June 13, 2023
Last month, the Department of Education released updated data estimating the effect of a proposal for new gainful employment regulations. Using this more complete data, we revisited our earlier analysis assessing the potential effect of the regulations on colleges. The data confirms that, even with new transparency requirements, gainful employment would have a minimal impact on minority-serving institutions (MSIs) and failures would remain concentrated in the for-profit sector.
The proposed rule would cut off federal financial aid to postsecondary certificates and for-profit programs that consistently lead graduates to low wages or unaffordable debt. In addition to the potential loss of federal aid, programs that fail gainful employment (GE) would need to ensure any new students attest to seeing a warning about the poor outcomes before enrolling.
Degree-granting programs at public and nonprofit colleges cannot be required to meet gainful employment standards to be eligible for federal financial aid, according to existing law. For these non-GE programs, the Department of Education is proposing to increase transparency. Students enrolling in a non-GE program that fails one part of the GE standard, the debt-to-earnings test, would have to attest to seeing a disclosure. However, students enrolling in a non-GE program that fails the earnings premium, which measures whether programs usually result in wages for graduates that are higher than those of young adults with only a high school diploma, would not need to sign an attestation.
Figure 1 shows the average GE outcomes across several types of schools. The average HBCU, for instance, has almost no students in failing GE programs, and only 11 percent of students in programs that perform poorly on the metrics but are not GE programs. About 90 percent of the average HBCU’s students are enrolled in programs that would pass the regulations, with 20 percent in non-GE programs that pass the metrics, and the remaining approximately 70 percent in programs that pass because they are too small to be evaluated. On the other hand, 48 percent of students at the average for-profit college are in failing programs, indicating that the sector has a systemic problem with quality.
Figure 1 breaks out failures in non-GE programs into two categories: programs that fail the debt-to-earnings test (which are subject to an attestation requirement) and programs that fail only the earnings premium (which are not subject to the attestation). At most types of schools, non-GE failures are driven by the earnings premium, the type of failure that would not require a student attestation. HBCUs are unusual in having a higher proportion of non-GE failures that fail the debt-to-earnings test.
While we prefer to look at outcomes based on the number of students in each program because of the wide range of program sizes, it is worth noting that most schools have only a small number of failing programs. Across all sectors, the average school has only one failing program, including both GE and non-GE programs. Even the average school (and the average MSI) with some failures only has two failing programs.
In addition to looking at average outcomes at each school, we considered how many schools in each category have over 25 percent of students in failing programs (Figure 2). Almost no schools other than for-profit colleges have a substantial portion of students in programs that could lose federal funding. A small minority of MSIs, HBCUs, HSIs, and tribal colleges have a quarter or more students at non-GE and GE programs that do poorly on the metrics. For instance, about 9 percent of Hispanic-serving institutions have a quarter or more of students in failing programs. Still, most students at almost all of these schools are in programs that would not lose access to federal financial aid.
Figure 3 examines the portion of schools with more than a quarter of students in failing programs that would be subject to any sanction, including failing GE programs (eventually resulting in a funding loss) and non-GE programs that fail the debt-to-earnings test (resulting in a required attestation). Unlike Figure 2, students in non-GE programs that fail only the earnings premium are not counted towards the number of students in failing programs. Figure 3 shows that the vast majority of schools serving many students of color are not at risk of losing much funding or having to issue many disclosures.
Overall, schools that do have failing programs generally have many non-failing programs that they can direct students toward instead. Moreover, some of the schools that are estimated to have failing programs may be medical programs (where the available data may overestimate failures since these programs have more years to measure earnings than are available in the public data) or in high-poverty counties, which may eventually be granted extra leniency.
While the financial health of schools is important, New America is particularly concerned about the well-being of the students schools serve. Here, the effect of the regulations is unambiguous. Students are helped when the government improves transparency and stops subsidizing low-quality programs. These types of basic consumer protections direct students to higher-quality programs, where research shows they go on to default less frequently and earn higher incomes.
This is part of a collection of New America's recent work on gainful employment. Read about: Our earlier analysis of GE's effect on schools | Our support for the proposed rule | Ways to strengthen the rule | One borrower's experience without GE protections | GE's earnings threshold compared to a minimum wage | Required GE disclosures will be even lower than expected
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