Lewis-Burke Associates LLC – June 2, 2011
On June 2, the Department of Education announced the long awaited final “gainful employment” rules. These new regulations incorporate comments from the higher education community that were submitted to the Department of Education following the release of the Department’s proposed rules last fall. The final rules will determine Title IV federal student aid eligibility for non-profit certificate programs and for-profit institutions of higher education and will require new reporting regarding loan repayment rates, debt-to-earnings ratios of graduates, and loan default rates. The final rules will still take effect July 1, 2012.
Highlights from the announcement: The Department made substantial changes from the original proposed rules released in October 2010, including a reduction from a 45 percent student repayment rate to a 35 percent rate to meet the gainful employment requirements. The Department believes this will reduce the number of institutions and programs that would ultimately lose Title IV eligibility under these rules. The Department plans to issue a Notice of Proposed Rulemaking (NPRM) to start the process of creating rules for establishing new non-profit certificate or for-profit degree programs under gainful employment. The original proposed rules would have granted the Department this authority. Public input towards the creation of the final rules was significant with three public hearings, over 90,000 official public comments, and numerous meetings with outside stakeholders. The for-profit community made significant efforts in working to change the proposed rules. It is unclear at this time whether the for-profit community will file a lawsuit to repeal the final rules.
While the final rules are aimed at all for-profit institutions and programs, certificate programs at non-profit institutions of higher education that are at least one-year in length and do not lead to a degree will be subject to this final rule. Under section 101(b)(1) and section 102(c), non-degree programs at non-profit public and private institutions of higher education that “prepare students for gainful employment” are eligible for Title IV funds.
A program would be considered to lead to gainful employment, and remain eligible for Title IV funding, if it meets at least one of three metrics:
- At least 35 percent of former students are repaying their loans (defined as reducing the loan burden by at least $1.00);
- The estimated loan payment of a typical graduate does not exceed 30 percent of the graduate’s discretionary income; or
- The estimated annual loan payment of a typical graduate does not exceed 12 percent of the graduates’ total earnings.
In relation to metric #1, the proposed gainful employment rules, released in October 2010, had not considered loans in interest-only or income-based repayment schemes as successful repayments. The final rules allow loans to be considered in repayment if the loan is on track to being discharged due to public service, the borrower is making payments under an interest only or income based repayment plan, or for graduate programs if the loan is in consolidation and all interest accrued over the course of the year has been paid.
In regards to #2 and #3, median and mean incomes of graduates will be determined by the Social Security Administration (SSA), and institutions will be allowed to verify the list of individuals submitted to SSA. Institutions or programs can also submit alternative earning data based on surveys or state longitudinal data systems. During the transitional period, institutions or programs can submit data from the Bureau of Labor Statistics (BLS).
For all of the metrics, the Department will examine data from students in their third and fourth year after graduation.
Another new aspect is that institutions or programs must fail the debt measures three times in a four-year period before losing eligibility. This is a change from the proposed version of the rules which would have yanked Title IV eligibility immediately if an institution or program did not meet one of the three metrics. According to the final rules, there will be different requirements each year an institution or program did not meet at least one metric. For the first year of not meeting a metric, an institution or program would have to disclose to students why the measurement was missed, and how the issue will be addressed. The institution would also need to establish a three day waiting period before a student can enroll. If the institution is unable to meet a metric a second time in a three year period, they must inform students that the program may be unaffordable after graduation, that the program is at risk of losing Title IV eligibility, and provide the students with transfer options at that time. Finally, for a third failure in four years, an institution or program will lose Title IV eligibility and will be unable to reapply for eligibility for at least three years.
Since the final rule allows an institution four years to comply, the first time institutions or programs would be ineligible for Title IV funding would be 2015. The Department estimates that 18 percent of for-profit programs will fail one of three metrics in the next four years, but ultimately only 5 percent will fail to make improvements and ultimately lose eligibility. Within non-profit certificate programs, the Department estimates that 5 percent of those programs will fail at least once, but ultimately only 1 percent will lose eligibility.
Under the proposed rules, the Department would have the authority to examine and decide on new certificate programs at non-profits. Those programs would have needed to demonstrate a need for graduates through support from employers and industry and data from the Bureau of Labor Statistics (BLS). The final rule does not include this authority, rather the Department intends to issue an NPRM to seek comments on a process for establishing new programs.
Over the past years, the use of Title IV funding by the for-profits has grown substantially, while student loan defaults have grown. Students at for-profits are likely to take on greater debt and qualify for low-income federal student aid programs like the Pell Grant. According to the Department, 26 percent of all federal student loans are held by students attending for-profit institutions, but for-profit students account for 46 percent of all student loans in default. In addition, 25 percent of Pell Grant funding is directed to students at for-profits.
A coalition of for-profit education institutions and companies have already filed a lawsuit against the Department regarding the previously released program integrity rules. It is likely that they will seek to file a suit against these rules, as they have argued that it is beyond the authority of the Department to define gainful employment. In announcing the final rules, Secretary of Education Arne Duncan said the changes made from the proposed rules are meant to allow flexibility for improvement, and that the Department sees the for-profit education sector as an important component to reaching the President’s education goals. “We as a country desperately need this sector to succeed,” Duncan said, referring to President Obama’s goal of having the highest number of college graduates in the world by 2020. “This is not about ‘gotcha.’ We really want to give people a chance to reform.” The draft version of the final rule which is expected to be issued in the Federal Register can be found here: www2.ed.gov/policy/highered/reg/hearulemaking/2009/ge-unofficial-06022011.pdf.