to subsidize programs that leave students worse off than before-deep in debt and no
better prepared for gainful employment.
Twice as Likely to Default

Demographic factors , such as income, gender, race and family size, playa role in the
likelihood of defaulting on federal student loans, but they do not tell the whole story. CRA
controlled for these and other factors to determine the effect of a student's school on the
likelihood of defaulting, and found that students attending for-profit colleges were twice as
1 "Report on Gainful Employment," prepared by Charles River Associates for the Career College
Assoc iation, April 2, 2010, including Executive Summary dated March 29, 2010.
likely to default as students at other colleges? Even if all students at for-profits completed
their academic programs, CRA estimates that about 12 percent of their students would still
default on their student loans, compared to about six percent at community colleges after
controlling for demographic differences.
Few Programs Would Be Affected

Using CCA data on student graduation, tuition charges , and indebtedness for more than
10,000 academic programs, CRA found that 82 percent of for-profit school programs
would currently pass the Department's proposed 8-percent median debt-to-income test.
The Department's proposal is intended to ensure that the majority of graduates of a
particular program are able to repay their loans without hardship , and more than four out of
five for-profit programs would meet this standard. The Department has also offered two
alternative ways for colleges to demonstrate that their programs are sufficiently preparing
students for gainful employment, but the eRA report does not estimate the effects of these
alternatives. It is possible that some or many programs will meet one of these alternati ve
gainful employment standards, narrowing the share of affected programs even further.
No Loss of Student Access

Colleges with programs that cannot demonstrate that they are adequately preparing
students for gainful employment under any of the proposed standards will have several
options. They could improve their program quality so that students are better prepared for
employment opportunities, or they could reduce what they charge so that students are
better able to repay what they borrowed to attend the school. This is similar to what
happened when the Department first began enforcing sanctions for very high cohort default
rates. In response, many schools adjusted their practices to lower their default rates so the
schools would remain eligible for federal student aid, and the share of students defaulting
on their student loans decreased substantially.
Even if some schools choose to eliminate, rather than change, a program, students
currently enrolled in these programs will have plenty of options , including enrolling in
public, private non-profit, or the vast majority of for-profit programs that meet the
Department's proposed standards. While enrollment has increased in all college sectors,
state budget shortfalls and shrinking endowments have limited many public and nonprofit
colleges ability to increase enrollment. Given that the vast majority of for-profit college
programs currently meet the Department's gainful employment standard, and the sector
says it has the ability to rapidly expand enrollment, students will still have plenty of
options, but at a lower cost and greater benefit. Taxpayers and the economy will benefit as
well from lower student default costs and a better-trained workforce.
2 Figure 7 in the eRA analysis shows that students at private not-for-profit 2-year or less institutions were
less likely than for-profit students to default , but more likely than students at other types of colleges. We
exclude them here because only one percent of students in the Beginning Postsecondary Students
Longitudinal Study (BPS : 96/98/01), which eRA used for its analysis, attended these types of colleges.
2
Pedersen, AnnMarie
Sent: Thursday, April 15, 2010 8:41 AM
To: Pauline Abernathy
Cc: Manheimer, Ann
Subject: RE: Application of GE
Pauline - hang on - I want to double check on an exception for liberal arts programs in the HEOA 2008

Subject: FW: Application of GE
Here is what I have come up with - is this helpful? Enough info (I have boiled it down)?
GE applies to certificate programs at all schools and to all programs offered at for-pro fit schools.
In the case where a proprietary school buys a nonprofit, the SA programs (which were not previously subject to GE)
would now be subject to GE .

Sent: Monday, April 12, 2010 11:00 AM
To: Manheimer, Ann
Cc: Debbie Frankie Cochrane; Deanne Loonin
Subject: Application of GE
Ann,
Per our conversation, it would help to understand to which entities the GE standard currently applies.
The confusion appears to stem in part from the provisions added in the HEOA and in part from reported
differences among the FSA Handbook, regs and statute. I wrote up the questions and issues based on
information from Deanne and Debbie, but any inaccuracies are my own. Thank you!
The FSA Handbook, I am told, says in order to be considered an 'institution of higher education' for title
IV purposes, an institution has to offer programs no less than one year in length, along with being non-
profit. Other institutions are in a separate category, as proprietary or vocational institutions. But once
the institution is eligible, each individual program mayor may not be eligible. Gainful employment
pertains solely to program eligibility, not institutional eligibility (we believe). This would suggest that
gainful employment would apply to everything at proprietary and vocational colleges, and all sub-degree
(less than two year programs) at institutions of higher education.
The HEOA added a category that allows a proprietary institution to offer programs leading to a ,-
baccalaureate degree in liberal arts if the school previously provided such programs and is regionally
accredited. There is no gainful employment requirement here.
Questions:
39
o [f a proprietary school like Univ. of Phoenix meets the HEOA provision standards, are then
none of its programs subject to the GE requirement, or is just their BA in liberal arts not
subject to GE? I believe Congress intended the latter but is this how ED interprets it as
well?
o If a proprietary school buys a nonprofit that has previously offered a BA in liberal arts and
is regionally accredited, are all of the proprietary school's programs now exempt from GE?
I don't believe Congress ever intended this to apply to for-profits that purchased a
nonprofit, but is this how ED interprets it?
For the nonprofit schools, there could be an argument that a general eligibility stamp of approval would
flow to all of their programs, even non-degree programs. However, the FSA handbook reportedly states
that a school's eligibility does not necessarily extend to all of its programs. The school must ensure that a
program is eligible before awarding FSA funds.
There is, however, another distinction that may be important. The provisions in 101(b) state that a non-
profit may be an eligible institution of higher education if it provides not less than a one-year program of
training to provide students for gainful employment. This section does not say that it must be an eligible
program. The same issue arises in the regulations at 34 C.F.R. 600.4. The regs say only that these
institutions must provide an educational program, not an eligible educational program. However, the
eligible program regulations at 668.8(c) use the term "eligible program" in referring to non-profit
institutions of higher education, but do not specify time requirements as is the case for proprietary
institutions.
Clearly non-profits may offer non-degree programs that by definition must prepare students for gainful
employment. This should be sufficient to conclude that the definition of gainful employment would apply
here. However, there is some ambiguity because the statute does not specifically say that the program
must be "eligible." Does this just mean that they do not have to refer to the definitions in 1088 re: clock
hours? One would think that the school cannot qualify to offer non-degree programs based on their
eligibility qualifications offering degree programs and so they must independently ensure that each
program is eligible. This would mean that if it is a non-degree program at an institution of higher
education (meaning a non-profit), the program must be independently eligible and so must prepare
students for gainful employment. Is this how ED sees it? Margaret Reiter asked this question in an e-mail
to Fred Sellers during the neg reg. In contrast, in order to be an eligible PROPRIETARY institution of
higher education, the school must provide an ELIGIBLE program of training to prepare students for
gainful employment in a recognized occupation.
It is therefore clear that the proprietary institutions must also offer "eligible" programs. These are
defined in section 1088(b). As Margaret pointed out, this section does not explicitly refer back to section
1002. These are mostly time-related categories.
Pauline Abernathy
Vice President
www.ticas.org and www.projectonstudentdebt.org
We moved! TICAS' main number is now 510.318.7900 . My direct line is 510.318.7903.
40
Pedersen, AnnMarie
Sent: Thursday, April 15, 20108:41 AM
To: Shireman, Bob
Subject: RE: Application of GE
Thx - yes - double checking this

- --_._-- --- - -- -- - - --- - - - - - - - _ ._-._-- _._---- - - - - - - - -
From: Shireman, Bob
To: Manheimer, Ann
Subject: Re: Application of GE
BUT there is the liberal arts exception to the general for-profit rule (added by the HEOA in 2008).

To: Shireman, Bob
Sent: Wed Apr 14 16:12:38 2010
Forwarding - I meant to bce you on this.

Here is what I have come up with - is this helpful? Enough info (I have boiled it down)?
GE applies to certificate programs at all schools and to all programs offered at for-profit schools.
In the case where a proprietary school buys a nonprofit, the BA programs (which were not previously subject to GE)
would now be subject to GE .

To: Manheimer, Ann
Ann,
Per our conversation, it would he lp to understand to which entities the GE standard currently applies.
IVpurposes, an institution has to offer programs no less than one year in length, along with being non-
41
The HEOA added a category that allows a proprietary institution to offer programs leading to a
Questions:
o If a proprietary school like Univ. of Phoenix meets the HEOA provision standards, are then
none of its programs subject to the GE requirement, or is just their BA in liberal arts not
well?
institutions.
42
Pauline Abernathy
Vice President
We moved! TICAS' main number is now 510.318.7900 . My direct line is 510.318.7903.
43
Pedersen, AnnMarie
From: Pauline Abernathy [pabernathy@ticas.org]

Sent: Wednesday, April 14, 20106:02 PM
To: Manheimer, Ann
Cc: Arsenault, Leigh
Subject: RE: Draft memo on CCA report on gainful employment
Attachments: ED Proposal-Gainful Employment-Jan10.pdf
Got it. Several people at the neg reg believe David Bergeron said it would be phased in (that is the
impression I got also) and the note on page 3 of the attached (ED's proposal) suggests so as well but
I was not sure if ED was confirming this. Given your answer, it sounds like our memo should not be
so specific. Thank you!
From: Manheimer, Ann [mailto:Ann.Manheimer@ed.gov]

Cc: Arsenault, Leigh
Ok, on this one, here is what I found - in the email below, it is correct that new regs would take effect on July 1, but
because there was no discussion on the proposal- the how's or when 's of implementation were never discussed. We
don't know when the reporting requirement would have gone into effect - right away, with a delay, or what; we would
probably have considered reporting time periods, when the data is available, etc. There really isn't any documentation
anywhere to support the rest of the timeline . Call me if you want to talk this through a bit - Ann
__ _-_.__
- - _.__ .._- _._----_. .. .
Sent: Wednesday, April 14, 2010 6:49 AM
To: Manheimer, Ann; Arsenault, Leigh
Here's slightly revised version.
«Response to CRA Report April 13.doc»

From: Pauline Abernathy
Sent: Tuesday, April 13, 2010 9:53 PM
To: 'Manheimer, Ann'; 'Arsenault, Leigh'
Subject: Draft memo on CCA report on gainful employment
Attached is a draft of a brief two-page memo to interested parties on the CCA-commissioned analysis
of the Department's last public proposal. Any quick feedback is welcome before we circulate it more
widely, and we have one question as well: Is it accurate to say that under the Dept's last public
proposal the new regulations would go into effect July 1, 2011, the first three-year data would be
shared with schools in 2012, but the 8% standard would not be enforced until 2014 at which time
there would be three years of data out since the reg was adopted? This was my and others'
understanding but before we say this in writing I want to make sure it accurately describes the last
public proposal. Thank you!
« File: Response to CRA Report April 13.doc »

44
Pauline Abernathy
Vice President
We moved! TICAS' main number is now 510 .318.7900. My direct line is 510.318.7903.
45
1 PART 668-STUDENT ASSISTANCE GENERAL PROVISIONS
2 Subpart A-General
."J
* * * * *
4 §668.6 Gainful employment in a reco{wized occupation.
5 (a) General. (1) An institution is considered to provide an eligible program that prepares
6 students for gainful employment in a recognized occupation
. - _..if. the Secretary detennines at the
7 end of each three- ear eriod that the debt to eumings ratio ssociated with the ro 'am is eight
8 percent or less. If the debt to eumings ratio for a program is more than eight percent. the
9 Secretary may nevertheless consider that proQram to be an eligible program if it satisfies an
10 altemative measure under paragraph (c) of this section.
11 (?) For purposes of this section-
12 (i) A program refers to any educational prOQratll offered by the institution under
13 §668.8(c)(3) or (d).
14 (ii) A three-year period is the period covering the three most recently completed award
15 vears:
16 (iii) In accordance with procedures established by the SecretaD'. the institution must
17 report for each student who completes or Qraduates f1-om a program-
18 CA) The Classification ofInstlUctional Program (eIP) code for the program:
19 CE) The date the student completed or graduated from the program: and
20 (C) The amounts the student receiyed from institutional loans. and private educational
21
22 (b) Debt to eamings ratio. As illustrated in Appendix A to this subpart. the Secretary
23 calculates the ratio for the three-vear period by--
24 (1) Detennining the~loan debt of students who completed or graduated fi'om the
')-
...J-.--
_J program (loan debt includes title IV. HEA program loans (except Parent PLUS). institutional
26 loans. and private educational loans) dUling the three-vern- period and using the median loan debt
27 to calculate an aIUlUalloan payment based on a 1O-year repavment schedule and the current
28 atlllual interest rate on Unsubsidized Federal Stafford Loans or Direct Unsubsidized Loans.
1
1 (2) Using the most current Bureau of Labor Statistics (BLS) data, available at
2 http://www.bls.gov/oes/current/oesstru.htm. to determine the annual earnings, at the 25 th
3 percentile, made by persons employed in occupations related to the training provided by the
4 program. The Secretary may use national or regional BLS earnings data: and
5 (3) Dividing the amount of the arumalloan payment by the annual earnings, rounding
6 down to the nearest one tenth.
7 (c) Altemative measures. A program with a debt to eamings ratio of more than eight
8 percent may continue to qualify as an eligible progranl if--
9 (1) Loan repayment rate. The Secretmy determines that students who completed or
10 graduated from the program have a 90 percent loan repayment rate. The loan repayment rate is
11 calculated bv--
12 (i) Deternlining the number of student borrowers who entered repayment during the
13 three-year period, except that this number does not include borrowers who at the end of this
14 period are in an in-school defennent status or on any military-related deferment status;
15 (ii) Ofthe number of borrowers who entered repayment, determining the number of
16 borrowers who are actively repaying their loans. For this purpose, a borrower is considered to be
17 activelv repaying a loan ifhe or she made scheduled loan payments under a loml repayment plml
18 and at the end of the three-year peliod the borrower--
19 (A) Is not delinquent or in default on the loan: or
20 (B) Is not in a defennent or forbearance status; and
21 (iii) Dividing the number of borrowers who are actively repayinl! their loans under
22 paragraph (b)(2)(ii) of this section by the number of borrowers who entered repayment under
23 paragraph (b)(2)(i) ofthis section and multiplying the result by 100: or
24 (2) Actual eamings. (i) The institution submits infonnation acceptable to the Secretary
25 showing that students who completed or graduated from the prOgram during the three-year
26 period had earnings, from occupations related to the training provided bv the prOgram, that are
27 higher than the BLS earnings used in calculating the debt to earnings ratio under paragraph
28 (b)(1) of this section; and
2
1 (m By using the actual earnings to recalculate the debt to earnings ratio. the institution
2 meets the eight percent requirement in paragraph (a)(1) of this section.
3 (d) Deadline for submitting documentation. The institution must submit the
4 documentation required under param-ap11 (c)(2) oft11is section no later than 45 days after the date
5 the Secretary notifies the institution a program does not satisfy the debt to earnings requirement
6 under paragraph (a) orthis section or the loan repayment rate measure under paragraph (b)(1) of
7 this section.
8 (e) New and additional programs. (1) The institutiol1must apply to the Secretary under
9 34 CFR 600.1O(clO) to have a new program designated as an eligible program. and as part of
10 that process the institution must provide the CIP code for that program. Until program -specific
11 loan data are available. the Secretary calculates the debt to eamings ratio for a new program by
12 using the median loan debt incurred bv students who completed or graduated from anv prOlrram
13 offered bv the institution during the most recent three-year period .
14 (2) If an additional prolrram replaces. or will replace. a program the institution offers. or
15 previouslv offered. that fails or failed to satisfy the debt-to- earnines ratio requirement with a
16 program that prepares students for the same or related occupation. the institution must apply to
17 the Secretarv under 34 CFR 600.10(c)(l) to have the additional program desilmated as an
18 elil!ible program . As part orthat application process. the institution must provide the CIP code
19 for that program. The Secretary calculates the debt to earnings ratio for the additional program
20 by using the loan debt of students in the previous proeram and the loan debt of students in the
21 replacement prol!fam. until loan debt data are available for the additional program for a three-
22 vear peliod.
23 (3) Before offering a new or additional prolrram under this paragraph. the institution
24 obtain documentation from employers not affiliated with the institution affinning that the
25 prol!ram curriculum aligns with recognized occupations at those emplovers.
26 Note: The Department would calculate the debt to em11ings ratio at the end of the first
27 year after the rules take effect. After that. we would calculate the ratio every three years (we
28 could calculate it aIUlUally and provide it to schools so thev know what's likely to happen at the
29 end of the 3 year period).
3
1 ----------------------------------------------------------------------------------------------------------------
2 Appendix A to Subpart A ofPart 66S--Calculating the Debt-to-Earnings Ratio
3 The Office of Management and Budget COMB) maintains a Standard Occupational

4 Classification (SOC) system which is a numerical coding system that classifies occupations for
5 the purpose of collecting, calculating, or disseminating data. Through that system, and
6 associated data collections, the Bureau of Labor Statistics (BLS) makes available hourly and
7 annual wage data that is updated over a three year cycle . For each standard SOC occupation,
8 data on the mean and 101\ 25 1h, 50 111 (median), 75 th and 90 lh percentile are available.
9 For any crp that is associated with multiple sacs, the 25th percentile armual wage is
10 calculated by--
11 Step 1: Determining all sacs associated with the CIP using the OSNET - SOC to CIP
12 crosswalk available at http://online.onetcenter.orglcrosswalk/CIP/:
13 Step 2: Obtaining from BLS the employment and annual 25th percentile wage for each soc
14 associated with the CIP, by entering the SOC at http://www.bls.gov/oes/currentloesstro.htm:
15 Step 3: Multiplying the employment by the annual 25 th percentile wa!!e for each SOC associated
16 with the crp to calculate the TOTAL 25 th percentile wages:
17 Step 4: SUMMING the employment in each soc associated with the CIP:
18 Step 5: SUMMING the TOTAL 25 th percentile wages associated with the CIP:
19 Step 6: Dividing the TOTAL 25 th percentile wages associated with the CIP by the SUM of the
20 employment in each SOC associated with the CIP to arrive at a weighted average 25 th percentile
21 annual wage:
22 Step 7: For any classification of instructional program (Crp) that is associated with a sincle
111
23 SOC, the 25 percentile annual wage is used to detelmine the relationship between debt and
24 earnings:
25 The median loan debt of students who completed the program dU1;ng the three-year
26 period is determined by:
4
.ro'
1 Step 8: For each ofthose students. using the TOTAL amount received from any title IV. HEA
2 loan program (except Parent PLUS). institutional loan. and pIivate education loan (compiled
3 from data submitted by the institution and data in NSLDS):
4 Step 9: ARRANGING the values in Step 8. including values of zero where students did not
5 incur any loan debt, in order from lowest to highest, and selecting the middle v,alue. If there is all
6 even number of values. the median is the average of the two middle values:
7 Step 10: CALCULATING the annual loan payment on the median loan amount in Step 9 based
8 on a la-year repayment schedule (120 payments) and the cun-ent Unsubsidized FFEL/Direct
9 Loan interest rate:
10 Step 11: For multiple SOC's, DIVIDING the amount ofthe annual loan payment in Step 10 by
11 the annual eamings in Step 6. rounding down to the nearest one tenth: and
12 Step 12: For a single SOC. DIVIDING the amount of the annual loan pavment in Step 10 by the
13 annual earnings in Step 7. rounding down to the nearest one tenth.
14
5
Pedersen, AnnMarie
To: Antal Desai
Subject: RE: Business & Education Services: Early Glimpse of Gainful Employment Regulations Ignites
Rally
Sorry, Antal-I actually do not have a copy of what was provided to OMS, and if I did, it would not be appropriate for me
to discuss the content. Also, be aware that as with any regulation under development, anything that was submitted is
subject to change until it is issued in a Notice of Proposed Rulemaking in the Federal Register; subsequently, after the
public comment period, it can change again in response to comments received during the public comment period.
Thanks for sending the clip - and for the other information you have provided as well. - Ann
From: Antal Desai [mailto:adesai@cpmg-inc.com]

To: Manheimer, Ann
Subject: FW: Business & Education Services: Early Glimpse of Gainful Employment Regulations Ignites Rally
Hi Ann,
Is this reporting correct?
From: Suzanne Stein [mailto:suzanne.stein@morganstanley.com]

Sent: Tuesday, April 13, 2010 11:22 PM
To: Antal Desai
Subject: Business & Education Services: Early Glimpse of Gainful Employment Regulations Ignites Rally
MORGAN STANLEY RESEARCH

Link to complete report available below.
BUSINESS & EDUCATION SERVICES: EARLY GLIMPSE OF GAINFUL EMPLOYMENT REGULATIONS

IGNITES RALLY - April 14, 2010 GMT (5 pgs/ 58 kb)
Suzanne Stein +1 (1)212 761 0011 Morgan Stanley & Co. Incorporated
Vance Edelson +1 (1)212 761 0078
Cristina Colon +1 (1)212 761 4453
Investment conclusion: Education stocks had their strongest day in months, as investors received word
that the latest proposal for Gainful Employment (GE) will provide more exemptions than originally
proposed. If the information leaked is correct, the definition of gainful employment will be considerably
milder than originally believed. While we caution that the information is incomplete, it is enough to
provide investors hope that the potential implications of this proposal will not materially change the
profitability of the sector.
What happened: The regs that the Dept. of Education (ED) submitted last week to the Office of
Management and Budget (OMB) are said to have leaked, and under this version of the GE language, we
believe the majority of programs offered by for-profit institutions will be deemed eligible. While many of
the metrics remain the same - 8% minimum debt-to-income ratio (using a 6.8% interest rate and a 10-
year repayment period), with an out for programs with a +90% repayment rate, the new version includes
other measures that would allow programs to qualify - a 70% placement rate or a 50% completion rate.
We do not have the details of how ED will define these metrics, but they seem to reinstate exemptions
allowed in previous drafts of gainful employment, making it easier for programs to qualify. Our sources tell
us that fewer than 8% of programs would not meet this revised threshold.
46
What's next: We await confirmation of these developments in the Notice of Proposed Rulemaking
(NPRM), following review by the OMB, where the leak is said to have originated. Separately, another
source informs us that the NPRM may be released in mid-May, earlier than our former expectation of June.
Read the complete report
The full report also contains analyst certification and other important disclosures relating to the
companies mentioned in this email.
END OF RESEARCH ABSTRACT
For important information and disclosures regarding specific companies, derivatives, or other instruments
discussed in this e-mail, please refer to latest research report, if attached and/or hyperlinked to this email,
or by logging on to Equity Research via Morgan Stanley's Client Link portal at
http://www.morganstanley.com.
HELPFUL LINKS
Ask the Author a Question
Subscribe me to this email list

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IMPORTANT LEGAL NOTICE

This document is copyrighted by Morgan Stanley and is intended solely for the use of the Morgan Stanley
client, individual, or entity to which it is addressed. This document may not be reproduced in any manner
or re-distributed by any means to any person outside of the recipient's organization without the express
consent of Morgan Stanley. By accepting this document you agree to be bound by the foregoing
limitations.
This is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to
participate in any particular trading strategy. Morgan Stanley may advise the issuers mentioned herein or
deal as a principal in or own or act as a market maker for securities/instruments mentioned herein. The
research and other information provided herein speaks only as of its date. We have not undertaken, and
will not undertake, any duty to update the research or information or otherwise advise you of changes in
the research or information. This email message and any attachments are being sent by Morgan Stanley
and may be confidential. If you are not the intended recipient, please notify the sender immediately by
email an delete all copies of this message and any attachments.
47
Pedersen, AnnMarie
From: Antal Desai [adesai@cpmg-inc.com]

To: Manheimer, Ann
Subject: FW: Business & Education Services: Early Glimpse of Gainful Employment Regulations
Ignites Rally
HiAnn,
Is this reporting correct?
From: Suzanne Stein [mailto:suzanne.stein@morganstanley.com]

Sent: Tuesday, April 13,2010 11:22 PM
To: Antal Desai
Subject: Business & Education Services: Early Glimpse of Gainful Employment Regulations Ignites Rally
MORGAN STANLEY RESEARCH

Link to complete report available below.
BUSINESS & EDUCATION SERVICES: EARLY GLIMPSE OF GAINFUL EMPLOYMENT REGULATIONS

IGNITES RALLY - April 14, 2010 GMT (5 pgs/ 58 kb)
Suzanne Stein +1 (1)212 761 0011 Morgan Stanley & Co. Incorporated
Vance Edelson +1 (1)212 761 0078
Cristina Colon +1 (1)212 761 4453
Investment conclusion: Education stocks had their strongest day in months, as investors received word
that the latest proposal for Gainful Employment (GE) will provide more exemptions than originally
proposed. If the information leaked is correct, the definition of gainful employment will be considerably
milder than originally believed. While we caution that the information is incomplete, it is enough to
provide investors hope that the potential implications of this proposal will not materially change the
profitability of the sector.
What happened: The regs that the Dept. of Education (ED) submitted last week to the Office of
Management and Budget (OMB) are said to have leaked, and under this version of the GE language, we
believe the majority of programs offered by for-profit institutions will be deemed eligible. While many of
the metrics remain the same - 8% minimum debt-to-income ratio (using a 6.8% interest rate and a 10-
year repayment period), with an out for programs with a +90% repayment rate, the new version includes
other measures that would allow programs to qualify - a 70% placement rate or a 50% completion rate.
We do not have the details of how ED will define these metrics, but they seem to reinstate exemptions
allowed in previous drafts of gainful employment, making it easier for programs to qualify. Our sources tell
us that fewer than 8% of programs would not meet this revised threshold.
What's next: We await confirmation of these developments in the Notice of Proposed Rulemaking
(NPRM), following review by the OMB, where the leak is said to have originated. Separately, another
source informs us that the NPRM may be released in mid-May, earlier than our former expectation of June.
Read the complete report
The full report also contains analyst certification and other important disclosures relating to the
companies mentioned in this email.
END OF RESEARCH ABSTRACT
48
For important information and disclosures regarding specific companies, derivatives, or other instruments
discussed in this e-mail, please refer to latest research report, if attached and/or hyperlinked to this email,
or by logging on to Equity Research via Morgan Stanley's Client Link portal at
http://www.morganstanley.com.
HELPFUL LINKS
Ask the Author a Question
Subscribe me to this email list

Unsubscribe me from this email list
IMPORTANT LEGAL NOTICE

This document is copyrighted by Morgan Stanley and is intended solely for the use of the Morgan Stanley
client, individual, or entity to which it is addressed. This document may not be reproduced in any manner
or re-distributed by any means to any person outside of the recipient's organization without the express
consent of Morgan Stanley. By accepting this document you agree to be bound by the foregoing
limitations.
This is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to
participate in any particular trading strategy. Morgan Stanley may advise the issuers mentioned herein or
deal as a principal in or own or act as a market maker for securities/instruments mentioned herein. The
research and other information provided herein speaks only as of its date. We have not undertaken, and
will not undertake, any duty to update the research or informat ion or otherwise advise you of changes in
the research or information. This email message and any attachments are being sent by Morgan Stanley
and may be confidential. If you are not the intended recipient, please notify the sender immediately by
email an delete all copies of this message and any attachments.
49
Pedersen, AnnMarie

To: Kolotos, John
John - per conversation - can you help me out with this?
- - - - - - -- - -- - --- - - - - ---------- - - --
To: Manheimer, Ann
Ann,
Per our conversation, it would help to understand to which entities the GE standard currently applies.
IV purposes, an institution has to offer programs no less than one year in length, along with being non-
The HEOA added a category that allows a proprietary institution to offer programs leading to a
Questions:
o If a proprietary school like Univ. of Phoenix meets the HEOA provision standards, are then
none of its programs subject to the GE requirement, or is just their 8A in liberal arts not
well?
50
institutions.
Pauline Abernathy
Vice President
We moved! TICAS' main number is now 510.318.7900. My direct line is 510.318.7903.
51
(b)(5)
(b)(5)
(b)(5)
(b)(5)
From: Manheimer. Ann <IO= USDOED/O U= USDOED/CN=RECIPIENTS/CN=ANN MANHEIMER>
To: Manheimer. Ann
Arsenault. Leigh
Miller. Tony
Shireman. Bob
Yuan. Georgia
'Jim Simpson @ Florida State Cisimpson@fscLedu)'
'Pauline Abernathy'
'Jamienne Studley (jstudley@publicadvocates.org)'
'Dayid Hawkins @ NACANET (dhawkins@nacacnet.org)'
'Amanda Modar @ NACAC (amodar@nacacnet,org)'
'slehr@fscj.edu'
'Deanne Loonin'
'Steve Burd (Burd@Newamerica.net)'
'Rich Williams @ PIRG (rwilliams@pirg.org)'
'Ieg@usstudents.org'
Margaret Reiter (margaret.reiterI23@gmail.com)
Christine Lindstrom
Date: 4/22/2010 8:43:22 AM
Subject: Hold for meeting on gainful employment wi student and advocate groups
When : Friday , April 23, 2010 12:00 PM-1:00 PM (GMT-05 :00) Eastern Time (US & Canada).
Where : 866-731-1731, participant code : 9028762# or 400 Md Ave, SW - 7th FIr Sec'y COnf Room
Note: The GMT offset above does not reflect daylight saving time adjustments.
From: Manheimer. Ann <IO=USOOEO/OU= USOOEO/CN=RECIPIENTS/CN=ANN MANHEIMER>
To: Manheimer. Ann
Ceja. Alejandra
Arsenault. Leigh
Shireman. Bob
cc.
Date: 5/18120102:42:10 PM
Subject: Ann out 6/8-25
When: Occurs every day effective 6/8/2010 until 6/25/2010 (GMT-05 :00) Eastern Time (US & Canada).
Note: The GMT offset above does not reflect daylight saving time adjustments .
From: Manheimer. Ann <IO=USDOED/OU=lJSDOED/CN=RECIPIENTS/CN=ANN MANHEIMER>
To: Manheimer. Ann
Arsenault. Leigh
Shireman. Bob
Date: 4/1 /2010 10:50:28 AM
Subject: Ann out 6/8-25
When: Occurs every day effective 6/8/2010 until 6/25/2010 (GMT-OS:00) Eastern Time (US & Canada).
Note: The GMT offset above does not reflect daylight saving time adjustments.
(b)(5)
9 FW: Huffington Post Op-ed by LaGuardia Community College President... Thu 7/1/2010 1:... 26 KB
~II Lunch Wed 6/30/2010... 13 KB
a Wiley, Debra RE: DoD letters (10-012343 ) Child ren Who Lost a Parent fro m Militar. .. Tue 6/8/2010 5:... 20 KB
a
a
11 Manhe imer , ... mtg followup
Manhe imer, ... FW: reoKvaal/lns ide highe r Ed
Mon 6/7/2010 .., 74 KB
Thu 6/3/2010 9:... 8 KB
N~
a
40. lfi.Io
Sellers, Fred RE: need for conference call on reg package
Manhe imer, ... Use of Testors
Bannister, Ja... PC Annual Report (Draft)
Tue 5/18/2010 ... 19 KB
Fri 5/14/ 2010 1... 14 KB
Thu 5/13/2010 ... 1 MB AJl!..
~II Manhe imer, ... Topic for you r 8:30 mtg Wed 5/12 / 2010... 13 KB
a Lehr, Susan M. RE: Susan from FLORIDA! Wed 5/5 /2010 ... 23 KB
a Wiley, Debra FW: Reason to watch PBS tonight Tue 5/4/2010 4:... 21 KB
a ~ Manhe imer, ... mate rials for potential briefing on accreditat ion Tue 5/4/ 2010 1... 113 KB
9 ill Manhe imer, ... FW: New Draft Spending Plan Prior ity Mon 5/3 / 2010 ... 46 KB
161
••aa
Manhe imer, ... Canceled: predecisional discussion of proposed GE definition and imple... Thu 4/29/2010 ... 27 KB
Manhe imer, ... FW: predecis ional discussion of propo sed GE definition and implement... Wed 4/28/ 2010... 27 KB
i360Gov Dail... Q&A: The economics of climate legislation Tue 4/ 27/2 010 ... 124 KB
a•
,\,,- ,
Pauline Aber... FW: materials for meet ing tomorrow Thu 4/2 2/ 2010 ... 170 KB "\ '
~. <" ,
Weko, Tom RE: Comments on Pre-clearance version of ED St rateg ic Plan - due today Thu 4/2 2/2010 ... 10 KB \
a ill Manhe imer, ... FW: All Employee Meeting Presentat ion Wed 4/21/2010... 1 MB
'-"
illU
a
Microsoft Ex... Delivered : Monthly Reports (Mar 2010 Status of Funds and Requisition ... Mon 4/19/2010... 1 MB
Manhe imer, ... RE: Appl ication of GE Thu 4/15 / 2010 ... 26 KB
NR.
a, Manheimer, ... RE: App licat ion of GE Thu 4/15/2010 ... 27 KB \
a Pauline Aber... RE: Draft memo on CCA report on gainful emp loyment Wed 4/14/2010... 269 KB 'X'
...."'- .....
9 Manheimer, ... RE: Business & Educat ion Services: Early Glimpse of Gainful Emp loyme n... Wed 4/14/2010... 25 KB
'.- .
9 Antal Desai FW: Business & Education Services: Early Glimpse of Gainful Employme... Wed 4/14/2010... 23 KB
a Manhe imer, ... FW: Application of GE Wed 4/14/2010... 22 KB
a Manhe imer, ... RE: Use of "test ers" by the Department for enforcement activit ies Tue 4/13/2010 ... 13 KB
a Pauline Aber... RE: CCA blog Mon 4/12/2010... 12 KB
a Manhe imer, ... RE: CCA blog Mon 4/12/2010... 10 KB
a Jenkins, Har... RE: legislative history on gainful emp loyment Fri 4/9/2010 6:1... 18 KB
~~~
' .
Pedersen, AnnMarie 1 4/ 12/2011 4 :59 PM

CREW: Department of Education: Regarding For-Profit Education: 4/15/11 - Manheimer Emails

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CREW: Department of Education: Regarding For-Profit Education: 4/15/11 - Manheimer Emails

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Pedersen, AnnMarie

From: Manheimer, Ann

Racing to the Bottom With For-Profit Colleges

Start: Wed 6/30/2010 11:45 AM

Meeting Status: Not yet responded

Organizer: Manheimer, Ann

From: Manhe imer , Ann

- - - - "- -- -- - - - ---------------- -- --- - - ---- - - - -- - - --

From: Sellers, Fred

Thanks for your help.

From: Sellers, Fred

Start: Thu 5/20/2010 3:00 PM

Meeting Status: Not yet responded

Organizer: Manheimer, Ann

Start: Thu 5/ 1312010 8:15 AM

Meeting Status: Not yet responded

Organizer: Manheimer, Ann

From: Lehr, Susan M. [SLEHR@fscj.edu]

Sure, I will get right on it!

From: Manheimer, Ann [mailto:Ann.Manheimer@ed.gov]

Sent: Thursday, April 29, 2010 9:35 AM

From: W iley, Debra

From: Barth, John

Frontline will air a program this evening on for profit colleges.

http://chronicle.com/article/Financial -Affairs-TV/65393/?sid=at&utm source=at&utm medium=en

From: Manheimer, Ann

Any further comments/changes needed? - A

From: Pauline Abernathy [pabernathy@t icas.org]

Subject: Gainful employment fact sheet, memo and Q&A

Q&A on Gainful Employment

Q. Would improving consumer disclosures be a better solution?

4 vas Investment Research, Education 101, March 18,2010, by Andrew Fones.

TO: Interested Parties

Twice as Likely to Default

Few Programs Would Be Affected

No Loss of Student Access

From: Manheimer, Ann

From: Pauline Abernathy [mailto:pabernathy@ticas.org]

Thx - yes - double checking this

From: Manheimer, Ann

Forwarding - I meant to bce you on this.

From: Manheimer, Ann

From: Pauline Abernathy [mailto:pabernathy@ticas.org]

From: Pauline Abernathy [pabernathy@ticas.org]

From: Manheimer, Ann [mailto:Ann.Manheimer@ed.gov]

Here's slightly revised version.

«Response to CRA Report April 13.doc»

« File: Response to CRA Report April 13.doc »

11 (?) For purposes of this section-

19 (A) Is not delinquent or in default on the loan: or

20 (B) Is not in a defennent or forbearance status; and

2 Appendix A to Subpart A ofPart 66S--Calculating the Debt-to-Earnings Ratio

3 The Office of Management and Budget COMB) maintains a Standard Occupational

From: Antal Desai [mailto:adesai@cpmg-inc.com]

Is this reporting correct?

From: Suzanne Stein [mailto:suzanne.stein@morganstanley.com]

MORGAN STANLEY RESEARCH

BUSINESS & EDUCATION SERVICES: EARLY GLIMPSE OF GAINFUL EMPLOYMENT REGULATIONS

Read the complete report

END OF RESEARCH ABSTRACT

Subscribe me to this email list

IMPORTANT LEGAL NOTICE

From: Antal Desai [adesai@cpmg-inc.com]