A New Blog Series on Gainful Employment Regulations

One borrower’s story shows us the high stakes of getting these regulations right
Blog Post
Illustration by Fabio Murgia from Shutterstock images
April 25, 2023

In a focus group conducted by New America last fall, a student we will call Maria said she went to school for an associate degree in fashion merchandising because she wanted to open her own clothing store. Several years and $15,000 in debt later, she had completed the first step towards her goal: finishing her degree. But in the job market, she found her credential did not provide the opportunities she had expected. “So,” she explained, “I'm working in retail.”

As a cashier, Maria joined an industry that requires no college degree and pays around $27,000 a year. On a cashier’s salary, Maria couldn't keep up with her almost $350 monthly student loan payment. When she defaulted on her loans, debt collectors began hounding her, and the government garnished much of her already small paycheck. Ten years after leaving school, her student debt had grown to double what she had originally borrowed, while her goal of owning a store had faded into a distant memory.

Today, her alma mater, a local branch of a for-profit chain, is still offering degrees for the creatively inclined in fields like interior design and culinary arts. And the school's graduates are still finding that they would have been better off if they never got their degree, at least according to federal data. Three years after leaving school, the average associate degree holder from Maria’s school is trying to repay around $24,000 in debt while earning just $26,000. One in five of the school’s borrowers had already defaulted on their loans, a rate that puts the school in the bottom 5 percent of all colleges. (See the appendix below for our data sources.)

An upcoming regulatory change may finally put a stop to this predatory cycle. This spring, the Department of Education is expected to release a regulation that would prevent low-performing certificate programs at public and private colleges and all low-performing programs at for-profit colleges from continuing to profit off of federal student loans and grants.

As higher education researchers, we wanted to understand how these regulations, known as gainful employment rules, would affect students like Maria and their schools. So we dug into the available data to answer our most pressing questions in a series of blogs, of which this is the first. Our other posts answer:

We found that gainful employment regulations, as described in a draft released last year, would help students in many of the worst-performing programs. But the bar it sets for passing is relatively low. Programs can pass gainful employment rules even if they do not lead graduates to a livable salary. And programs can pass even if they saddle students with debt almost as high as their yearly income. The thresholds weed out only programs showing no hope of leading their graduates to future economic security.

Gainful employment regulations would hardly disrupt business as usual at most colleges. Some public and nonprofit schools have a failing program here or there, but the vast majority of their educational programs would pass. This is true even for public and nonprofit schools that serve many students of color—and would still be true even if all programs, not just certificate and for-profit programs, were subject to the regulations.

Yet more than 90 percent of the credentials Maria’s school offers would fail the regulations, almost completely shutting the school off from federal financial aid. Maria's school joins more than 40 percent of for-profit schools in offering almost exclusively low-value, failing programs. While most programs at most schools easily pass the regulations, the for-profit sector is exceptional.

The fact that many for-profit schools offer virtually no passing programs—despite the low threshold—suggests that student success is not their priority. These predatory schools are not worth saving from the financial consequences of losing federal subsidies.

But what will happen to students if their schools shut down? In the 1990s, a different accountability test caused many poor-quality for-profit schools to close. Most of the students who would have attended a closed for-profit instead went to their local community college. Researchers found that these students went on to take out less debt and earn higher wages than they would have at the closed for-profit.

If the gainful employment rules were in place when Maria went to school, she might have been one of these students. Most programs at her for-profit alma mater would no longer be able to offer financial aid, but 99 percent of the programs at Maria’s local community college still could. If Maria had instead earned an associate degree from this college, she could have expected to make around $34,000 a year (at least in today's dollars). She might not have needed to borrow at all—only around 15 percent of the schools' students do—and if she did, she would have accumulated thousands of dollars less debt.

Her lower monthly payments and higher earnings would have made her much less likely to default on her student loans. Without that default clouding her credit score, Maria would have been that much closer to opening her own clothing store. But instead of setting her up for economic security, Maria’s for-profit college left her worse off than if she had never enrolled—all with the federal government's blessing. Strong gainful employment regulations will ensure the federal government does a better job of protecting the goals and livelihoods of the next generation of students.

Enjoy what you read? Subscribe to our newsletter to receive updates on what’s new in Education Policy!

Related Topics
Higher Education Accountability & Consumer Protection