• April 23, 2014

Education Dept. Releases Draft Language for New Gainful-Employment Rule

The U.S. Department of Education released draft language on Friday for a proposed new "gainful employment" rule that in some ways would be stronger than an earlier version that was thrown out by a federal court in June 2012, but in others ways would be weaker.

The draft regulation, which will be subject to three days of formal negotiation beginning on September 9, could cover more than 11,000 programs at for-profit and nonprofit colleges—nearly twice as many as the old rule would have covered. That's because the draft calls for including programs with as few as 10 students; the earlier rule counted only career-focused programs with 30 or more students. (See a comparison of the two versions prepared by the Education Department.)

The old rule also would have cut off federal student aid to programs where too few students were repaying their loans or where graduates' debt-to-earnings ratios, based on two measures, were too high. In blocking the earlier rule, the court said that the thresholds for the student-loan-repayment criteria were "arbitrary and capricious" because the department had not shown a reasoned basis for them.

The new rule would omit the loan-repayment criteria altogether.

That's an omission that consumer advocates like the Institute for College Access and Success have said would create a "loophole for schools to ignore the debt burdens of students who do not complete or create incentives for schools to discourage completion by students with high debts." The group has said the two-pronged test is a better measure of how well a program is serving all of its students because the debt-to-earnings test applies only to those who have made it through.

'Tougher and Leaner'

The draft language for the proposed rule also calls for applying the debt-to-earnings tests in a way that could make it harder for some programs to pass the test. Under the old rule, the calculation would have been based on all students who completed the program, no matter how they had paid for it. The draft regulation proposes basing that calculation only on students who receive federal student loans and Pell Grants. The calculation would exclude students who attend college using federal veterans benefits or military tuition-assistance funds, as well as students who pay their own way.

That approach could be seen by some as excluding from the calculation students who are more likely to succeed, but since the test is designed to ensure that federal student-aid funds are being used effectively, basing the criteria solely on those using federal student aid may be just the point.

The Association of Private Sector Colleges and Universities said the draft language seemed designed to limit access to students who need it the most. The "draft regulation raises doubts on the level of interest at the department for working with all of postsecondary education to create meaningful change that puts the interests and outcomes of students first," said a statement from the group, which advocates for the for-profit-college industry.

Earlier this week, Steve Gunderson, president of the organization, sent a letter to Education Secretary Arne Duncan asking him to abandon the negotiated rule-making process for the gainful-employment rule or to expand the membership on the rule-making panel "to include a fair representation" of private-sector institutions. He said only four of the 28 negotiators represent the interests of for-profit colleges.

Ben Miller, a policy analyst at the New America Foundation and a former senior policy adviser at the Department of Education, called the draft regulation "tougher and leaner" than the original. It would rely on two measures—debt-to-earnings ratio and debt-to-discretionary-income ratio—instead of three and would "remove a lot of unnecessary tweaks and concessions made during the last regulatory process," he noted in a news release from the foundation.

Programs would fail if their students' debt-to-earnings ratio was greater than 12 percent or the students' debt-to-discretionary-income ratio was greater than 30 percent, the same ratios as in the original rule.

A program that failed the measures twice in any three-year period would be ineligible for federal student aid. As the New America Foundation said, "this is faster than the fail-three-out-of-any-four approach taken in the previous rule."

The draft regulation would also add a so-called zone where students would receive warnings about debt if the annual debt-to-earnings ratio was 8 percent to 12 percent or if the debt-to-discretionary-earnings calculation was 20 percent to 30 percent.

Corrections (9/3/2013, 12:47 p.m.): This article originally misstated a provision of the new draft gainful-employment rule. Under the draft, programs would pass the gainful-employment test if their students’ debt-to-earnings ratio was less than, not greater than, 12 percent, or if the students’ debt-to-discretionary-income ratio was less than, not greater than, 30 percent. The article also misstated a word in the name of the organization that represents for-profit colleges. It's the Association of Private Sector Colleges and Universities, not Public Sector. The article has been updated to reflect those corrections.

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