Privately-owned for-profit colleges in the US are concerned about proposed new legislation requiring them to put up letters of credit (L/Cs) as performance guarantees.

The schools are under heavy pressure from Washington to be accountable for waste, fraud, and abuse of public funding they receive.

Proposal

Earlier this year, the Department of Education (DoE) said it wanted to extend the requirement for colleges to post irrevocable L/Cs when the department becomes concerned that schools will be unable to pay back money it has provided for federal aid (DC World News, 4 April 2016).

Now the department is proposing it should require an L/C where a college is at risk of losing accreditation or institutional eligibility for federal student aid funds.

Requirements

The DoE may also require L/Cs to guarantee against high student dropout rates or if an insufficient number of students find gainful employment at the end of their studies.

Washington also wants the colleges to forgive student loan repayments when schools are found to have defrauded students.

Other worries

Amongst the for-profit sector's other worries, a widely reported study published recently by the National Bureau of Economic Research concluded that for-profit college students who leave work to study earn less after leaving school than they did before they enrolled.

Over recent months, several colleges have closed down and some school owners are under investigation or have been taken to court for deceptive practices.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.