The last time the Student Loan Ranger talked about gainful employment regulations for colleges was in 2012, when the regulations were briefly slated to take effect and then were abruptly put on hold after a district judge vacated portions of them.
We said then it was important that Congress and the Obama administration not back down from the gainful employment fight – and they haven't. In fact, the Department of Education recently came back with a new set of proposed regulations.
The gainful employment regulations apply only to approximately 11,000 vocational programs designed to lead directly to employment. The regulations aim to identify institutions that are not providing degrees that provide enough value to enable students to repay their student loans.
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Institutions that do not meet the standards have their eligibility for federal grants and loans yanked. In many instances, this would result in them going out of business, which means it's a pretty good incentive to either lower students' debt load or better prepare students for employment, or both.
The original regulations were, frankly, very loose. A program would be fine as long as it met one of these three tests: its graduates' annual loan payments were less than 12 percent of their annual incomes; its graduates' annual loan payments were less than 30 percent of their discretionary incomes; or more than 35 percent of its former students were successfully repaying their loans.
A program's eligibility would only be revoked if it failed all three of these measures in three years out of four.
In striking down these original regulations, the district court found that the department did not provide an adequate rationale to support that 35 percent repayment threshold. Because that prong worked in tandem with the other two – a program had to fail all three prongs to have their eligibility revoked – the department went back to the drawing board.
So what did the department come up with? First, it dropped the repayment rate requirement. This is a problem because, as The Institute for College Access and Success points out, "The repayment rate metric includes students who do not complete the program and measures the extent to which they are repaying their federal loans, while the debt-to-income metrics include only students who complete" and "the gainful employment metrics need to avoid creating loopholes for programs with both high student borrowing and low completion rates."
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As the government creates its final rules, it should either reinstate that metric and provide an explanation for the new standard that will pass judicial muster, or find another way to make sure institutions are held accountable if students who fail to graduate are consistently struggling with their student debt.
If the department does create a new repayment rate, the Student Loan Ranger thinks it should also make the rate stronger than the 35 percent rate. The repayment rate metric is a valuable one, but not if it sets such a low bar that it amounts to a loophole.
As Higher Ed Watch points out, eliminating the repayment rate roughly doubles the number of failing programs from 5 percent to 10 percent, "because a significant chunk of programs only passed via the repayment rate."
The proposed regulations also create a new category in addition to the passing and failing categories for "zone programs." To pass, a program's graduates must have an annual debt-to-earnings measure of 8 percent or less; a discretionary debt-to-earnings ratio of 20 percent or less; or both. Passing programs are obviously not subject to sanctions.
A program is failing if the annual debt-to-earnings measure exceeds 12 percent and the discretionary debt-to-earnings measure exceeds 30 percent. In other words, to fail, the program has to fall below both those requirements to be sanctioned.
Zone programs don't pass either measure and don't fail at least one. That is, they can have an annual debt-to-earnings measure between 8 and 12 percent; or a discretionary debt-to-earnings measure between 20 and 30 percent; or both.
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The proposed regulations also have more strict time limits: Programs that fail for two out of three years or remain a zone program for four straight years become ineligible for federal grants and loans. Allowing programs to fail more quickly is a positive step forward.
The Student Loan Ranger would like to see some other steps taken as the rule-making process moves forward to further protect students. For example, under the proposed regulations, the annual and discretionary income rates are calculated based on the higher of the mean or median annual incomes of students who completed programs. Instead, they should be based on mean annual earnings, so that institutions are not unfairly favored over students, and include both students who do and do not complete.
However, it is undeniably a good thing that the Department of Education is still concerned with, as the judge who struck down the original regulations described it, "inadequate programs and unscrupulous institutions." After this hopefully successful comeback, the Student Loan Ranger would like to see similar standards apply to all other institutions of higher education.
Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works's educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.