ED Scales Back Accountability Measures in Gainful Employment Rule

The Department of Education has published final rules, effective July 1, 2015, that establish measures for determining whether certain programs prepare students for gainful employment in a recognized occupation. Nearly all educational programs at for-profit higher education institutions, as well as nondegree programs at public and nonprofit institutions, are considered gainful employment (GE) programs and are subject to the regulations. GE programs that do not meet ED's debt-to-earnings (D/E) requirements will be ineligible to receive Title IV funds when the new standards are fully phased in.

In the final version, ED made a number of changes, generally minor, to the rules as proposed earlier this year. Most notably, one key measure-the program cohort default rate (pCDR) that ED had proposed using as one of two tests of a program's worthiness-was removed. This left the D/E rates as the sole metric to determine program eligibility.

The pCDR would have measured default rates of all borrowers enrolled in each program, including noncompleters. (The D/E rates only look at data for students who finish programs and ignore dropouts.) In response to numerous comments raising issues with the pCDR, the department concluded "further study is necessary before we adopt pCDR or another accountability metric that would take into account the outcomes of students who do not complete a program." While the pCDR has been eliminated from the rules as an accountability metric for program eligibility, it may still be included as one of several disclosures that institutions will have to provide to enrolled and potential students.

D/E Rates

For each award year and for each eligible GE program offered at an institution, ED will calculate two D/E rates: the discretionary income rate and the annual earnings rate. The annual earnings rate "assesses programs with graduates that have low earnings but relatively low debt" while the discretionary income rate "will help capture programs with students that have higher debt but also relatively higher earnings," according to ED. Both rates are based on the ratio of outstanding student debt to earned income provided to ED by the Social Security Administration and are calculated as follows:

• [Discretionary income rate] = [annual loan payment] / [the higher of the mean or median annual earnings - (1.5 x Poverty Guideline)]
• [Annual earnings rate] = [annual loan payment] / [the higher of the mean or median annual earnings]

These rates will only be calculated if at least 30 students have completed the program during the applicable cohort period.

A program will pass the measure if its discretionary income rate is less than or equal to 20 percent or if its annual earnings rate is less than or equal to 8 percent. A program would fail if its discretionary income rate is greater than 30 percent (or discretionary earnings are negative or zero), or if its annual earnings rate is greater than 12 percent (or annual earnings are zero). Programs are considered "in the zone" if their discretionary income rates are greater than 20 percent but less than or equal to 30 percent, or if their annual earnings rate is greater than 8 percent but less than or equal to 12 percent.

A GE program becomes ineligible if it fails the D/E rates measure 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.

Transition Period

ED had originally set a four-year transition period to allow programs to improve rates after the regulations go into effect. In response to comments, ED has extended the transition period in the final rules to five years for programs that are one year or less, six years for programs that are between one and two years, and seven years for programs that are longer than two years.

Impact Estimates

Of the 8,895 GE programs the department will evaluate, it estimates that 20 programs at nonprofit institutions will be in the zone, while eight will fail. ED also estimates that public institutions will have eight GE programs in the zone, with three programs failing. For-profit institutions, though, will have 1,225 programs in the zone and 718 programs failing.

Consequences

Warnings to Students

If ED determines that a program could become ineligible based on its D/E rates measure for the next award year, the institution must provide a warning to enrolled and prospective students. These warnings must be provided to students no later than 30 days after the date of ED's notice of determination and must state:

"This program has not passed standards established by the U.S. Department of Education. The Department based these standards on the amounts students borrow for enrollment in this program and their reported earnings. If in the future the program does not pass the standards, students who are then enrolled may not be able to use federal student grants or loans to pay for the program, and may have to find other ways, such as private loans, to pay for the program."

The institution will also be required to "refer students and prospective students to (and include a link for) College Navigator, its successor site, or another similar federal resource, for information about other similar programs."

Within the warning, institutions will also have to describe academic and financial options available for enrolled students to continue their education in another program at the institution and indicate whether or not the institution will allow students to complete the program or if it will refund tuition and fees paid to the school. Finally, the institution will have to explain whether the student can transfer credits earned in the program to another institution.

For enrolled students, the warning may be hand delivered as a separate document or sent to the primary email address used by the institution for the student. If, however, a warning to an enrolled student is sent via email, the institution must ensure that the warning is the only substantive content in that message. The rules are fairly prescriptive about delivery acknowledgment and institutional record keeping.

The requirements for email delivery and acknowledgment or receipt of the warning also apply to a first contact with prospective students. An institution may also provide a disclosure statement (see below) that includes the warning to prospective students. If the initial contact with a prospective student is by telephone, the institution may provide the warning orally. However, once a student enrolls in, registers for, or makes a financial commitment to a GE program, the warning must then be hand delivered, sent via email, or included in the disclosure statement. It may not be delivered orally.

Ineligibility

If a program is deemed ineligible by ED, the institution will be prohibited from disbursing Title IV funds to students enrolled in that program for three years, beginning on the date specified in the notice of determination or the date the institution discontinued the program. For programs voluntarily discontinued after the institution reviews the draft D/E rates, the three-year period would begin on the date the institution provides written notice to ED. A voluntarily discontinued program could become eligible again, however, if the final D/E rates for the award year are determined to be passing rates. In either case, while the program is discontinued, an institution cannot seek to establish eligibility for another program that is substantially similar to the original program.

Disclosures

Institutions will be required to use a disclosure template provided by ED to disclose information about each of its GE programs to enrolled and prospective students. A list of potential disclosures is outlined in the final rules. ED does not intend to include all of the disclosure items listed in the regulations on the disclosure template each year and will use consumer testing to identify a subset of possible disclosure items that will be most meaningful to students. Once the department identifies the required disclosures, a list will be published in the Federal Register.

NACUBO will continue to analyze the final rules and will report any additional issues or requirements that are of interest to business officers.

For more on the history of the gainful employment regulations, see NACUBO's previous coverage.