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Department of Education proposes new rules to impact gainful employment

June 01, 2023

Each year, more than 703,000 federally aided students enroll in one of the 1,800 career training programs, according to a Department of Education fact sheet. Unfortunately, the typical graduate of these programs leaves with unaffordable debt or earns less than a high school graduate in their state. Sometimes, these programs shut down with little warning, leaving students in the lurch. A recent study from the State Higher Education Executive Officers Association and the National Student Clearinghouse Research Center showed that, of closures that took place over 16 years, 70 percent of the students received insufficient warning that the closures were coming. The federal government absorbs the cost of many of these students’ loans, which they pass on to taxpayers.

Proposed regulations from the Department of Education aimed at resolving these and other gainful employment (GE) issues were recently published in the Federal Register. The rules are open for comment until June 20, 2023. Make comments here.

Gainful employment and greater transparency

The proposed rules are intended to establish a robust GE framework and improve the transparency of GE program outcomes for all postsecondary students. GE programs include nearly all educational programs at for-profit institutions of higher education and most non-degree programs at public and private non-profit institutions. The proposed regulations should protect students in these programs and taxpayers by eliminating federal student aid for career training programs that lead to unaffordable debts or low earnings.

The proposed GE rule would protect students by establishing two independent metrics:

  1. A debt-to-earnings ratio that compares the median earnings of graduates who received federal financial aid to the median annual payments on loan debt borrowed for the program.
  2. An earnings premium test that measures whether the typical graduate from a program receiving federal aid is earning at least as much as a typical high school graduate in their state.

Failing these metrics for one year would require the institution to warn students they are at risk of losing federal aid. Programs that fail the same metric in two of three consecutive years would have their eligibility to participate in federal aid programs revoked.

The proposed rules would protect the 703,000 plus students who enroll in the 1,800 career training programs in the U.S. These students constitute about 24% of those receiving federal student aid to enroll in GE programs annually.

At-risk students, in particular, could benefit significantly from these regulations because they could benefit the most from a postsecondary credential. The Department of Education estimates that institutions with better outcomes, including Historically Black Colleges and Universities and community colleges, will likely gain enrollment because of the proposed rule, as they will attract students that otherwise would have attended failing programs. On average, students who leave failing programs for alternative options earn 43% more money and incur 21% less debt, according to a Department of Education fact sheet.

Once the new rules are in effect on July 1, 2024, students and their families will gain better access to the data on the success rate of programs they are considering. A Department of Education website will provide information on program costs (including tuition and fees, books, and supplies), non-Federal grant aid, loan burden (including both private and Federal loans), earnings of completers, any applicable occupational and licensing requirements, and licensure success exam passage rates (where relevant). Prospective students and their families will be able to estimate how much they’ll pay to earn credentials and will also be able to see the debt and earnings ratios of program graduates.

This reporting will allow the department to give students and families a personalized estimate of what they'll pay out-of-pocket to earn credentials in specific postsecondary programs, along with crucial information on program graduates' debt and earnings outcomes.

The new rules would also require educational institutions to demonstrate that they can administer Title IV financial aid programs. Institutions that are not administratively capable may be required to provide financial protection or have their participation in aid programs limited, suspended, or terminated.

All comments must be submitted through the regulations.gov website at this link.