After the U.S. Department of Education invited written comments as part of the ongoing negotiated rulemaking process, TICAS–along with our partners at New America and Veterans Education Success–took a deep dive to examine the public comments submitted by groups in the for-profit education industry. We identified the five most common areas of concern they identified for the Department to consider.
The comments submitted by for-profit college companies and lobbyists repeated the claims they made in the public oral comment period, recycling a list of concerns that could at best be misinformed and, at worst, be downright misleading. They also pointed to the excessive complications many borrowers face in navigating repayment of their student loans.
For-profit advocates continue to assert that regulations like gainful employment and borrower defense unfairly target their sector and their business models; that the borrower defense rule unfairly targets for-profit programs; and that the current financial responsibility system is a poor tool that penalizes healthy schools, while failing to identify poorly performing schools.
Let’s look at their most common claims in turn:
Claim: “Gainful Employment Should be Applied to All Institutions, Not Just Proprietary Schools”
First issued in 2014, the gainful employment (GE) rule–which resulted from extensive expert input and analysis, negotiated rulemaking, and public comment–affected programs at nonprofit private, public, and for-profit institutions. The regulation grew out of an increasing concern that a significant number of programs didn’t provide students with skills necessary to gain employment in their intended occupational fields. And the rule protected students. It did so by ensuring that career education programs left their graduates with affordable debts relative to their actual incomes.
The well-documented history of abuses at for-profit colleges only bolstered the need for regulation at these institutions. The availability of federal loans drives the recruitment and enrollment processes, and as a result, some for-profit programs prey upon students who need to use a greater share of need-based student aid.
Largely motivated by the rule, colleges across the country sought to enhance the value they offered students. The prospect of sanctions under the rule prompted many colleges to eliminate their worst performing programs, freeze tuition, and implement other reforms to improve outcomes for their graduates.
Researchers recently found that passing GE was associated with a decreased likelihood of a program or institution closing, and that programs passing GE were located at colleges with slightly better default and repayment outcomes.
These findings stress two important points. First, for-profit institutions respond to receiving additional information on student outcomes. When given the opportunity to improve, many do. Next, GE data affects the likelihood of program closures. The data helps to shine a spotlight on programs that need to improve their students’ outcomes.
Claim: “Earnings Measures Should Extend Farther Out After Program Completion”
The goal of GE is to ensure that all career education programs lead to gainful employment for their graduates. This is determined by the debt-to-earnings (DTE) ratio of former students. DTE is calculated based on the typical loan debt and earnings of a cohort of the program’s former students who completed the program, usually those who completed during a two-year period concluding two years prior to the calculation year.
Under the regulations finalized in 2014, a program would be considered to lead to gainful employment—passing the test—if the estimated annual loan payment of a typical graduate did not exceed 20 percent of his or her discretionary income or 8 percent of his or her total earnings. Programs that exceed these levels at least twice would be at risk of losing their ability to participate in taxpayer-funded federal student aid programs.
The benchmarks used to evaluate programs do have room for improvement, and requiring programs to pass both annual and discretionary rates establish a rigorous measure of programs’ ability to provide gainful employment for their graduates.
Claim: “Borrower Defense to Repayment Unfairly Targets For-Profit Programs”
The 2016 borrower defense rule was a direct response to widespread deception by multiple large for-profit colleges. Students took out thousands of dollars in debt based on false or misleading information. This rule created strong protections for student borrowers who were defrauded by predatory for-profit colleges by establishing a fair and transparent borrower defense process for student loan debt relief. The only schools “targeted” by the borrower defense rule are institutions that defraud their students.
In 2019, the Department, under the previous administration, rescinded standing regulations and replaced them with new rules designed to prevent defrauded students from obtaining loan relief, while also shielding predatory schools from being held accountable for their misconduct. Significant reforms are needed to require for-profit colleges to align their financial incentives with student success and ensure that taxpayer dollars are used to further the educational mission of the colleges, rather than to fuel their bottom lines.
Claim: “Income-Driven Repayment is Too Complex”
The for-profit industry is right when they say the Income-Driven Repayment (IDR) model is too complex. IDR plans provide a critical safeguard for borrowers but can be confusing to navigate. For example, there are five similar IDR plans, causing unnecessary complexity and confusion. For-profit colleges would do well to consider ways to mitigate excessive debt among borrowers–especially for borrowers of color–who come through their doors.
Delinquency and default rates suggest many more borrowers could benefit from IDR. Researchers have found that borrowers who enroll in IDR tend to have more success keeping up with their loan payments. One analysis from the Government Accountability Office even found that borrowers in standard repayment plans are up to 28 times more likely to default than those paying based on their income.
There is also a disproportionate likelihood that Black and Latino borrowers from for-profit institutions will end up in default. One 2019 study found that one-third of all borrowers who attended a for-profit institution defaulted within six years, including 42% of Black borrowers. Latino borrowers who attended a for-profit institution are nearly four times as likely to default within 12 years, compared to Latinos who attended a public, nonprofit institution.
Studies have shown that IDR plans appear to be particularly important for Black borrowers, as one-third of Black borrowers in repayment use IDR–the highest rate of any educational attainment or racial grouping. IDR has also been shown to help borrowers who were more likely to default, such as noncompleters or certificate earners, ultimately avoid default.
To simplify and improve student loan repayment, as well as reduce delinquency and default, TICAS recommends streamlining these five plans into a single, improved plan that works better for both students and taxpayers.
Claim: “The Department Should Use Financial Responsibility and Certification Rules”
For-profit industry leaders claim, with justification, that the current financial responsibility system fails to protect taxpayers and students from college closures, while penalizing schools in relatively strong financial positions, and failing to identify schools in poor financial condition. But financial responsibility standards should ensure that institutions have the resources to provide the educational services they promise, and to cover losses and liabilities if they fail. Institutional collapses like ITT demonstrate the potential harm exploitative behavior can have on students and borrowers, and strong measures are needed to protect their interests.
The intent of these standards should be to identify harmful practices and predatory institutions before crises arise, not to penalize institutions—especially those that are under-resourced but showing evident commitment to serving students.
Congress and the Department of Education should continue to work toward ensuring that students and borrowers are protected. The neg reg process is a vital opportunity to course-correct across several policy areas and establish fair, functioning, and transparent rules. This process helps to ensure that students and borrowers can reach their educational dreams while protected from unscrupulous actors.