In the background of Glenn Beck's rally in Washington, New York's salacious gubernatorial race and other midterm political pageantry, the for-profit education industry has inspired its own share of electoral controversy.

The investment thesis for proprietary education has taken several knocks this year. The industry's success at attracting students, and those students' lack of success in maintaining their loans, have drawn attacks from the government, public advocacy groups, short sellers and others. The Department of Education and members of Congress have looked to place more stringent rules on companies that rely on government-supported loans for much of their revenue.

The midterm votes could swing the pendulum in the debate.

"The election results are going to be highly determinative of how this plays out," says Andrew Lipman of Bingham McCutchen LLP's Washington office.

Education Secretary Arne Duncan postponed rules that would link a school's eligibility for funding to students' "gainful employment" and ability to repay loans. The regulations were due on Nov. 1, the eve of the midterm elections, but were pushed to early next year.

In addition to the Education proceedings, Lipman notes, Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin plans a December hearing. The Iowa Democrat is a harsh critic of the industry, as is Democratic Sen. Dick Durbin of Illinois. However, Republican Sens. John McCain of Arizona and Michael Enzi of Wyoming have opposed Harkin. Enzi says that nonprofit schools should face similar scrutiny.

"The political legislative landscape is an important component," says Jerry Herman of Stifel, Nicolaus & Co. "The HELP committee hearings are feeding off what is going on in the DOE proceedings and vice versa." Herman says there was uncertainty about the metrics that would determine schools' compliance. There was also a "tremendous response" to DOE's proposals.

There are said to be 90,000 to 130,000 public responses to the rules. The feedback makes the Federal Communications Commission review of the Comcast Corp.-NBC Universal (NASDAQ:CMCSA) deal, with 33,000 responses, look like a parochial matter. There was also an advertising blitz supported by Corinthian Colleges Inc. (NASDAQ:COCO). Among the submissions is a six-page letter from Providence Equity Partners LLC senior managing director Paul Salem. Providence has put more than $2 billion into education companies. Salem wrote that since the agency decided to revise the rules, it has invested $800 million -- all overseas. "Rather than investing this capital in the U.S., we have invested in countries with more certain regulatory environments," he says.

Citing the regulatory shift, McGraw-Hill Cos.' (NYSE:MHP) Standard & Poor's has raised red flags about companies such as Education Management Corp. (NASDAQ:EDMC) -- a vast post-secondary group backed by Providence, Goldman Sachs Capital Partners and Leeds Equity Partners LLC -- and Washington Post Co. (NYSE:WPO), which relies heavily on its Kaplan education unit to offset results from its flagship paper.

"Every president says 'I'm going to work through Congress,' and realizes after a few months that, 'Hey, this is hard. So we're going to use a regulatory approach,'" says Harris Miller, president of the Association of Private Sector Colleges and Universities.

The DOE staff served Duncan poorly by suggesting that he push forward the rules, Miller believes. "They convinced him they were relatively non-controversial and would be worked through quickly, and didn't anticipate such a deleterious impact on students and institutions would generate such enormous push back."

The industry and public response have already caused Duncan to pause. A poor showing by Democrats in the midterms would further test the administration's resolve.