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ED Tightens New "Gainful Employment" Rules

April 4, 2014

The Department of Education recently posted in the Federal Register a notice of proposed rulemaking of its controversial "gainful employment" rules. May 27 is the deadline for submitting comments on the proposed regulations, which attempt to determine whether most programs offered at for-profit institutions, as well as nondegree programs at public and non-profit institutions, adequately prepare students for gainful employment (GE) in a recognized occupation.

ED estimates that postsecondary institutions offer approximately 50,000 GE programs-60 percent of which are at public institutions, 10 percent at non-profit institutions, and 30 percent at for-profit institutions. Approximately 4 million students enroll in GE programs; they receive about $9.7 billion in federal grants and approximately $26 billion in loans.

In analyzing the proposed regulations' impact, ED uses what it calls "2012 GE Informational Rates." Drawn from 7,934 programs reporting in FY 2010 that meet the minimum n-size criteria, the data represent 2.91 million students receiving Title IV funds. (In 2010, 37,589 programs reported data to ED, representing a total of 3.99 million students).

Note: References in this article to specific pages in the Federal Register point to the relevant section of the preamble text of the proposed rules. ED uses the preamble to describe the current rules, summarize the proposed regulations, and explain the reasons for the changes.

Stricter Gainful Employment Measures

Under the proposed rules, institutions would have to demonstrate their gainful employment programs have passing debt-to-earnings (D/E) rates, as well as acceptable program cohort default rates (pCDR). The pCDR replaces the repayment rate measure included in ED's original GE rules (see the Recap section below).

The D/E rates and the pCDR measures would operate independently; the results of one measure would not affect the results of the other. While the D/E rates evaluate only the outcomes of students who completed a program, the pCDR measure also takes into account students who enrolled in but did not complete a program. ED would issue separate notices of determination for the D/E rates and the pCDR measure.

Debt-to-Earnings Rates

Two D/E rates-a discretionary income rate and an annual earnings rate- would be calculated each award year for an eligible GE program if at least 30 students completed the program during the applicable cohort period.

A GE program would pass the measure if its discretionary income rate is less than or equal to 20 percent or its annual earnings rate is less than or equal to eight percent. A program would be "in the zone" if its discretionary income rate is greater than 20 percent but less than or equal to 30 percent or if its annual earnings rate is greater than eight percent but less than or equal to 12 percent. A GE program with discretionary income rates greater than 30 percent and annual earnings rates greater than 12 percent would mean the program failed the D/E measure. These thresholds are stricter than the ranges established in the 2011 rules. Institutions will have multiple opportunities to challenge ED's calculations throughout the process (79 FR 16455).

A program would become ineligible under the D/E rates measures if it fails in two out of any three consecutive award years for which the program's D/E rates are calculated or if the program is failing or in the zone for four consecutive award years. Essentially, a program needs to pass at least once over any four-year period to remain eligible.

Using the 2012 GE informational rates, two programs would fall in the zone and one would fail at all public institutions sampled. Similarly, private non-profit institutions would have five programs in the zone and three failing programs. Those figures represent 323 students from public institutions and 3,053 students from private non-profit institutions enrolled in GE programs (79 FR 16566).

The numbers increase dramatically at for-profit institutions. There, 825 programs would be in the zone and 447 would fail, impacting 802,486 students enrolled in GE programs (79 FR 16566).

ED's rationale is that the discretionary income rate would measure the proportion of annual discretionary income that students who complete the program devote to their annual debt payments, and the annual earnings rate would measure the proportion of annual earnings devoted to debt payments. D/E rates would be based only on the outcomes of students receiving Title IV funds. Additionally, the NPRM lists several situations where a student would be excluded from the D/E rates calculations for a GE program (79 FR 16449).

The Department provides a four-year transition period for D/E rates in the proposed rules (79 FR 16451).

Program Cohort Default Rates

The second measure, a GE program's pCDR, "would be based on students who enrolled in the GE program (whether or not they completed the program), received one or more FFEL or Direct Loans for enrollment in the program, and entered repayment on one or more of those loans during the fiscal year that precedes by three years the year in which the rate is calculated."

ED will calculate the pCDR of a GE program using the same methodology as calculating an institutional cohort default rate. A GE program with a pCDR of 30 percent or greater would fail this measure. This is the same threshold used to disqualify institutions from Title IV HEA programs.

ED's 2012 GE informational rates show 52 programs at public institutions and 26 programs at private non-profit institutions with failing pCDRs, with 12,655 and 3,722 students, respectively, enrolled in those GE programs (79 FR 16570). Additionally, 865 programs at for-profit institutions would have failing pCDRs, with 661,920 students enrolled in the GE programs (79 FR 16570).

No minimum program size would prevent ED from calculating the pCDR. In fact, a program with zero borrowers would receive an official pCDR of zero percent and pass the measure. If fewer than 30 borrowers entered repayment in a fiscal year, however, the cohort of borrowers would include, in addition to the borrowers entering repayment in the fiscal year, those who entered repayment in the two preceding fiscal years. As with the D/E rates, institutions would be able to challenge ED's calculations (79 FR 16464).

Penalties for Subpar Programs

Within 30 days of receiving a notice of determination stating that a program could become ineligible for the next award year, an institution would be required to provide a written warning directly to each student enrolled in the program and include the warning on the program's disclosure template. Prospective students would need to receive the same warning. Warnings to both current and prospective students must include the following text:

"You may not be able to use federal student grants or loans to pay for this institution's program next year because the program is currently failing standards established by the U.S. Department of Education. The Department set these standards to help ensure that you are able to find gainful employment in a recognized occupation and are not burdened by loan debt you may not be able to repay. A program that doesn't meet these standards may lose the ability to provide students with access to federal financial aid to pay for the program."

In the warning, the institution would also be required to explain to students the options for continuing their education at the institution or transferring to another institution, should the program lose its Title IV eligibility.

If a program is deemed ineligible, an institution would be prohibited from disbursing Title IV funds to students enrolled in the program for three years, beginning on the date specified in the notice of determination. For a voluntarily discontinued program, the three-year period would begin on the date the institution provides written notice to ED.

Reporting Requirements

Under the proposed rules, institutions would be required to report, for each award year, information about each student receiving Title IV funds who is enrolled in a GE program. Two new elements that were not included in ED's 2011 rules are:

  • The total amount of tuition and fees assessed the student for the student's entire enrollment in the GE program. 
  • The total amount of the allowances for books, supplies, and equipment included in the student's Title IV Cost of Attendance for each award year in which the student was enrolled in the program, or a higher amount if assessed the student by the institution.

For a complete list of the reporting requirements, see pages 16471 and 16472 of the Federal Register notice.

Disclosures

ED already requires institutions to disclose information for programs that prepare students for gainful employment in recognized occupations. The proposed rules, however, significantly increase the number of required disclosures, focusing on, among other items, the GE program, costs, student information, and placement rates. Page 16474 of the Federal Register notice contains the full list of disclosures.

ED would calculate many of the items included in the disclosures. Institutions, however, would be required to calculate "the percentage of students who incurred loan debt to enroll in the program and who either completed the program during the most recently completed award year or withdrew from the program during the most recently completed award year."

Recap of Gainful Employment Rulemaking

On October 29, 2010, and June 13, 2011, ED published rules to determine whether certain postsecondary education programs prepared students for gainful employment in a recognized occupation. Nearly all educational programs at for-profit institutions, and nondegree programs at public and nonprofit institutions, are eligible to receive Title IV aid under the Higher Education Act under this "gainful employment" provision.

Immediately after ED published the first set of final rules, the Association of Private Sector Colleges and Universities brought suit against ED, challenging the debt measures, reporting and disclosure requirements, and new program approval requirements. The U.S. District Court for the District of Columbia struck down most of the 2011 final rules on June 20, 2012, finding that the 35 percent repayment rate standard was not based upon any facts. Since the two 2011 debt measures and other provisions of the regulations were entangled with the repayment rate standard, the court vacated almost all of the rules.

ED then filed a motion asking the court to reinstate the rules' reporting requirements, stating that they were needed to comply with the disclosure regulations that the court left in force. The court denied this motion, as the reporting requirements required institutions to report to ED information about students enrolled in GE programs who did not apply for, or receive, Title IV funds.

Comments on the proposed regulations are due May 27. NACUBO encourages members to determine which campus programs would fall in to the GE category, review the proposed regulations carefully, and file comments with ED if appropriate. Please share your concerns with NACUBO as well.

Contact

Bryan Dickson
Policy Analyst
202.861.2505
E-mail