May 18, 2023
On Friday, the U.S. Department of Education will take a critical step through publication of proposed rules to protect students from enrolling in low-financial-value programs. The new gainful employment (GE) regulations will ensure that graduates of career-oriented programs are on the pathway to a living wage, and their credential offers enough of a return to pay down their student loan debt. By implementing measures that ensure accountability and transparency, the Department will take a stand against predatory practices and safeguard the futures of students and the hard-earned money of taxpayers.
How we got here
For decades, the Higher Education Act has required that all career-oriented programs— programs at for-profit institutions and programs of one year or less at public and nonprofit institutions—lead to “gainful employment in a recognized occupation.” A rule finalized under the Obama administration in 2014 defined gainful employment for the first time: programs that continuously leave graduates with more debt than they can reasonably repay would have to improve or lose access to federal student aid, like Pell Grants and federal student loans.
The rule gave colleges and universities new data about student outcomes, helping them to identify low-financial-value programs. By 2016, over 60 percent of programs that would have failed the rule chose to shut down before sanctions were imposed. Unfortunately, the rule was rescinded under the Trump administration, allowing predatory and low-financial-value programs to grow once more, imperiling students and wasting taxpayer dollars in the process.
The new proposed rule
The Biden administration is in the process of pursuing an ambitious regulatory agenda at the Department of Education. Over the past two years, they have engaged in negotiations on policies that will ease student loan burdens and hold institutions accountable for poor outcomes. The GE regulations are among a raft of other proposed rules that will ensure institutions do well by students and by taxpayer dollars.
To pass GE, the proposed rule stipulates that the typical graduate must have earnings sufficient enough to pay down their debt. This is known as the debt-to-earnings ratio. But the Biden administration also added a new critical element that has not been seen in previous iterations of the rule—that a graduate must earn more than they would have with only a high school diploma. This is known as the earnings premium metric. Adding the earnings premium, in addition to the debt-to-earnings ratio, is critical, particularly to create a bare minimum, extremely low bar to ensure programs provide adequate outcomes. Our recent analysis found that the high school earnings premium is far lower—$8,000 on average—than what the calculated living wage would be for a single person.
In a fact sheet about the proposed rule, the Department estimates that more than 703,000 students would be protected from enrolling in these failing programs per year. Their analysis also highlights why both the debt-to-earnings ratio and the earnings premium are necessary: 9 percent of those enrolled in GE programs attend programs where graduates have unmanageable student loan debt and 16 percent are enrolled in programs where graduates typically earn less than a high school graduate.
In many cases, colleges that cannot improve the outcomes of their programs before sanctions are put into place will be able to enroll students in a similar passing program. Students could also enroll in passing programs at other nearby institutions. The Department’s analysis of the impact of this rule shows that on average, enrolling in one of these passing programs will leave graduates with 43 percent higher earnings and 21 percent less debt.
More transparency on other low-financial-value programs
The Department has also included further transparency for students and families in the proposed role by creating new disclosures about low-financial-value programs. While GE sanctions can only apply statutorily to career-oriented programs, students, families, and taxpayers deserve to know when credentials don’t pay off, regardless of the type of degree or institution attended.
The proposed rule will help the Department get the data necessary to evaluate a program’s value—information such as program costs, non-federal grant aid, loan burden, earnings, any licensing requirements, and, depending on program, license exam passage rates. To get data on low-financial-value programs into the hands of students before they enroll in a program that is unlikely to give them economic security, the Department would require that institutions actively provide students information on outcomes.
What this means for students
Without a strong GE rule in place and without transparency about the outcomes of programs, students have been harmed and taxpayer dollars have been wasted. Take Maria, for example, who enrolled in a program that would have failed GE. She thought her associate degree would help her become an entrepreneur, but she has only been able to find low-wage and hourly employment in the retail sector. She’s watched her debt balloon and has landed in default on her student loans. If she had attended the nearby community college, which had a similar passing program at a much lower cost, her trajectory would have likely looked a lot different.
Or consider the experience of Samer Hassan who provided public comment to the Department during the rulemaking process. He enrolled in a certified nursing assistant program that promised him and other students a pathway out of poverty. The school advertised that he would earn good wages helping his community – one instructor even promised $50,000 starting salaries if students “played their cards right.” Instead, he found himself working in a low-wage job upon graduation, with no room for growth and economic stability. Samer emphasized, “My story illustrates why the Department of Education should write strong gainful employment rules that prioritize protecting students and hold programs accountable for poor outcomes.”
Low-financial-value career-oriented programs have been allowed to flourish too long. Students have been harmed in the process. Taxpayer dollars have been misspent. The Biden administration is right to protect students and taxpayers by stopping the flow of federal financial aid to programs that leave students worse off than if they never attended.
This is part of a collection of New America's recent work on gainful employment. Read about: Ways to strengthen GE | One borrower's experience without GE protections | GE's earnings threshold compared to a minimum wage | How public and nonprofit schools pass GE easily (also updated with new data) | Required GE disclosures will be even lower than expected
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