Over the past few months, we have been following the Department of Education’s attempts to overhaul the controversial gainful employment rule legislation on this blog. This week, the Department moved closer to releasing a final version of the law. Its new set of draft rules is very similar to that released in December, in that individual programs would be judged on a set of debt-to-earnings ratios and a program cohort default rate (CDR). Specifically:
- For debt-to-earnings ratios, a program would fail if its graduates’ loan payments equal more than 12 percent of their incomes or more than 30 percent of their discretionary incomes. If a program failed both the annual and the discretionary standards twice in three years, it would lose eligibility for federal financial aid.
- For the program CDR, a program would lose federal aid eligibility if 30 percent or more of its graduates who entered repayment defaulted on their loans within three years.
As with the previous draft, these two tests would operate independently from one another, meaning a program that passes one would not be safeguarded if it failed the other.
Although this is all consistent with the previous draft, there were a few noteworthy changes, including:
- In order for a program to be held annually accountable to the debt-to-earnings measures, it must have at least 30 graduates—rather than 10, which was in the previous draft. Smaller programs will still have data aggregated over four years, thus accountability isn’t removed for them, just delayed.
- Instead of assuming a 10 year repayment period for borrowers across the board, the new proposal extends it to 15 years for bachelor’s and master’s programs, and to 20 years for doctoral programs.
As a result of these two changes, the new proposal is very similar to the 2011 law; however, the inclusion of the cohort default rate remains an important difference. The 2011 law was struck down by a judge because the default calculation used in the original rules was deemed “arbitrary and capricious.” The Department believes the new policy will be more resilient to legal challenges because it holds programs to the same CDR standards to which institutions are held by the Higher Education Act.
Ed Central provides a very thorough analysis of some of the more subtle changes, and is an excellent resource for additional information.
Secretary of Education Arne Duncan estimates that under these rules, roughly 20 percent of current vocational programs at for-profits and community colleges would fail and 10 percent would be in “the zone”—meaning a program would have to warn its students that it could become ineligible for federal aid.
As can be expected, the for-profit sector was strongly opposed to the new rules, claiming they would limit access and opportunity for the neediest students. Community colleges, however, were happy to see the proposal would allow “in the zone” programs to appeal if less than half of its graduates take on debt.
Now that the rules have been released, there will be a 60 day public comment period on the draft legislation. The Department hopes to release its final proposal in a few months.
Consumer advocates applauded the Department of Education’s second—and substantially more stringent—set of draft regulations for the “gainful employment” rule, released on Friday. They claim the metrics, which apply to vocational programs at for-profit institutions and community colleges, will better measure the program’s loan default and repayment rates. Programs that do not meet the Department of Education’s standards under the gainful employment rule will lose federal student aid eligibility.
The Department of Education’s initial regulatory language, released in September, included two measures of debt-to-earnings ratios for graduates of vocational programs. However, these measures did not require the institutions to report debt-to-earnings ratios for students who dropped out of the program without earning a degree—an oversight that critics of for-profits believed would be misleading.
The new regulations would include a loan default ratio metric, as well as a measure of repayment rates across an academic program’s “portfolio” of loans. The law would require that the total principal balance of loans borrowed for an academic program is less at the end of the year than it was at the beginning. The measure will therefore capture repayment rates both for students who earn a credential and those who do not.
For-profit supporters are critical of the new language, saying their ideas and suggestions for crafting a metric for gainful employment were not taken into account. They claim that the new rules, if implemented, could deny needy students access to vocational programs that may help them get better jobs. Critics of for-profits counter that the rules will help students make more informed decisions about the likelihood that they will be able to repay their loans, as well as ensure that institutions that receive federal aid dollars are offering high-quality degrees.
While the gainful employment rule applies only to vocational programs at for-profit institutions and community colleges, President Obama’s proposed ratings system, which would tie federal financial aid funds to performance metrics, applies to all institutions that receive federal dollars. If implemented, the ratings system would hold all institutions accountable to similar standards—a prospect that worries many administrators who claim they cannot control their students’ career success or the labor market.
The second round of negotiations on the gainful employment rule begins this week. As always, we will keep you posted on their progress.
On Monday, the U.S. Education Department (ED) began formal negotiationson the draft language of a proposed new “gainful employment” rule. The rule, originally published in 2011, was designed to enforce a requirement of the Higher Education Act that states career education programs—non-degree programs at all colleges and most degree programs at for-profit colleges—must “prepare students for gainful employment” in order to participate in federal student aid programs. The rule was meant to discourage these programs from misusing federal aid dollars and leaving students with debts burdens they are unable to repay. However, in 2012 a federal judge rejected major provisions of the rule, requiring that ED rethink its strategy.
Here’s a summary of the changes:
- The proposed rule applies to programs with as few as 10 students, whereas the old rule counted only career-focused programs with 30 or more students. Because of this change, ED estimates that the new rule could cover 11,359 programs at for-profit and nonprofit colleges—nearly twice as many as the old rule covered—and that 974 of those programs (9 percent) could fail to meet the proposed standards.
- The draft regulation omits loan-repayment as a criterion for federal student aid eligibility. The old rule severed federal aid to programs where too few students were repaying their loans or where graduates’ debt-to-earnings and debt-to-discretionary-income ratios were too high. The new rule removes the loan repayment standards, which the courts deemed “arbitrary and capricious,” and relies only on the latter two measures.
- Debt-to-earnings calculations would be based only on students who receive federal aid, rather than students who complete the program. The old calculations were based on all students who completed the program, whereas the proposed calculations are based on any students who receive federal student loans and Pell Grants, regardless of whether they complete the program. As the rule is designed to ensure that federal aid is used effectively, this seems a more appropriate approach.
- Schools would have fewer chances to improve their performance before losing federal aid eligibility. Under the previous rule, programs that failed the measures in 3 out of any 4 years would be ineligible for federal student aid. However, the new rule only lets programs fail in 2 out of any 3 years before they lose eligibility.
For details, see a comparison of the two versions prepared by the Education Department. Please continue to follow our blog as well as the Federal Relations blog for updates on this topic.
After much debate, public comment, intense lobbying, a lawsuit, and the threat of political action to block them, expansive new US Department of Education higher education regulations are set to go into effect on July 1st. While the Department has made revisions to and provided implementation guidance for most of the new rules, it had several times delayed finalizing the most controversial regulation, known as Gainful Employment, which was formally published on June 2nd.
The rule establishes thresholds for loan repayment rates and debt to income ratios for graduates of for-profit and non-degree career oriented programs, with the ability to cut off federal financial aid funding for entities that do not meet the standards, among other penalties. The final rule was significantly revised from earlier versions, including a delayed implementation year, altered criteria and formulas making it more difficult to find an institution in violation of the rule, and a host of other changes that are widely seen as having softened the rule in response to the pressure applied by the for-profit industry and its political supporters.
Although the gainful employment rule is limited in scope and does not currently apply to degree programs at traditional institutions, as we have previously stated, and both The Chronicle and Inside Higher Education are reporting, the regulation is a watershed moment with important implications for federal regulation of higher education into the future.
Here’s a quick roundup of some of this week’s headlines in higher ed news.
Report Argues Gainful Employment Rules Could Hurt For-Profits’ Students
According to a study commissioned by the Association of Private Sector Colleges and Universities, up to 44 percent of students at for-profit colleges could lose access to federal financial aid under the latest “gainful employment” proposal. The authors of the report—Jonathan Guryan, an economist at Northwestern University, and Matthew Thompson of Charles River Associates, a consulting firm—argue that since for-profits tend to serve students who have fewer financial resources and less academic preparation, the proposed rules would leave students without other options. Additionally, the report asserts that the rules should not be based on short-term measures of earnings and student debt, as such metrics tell an incomplete story. The Department of Education released the proposed rules in March. The window for public commenting closed on Tuesday. This report was part of a final lobbying campaign by both sides.
Startups Playing Matchmaker with Students and Employers
Several startups have begun serving as matchmakers between community college students and employers. One of the startups, called WorkAmerica, states that it will provide students with a legally binding job offer before they enroll at one of the startup’s partner colleges. WorkAmerica has already started placing students into trucking programs, and plans to expand to other “high churn” employers, such as those that hire welders, IT technicians, and medical assistants. Another similar startup, called Workforce IO, connects employers with “trainers”—which can include community colleges, in addition to nonprofits and other mentoring agencies. The company uses a library of 275 job-skills “badges” to vouch for its workers’ skills. In an era when students are increasingly concerned with their post-graduation employment opportunities, it’s possible that such a model could be applied to some programs at four-year institutions.
Data Say College is Worth More Than Ever
Research shows that not only is a college degree is worth the time and money it takes to earn one; it’s worth more than ever. According to analysis of Labor Department statistics by the Economic Policy Institute, the pay gap between college graduates and those who either never went to college or never graduated from college, reached a record high last year. The NY Times article summarizes, “Americans with four-year college degrees made 98 percent more an hour on average in 2013 than people without a degree. That’s up from 89 percent five years earlier, 85 percent a decade earlier and 64 percent in the early 1980s.”
The Wisconsin Education Approval Board, which oversees all for-profit colleges located in the state and any online-learning programs offered to its residents, may require that those institutions achieve specific performance standards in order to operate within Wisconsin. Specifically, that board is proposing to require that at least 60 percent of a college’s students complete their studies within a certain time-frame and at least 60 percent of its graduates have jobs. Public universities and private nonprofit colleges are not under the board’s jurisdiction and would therefore be exempt from the requirements.
The board already collects and publishes data on its institutions. According to those reports, average completion rates fell from 82 to 59 percent over the last six years and the percentage of graduates who were employed during a given year dropped from 44 to 22 percent (in the same time frame).
The Chronicle reports that the board is basing its standards on what they believe “Wisconsin consumers would find ethical, responsible, and acceptable for institutions choosing to enroll them.” However, for-profit colleges have already submitted letters to the board arguing that the proposed standards are “arbitrary and should not be broadly applied to a diverse set of programs, which often enroll underserved populations.”
While the federal government’s “gainful employment” rule is similar to Wisconsin’s proposal, it is unusual to see a state attempt this type of regulatory system. Some states have increased their requirements for online and for-profit institutions—but Wisconsin’s proposal is especially aggressive. For-profits that wish to operate in Washington must receive authorization from the Washington Student Achievement Council, which considers institutions; “financial stability, business practices, academic programs, and faculty qualifications”—but does not yet hold them to specific graduation or employment standards.
On Wednesday, Wisconsin’s board voted unanimously to postpone a final decision until a team made of board members, representatives from colleges and universities, and State legislators can review the proposal more thoroughly. The team is scheduled to make recommendations to the board in June of 2013.
As the for-profit higher education industry continues to fight federal regulation, states are starting to pay more attention to the fast growing sector. The National Conference of State Legislatures (NCSL) reports that, as of May, twenty states have introduced at least 34 bills aimed at regulating or supporting for-profit higher education. NCSL reports that eight of these bills have already passed, six have failed or been vetoed, and twenty remain in play. They provide a summary of each piece of legislation, as well as a webpage that centralizes information on this topic from various sources.
Meanwhile, Senator Harkin continues to investigate the sector, and a 10 state joint investigation into the practices of for-profit institutions remains ongoing. It appears that one result of all this scrutiny is that the industry has been pressured to begin to take preemptive action toward restructuring and increased transparency.
For previous OPBlog posts on this topic see:
Days after the Department of Education released its finalized Gainful Employment rule, Senator Tom Harkin held his fifth Senate hearing investigating the practices of the for-profit higher education industry. Senator Harkin focused the hearing on the high levels of student borrowing and outsized loan default rates for students at for-profit institutions. Previous hearings and reports have revealed that:
- Less than 10% of postsecondary students are enrolled in for-profits, yet they receive 23% of federal aid, and account for 44% of all loan defaults.
- 95% of all students at for-profits borrow money to attend, compared to less than a quarter of community college students, 64% of students at public four year institutions, and 72% at private four year institutions.
Additionally, Harkin grilled Department of Education Under Secretary Martha Kanter on whether the softened gainful employment rule released by the Department would do enough to help reign in exploitative practices of the for-profit higher education industry, noting that stock prices in the industry increased significantly upon publication of the revised rule whereas previous iterations had sent prices down. Kanter, who was attending in place of Secretary Arne Duncan, defended the regulation as a step forward.
Harkin concluded that while the Department of Education regulations were ‘better than nothing’, he continues to believe that Congressional action via legislation may be necessary.
No Republican members of the committee were present, and no further hearings on the topic are scheduled at this time.
For previous OPBlog posts on this topic see:
It was speculated that Republican gains in Congress last November could stall the Senate’s aggressive investigation of the for-profit higher education industry and sweeping new Department of Education regulations that are set to go into effect July 1. While bipartisan action in the House did attempt to block some of the regulations, particularly the controversial gainful employment rule, they survived the final 2011 budget deal.
Meanwhile, as federal efforts to better regulate this run-away industry, which enrolls 10 percent of total students, eats up 24 percent of federal aid and accounts for 45 percent of student loan defaults while making billions of dollars of profit annually, continues, several states, including Florida and Illinois, have launched their own investigations. Today, it has been reported that Attorneys General from at least 10 states will embark on a joint investigation of the industry.
Adding to pressure facing the industry is widespread media coverage, including investigative efforts from the New York Times, ABC News, and Frontline, among others. Even Stephen Colbert has addressed the topic.
While the for profit higher education industry lobbying effort is massive (likely paid for with the federal student aid dollars that, on average, make up over 90 percent of the annual operating budgets for these institutions), mounting scrutiny has already had effect as some of the industry’s largest actors have begun ‘maturing’ some of their practices ahead of anticipated regulations.
For past OPBlog posts on this continuing story see:
The Government Accountability Office (GAO) released a report and recommendations, DOD Education Benefits: Increased Oversight of Tuition Assistance Program is Needed, ahead of another Senate hearing focused on the conduct of for-profit colleges, this time held by Senator Tom Carper.
The GAO report focused on the DOD Military Tuition Assistance Program, which provides tuition benefits for active duty soldiers. In 2009, the program provided $517 million in tuition assistance to over 375,000 service members of which for-profit institutions received a disproportionate amount. The report addressed two primary points:
- DOD oversight of schools receiving Tuition Assistance Program funds
- The extent to which DOD coordinates with accrediting agencies and the U.S. Department of Education in its oversight activities
The Senators discussed the gaps in oversight exposed by the report, and also discussed the fact that Tuition Assistance Program revenue is not included in the calculation to determine whether at least 10 percent of annual revenue comes from non-federal sources, which is required for an institution to be eligible to receive federal student aid. This is a rule that Senator Tom Harkin has specifically mentioned as a target for reform in earlier hearings he has held on for-profit institutions.
Meanwhile, the association that represents for-profit colleges is suing the US Department of Education in an attempt to block new federal regulations, and House Republicans included an amendment to block the controversial gainful employment rule from moving forward in their recently passed budget.
For past OPBlog posts on this continuing story see:
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