Concerns Regarding Proposed Gainful Employment Rules

Nearly two months ago, the U.S. Department of Education published proposed regulations intended to define postsecondary educational programs that train students for gainful employment in a recognized trade or business.  These "gainful employment" regulations are the Department's attempt to identify ineffective programs that unduly burden students with debt.

Under the proposed regulations, gainful employment programs are measured by comparing the debt incurred by graduates with the incomes earned by such graduates.  If the debt-to-earnings ratio for a particular program meets the Department's standards, then students at that school remain eligible for participation in the federal student aid programs.  If the program's debt to earnings ratio exceeds the Department's standards, then the institution and its students risk losing the ability to participate in the federal student aid program.

Public comment with respect to these proposed regulations ends on Tuesday, May 27, 2014.  After reviewing these proposals and analyzing data published by the Department, I have significant concerns regarding the proposed rules.  

As commented in an earlier posting, I am concerned that if these proposed regulations are implemented as drafted they will negatively impact student access to postsecondary education.  The proposed regulations do not focus on program outcomes such as graduation rates, student licensure rates or graduate job placement rates.  Program eligibility is tied solely to the debt-to-earnings ratios of the program's graduates.  A program's graduates may actually be repaying their federal student loans.  Theoretically a school could have 0% loan default rate. Nevertheless, if earnings are not enough when compared to debt levels, then participation in the federal student aid programs may be jeopardized.

By focusing solely on debt and earnings ratios, the Department will actually limit access to postsecondary education for those who need it the most.   Focusing solely on students' economic outcomes place schools located in economically challenged areas in jeopardy.  Jobs are harder to attain in such areas.  Schools located in more affluent locations with identical program offerings would have an advantage in their efforts to satisfy the Department's proposed standards.  As drafted these regulations may actually work to limit access to potential students who most need an education to improve their job and career opportunities.

Measuring repayment rates and debt-to-income ratios is simply not an accurate or fair indication of a particular school’s program effectiveness.  Even if reliable income and debt data could be obtained, the proposed rules do not recognize what may be significant fluctuations in any field that are dictated by economics which are beyond the control of the student or the school.  

Another significant flaw with the proposed regulations pertains to the students who are included in the Department's calculation of a program's debt-to-earnings ratio.  Under the proposed regulations, the definition of “student” excludes those who do not participate in the federal student aid programs. The Department defined “student” in this manner in response to issues raised from the federal court’s decision that invalidated much of the first version of the gainful employment regulations.  However, inclusion of those students would reduce a school’s median debt number, which in turn would improve its debt-to-earnings metric.  Under the proposed regulations the only way to get these students into the school’s cohort is for the student to take federal loans.    

The definition of “student” should be revised to include all students who file an application to participate in the federal student aid programs (the Free Application for Federal Student Aid, or FAFSA), whether or not the student ultimately borrows.  If the student files a FAFSA, then he or she can be included in the school's cohort without running afoul of the prohibitions stated in the prior court cases.  Not only would this remove a perverse incentive to increase student borrowing, but also more accurately and fairly evaluates school performance by creating a method for inclusion of all students in the cohort.

  

The proposed regulations also create a new layer of rules that are unnecessary and create significant additional administrative burdens.  State regulatory agencies and national accreditation boards currently monitor educational program effectiveness.  Student completion rates, state licensing exam pass rates, and job placement are all measured by state and accrediting agencies.  Schools failing to meet minimum performance requirements risk losing their licensing and/or accreditation, which ultimately leads to the loss of eligibility to participate in the federal student aid programs.  With respect to actual loan repayment rates, the Department evaluates institutional cohort default rates.  

These rules already exist, and provide a much more direct measure of not only educational program effectiveness but actual student loan repayment.  The proposed regulations will create an extreme administrative burden on schools and tax already limited Department resources.  The Department will need to coordinate efforts to develop effective, reliable and trustworthy data sharing with the Social Security Administration for millions of students.  Given the stakes for schools who fail to attain the proposed thresholds, the Department will need to devote significant resources to manage appeals related to student debt calculations, student earnings calculations, and programmatic cohort default calculations. 

There is simply no need to add this level of complexity and burden to students, schools and the Department.  State regulatory agencies and accrediting agencies already monitor school performance.  The Department already monitors actual student repayment rates through the cohort default rate system.  All schools are subject to strict oversight requirements as it relates to student information disclosures, and face significant administrative penalties and legal exposure for misrepresentation of school performance.  Adding the additional level of complexity associated with the proposed gainful employment regulations does not provide any additional meaningful protection to students and creates significant administrative burdens not just to schools but to the Department as well.

Finally, I am concerned that the Department’s actions in promulgating these proposed regulations were not conducted in good faith.

For one example, I am troubled by the limited time offered by the Department to the negotiated rulemaking process.  As initially proposed, the Department offered only two negotiated rulemaking sessions, and subsequently added a third one-day session.  In total seven days were spent in the negotiated rulemaking process as it relates to gainful employment.  In comparison, the Department has devoted four separate sessions consisting of eleven total days to the negotiated rulemaking for the program integrity rules.  With all due respect, and without in any way denigrating the importance of the program integrity rules, the potential impact of the proposed gainful employment regulations is exceedingly more important to students, families, schools and the Department.  I can conceive of no justification for the Department spending more time in negotiating the program integrity rules as compared to gainful employment.

In addition, the proposed debt-to-earnings metrics contained in the proposed regulations seem to be punishing schools for the federal court’s decision that invalidated most of the first set of gainful employment regulations.  In the first set of published gainful employment regulations, the Department established passing rates for schools at 12% debt-to-earnings and 30% for discretionary income.  In the current version these thresholds have been reduced to 8% and 20%, respectively.  This suggests that the prior debt-to-earnings and discretionary income metrics, which the Department supported and the federal court upheld, could be viewed as arbitrary.  The fact that the Department is now second-guessing its own decision-making, proposing a much more complex approach, while at the same time reducing the eligibility assessment period – these actions suggest either a lack of justification for the prior metrics and/or efforts to be intentionally more punitive in constructing the latest proposal.  

I recognize and certainly approve of the Department's goal to identify ineffective educational programs that leave students with excessive debt loads.  However, significant state and federal regulations as well as accreditation oversight already exist to ensure quality education standards and to punish ineffective programs.  Furthermore, I believe that the proposed gainful employment regulations will limit student educational choices without providing meaningful benefits.  I encourage the Department to reconsider its approach and to develop final rules that will effectively protect the public interest and assist schools in delivering the highest quality education that our workforce requires.