How the PROSPER Act Stacks Up for Student Debt: Throwing Reasonable Accountability Standards Out the Window Will Lead to a Rise in Unmanageable Debt and More Waste, Fraud, and Abuse in Higher Education

This blog post is one in a series that explores how the House proposal to overhaul the Higher Education Act would impact student debt. This bill, the PROSPER Act, was passed out of the Committee on Education and the Workforce in December 2017. Here we focus on the PROSPER Act’s changes to accountability requirements for federal student aid.

The reauthorization of the Higher Education Act provides a pivotal opportunity to reaffirm and strengthen the federal government’s commitment to ensuring that students receive a quality, affordable education, and that federal dollars are wisely spent. Instead, the PROSPER Act would eliminate numerous safeguards that protect students and taxpayers from low-quality and even deceptive educational programs that waste taxpayer dollars and leave students with federal loans they cannot afford to repay.

Eliminating the gainful employment rule will reopen the door to waste, fraud, and abuse in career education programs.

The gainful employment rule is designed to ensure that career education programs in all sectors of higher education aren’t leaving students with unaffordable debts relative to their post-college earnings. In addition to protecting students from burdensome debts, the Congressional Budget Office estimates that the gainful employment rule saves $1.3 billion over 10 years because taxpayers’ resources aren’t being spent on poorly performing programs.

The PROSPER Act both eliminates the gainful employment rule and prohibits the Department of Education from writing or enforcing any future regulation with respect to the definition or application of the term “gainful employment” for any purpose under the Higher Education Act. According to 20 state attorneys general, rolling back the gainful employment rule “would open students and taxpayers up to the worst excesses of the for-profit higher education sector.” A group of Brookings Institution economists concluded that the rules “are necessary to help reduce the costs of student loans to taxpayers and to protect students from economic harm.” Eliminating the rule removes incentives for colleges to offer quality programs at reasonable costs, leaving students more likely to leave college with debts they can’t repay.

Loosening standards for program-level federal grant and loan eligibility without sufficient quality guardrails will waste resources on ineffective programs.

Currently, undergraduate programs providing a minimum of 15 weeks of instruction at Title IV eligible institutions are eligible for both federal student loans and Pell Grants. Programs providing at least 300 but less than 600 clock hours of instruction over the course of at least 10 weeks are eligible for federal loans, but not Pell Grants, so long as they have verified graduation and job placement rates of 70% and meet some additional requirements. The Reagan and Bush administrations tightened the current course length minimums after high-profile cases of fraud and abuse of federal aid funds, and years of high student loan default rates.

The PROSPER Act cuts the minimum length of all eligible non-competency-based education programs in half from 600 hours to 300 hours, and opens up all federal student aid funds to these programs. It furthermore removes the graduation and job placement rate requirements currently in place for programs between 300 and 600 clock hours. Some short-term programs that are closely aligned with local employment needs can offer real value to students, but eliminating existing, commonsense standards for graduation and job placement outcomes for such programs is a clear cause for concern for both students and taxpayers. Going even further by shortening existing program length requirements for federal aid eligibility without developing sufficient quality controls risks a new surge of abuse of federal aid funds. We have identified number of critical questions that must be addressed before expanding current program-level federal aid eligibility.

The PROSPER Act also expands federal grant and loan eligibility to programs primarily delivered by unproven higher education providers. These programs are not currently eligible for student aid because federal, state, and accrediting agencies have no proven mechanisms to rely on for assuring quality. Currently, schools have a 50% limit on how much they can “outsource” the provision of academic programming in a given course or program. This cap exists as an essential guardrail against the potential overuse of unproven providers of higher education that have not passed basic evaluations of academic quality.

In 2016, the Department of Education launched EQUIP, an initiative to explore any potential benefits of waiving this 50% limit and facilitating greater partnerships between colleges and non-college education providers. Recognizing the potential for associated risk to students and taxpayers, the eight pilot sites included in the initiative will be required to include new quality assurance processes. However, there are not yet any publicly available data on this initiative, including the types of programs and providers who applied or were approved for the project, let alone any identification of potential costs or benefits for students and taxpayers that may result from such partnerships.

Without even initial pilot program evidence or experience to guide policymakers, the PROSPER Act eliminates the 50% requirement for all colleges while at the same time failing to ensure any adequate oversight or accountability to ensure effectiveness. As a result, the bill would open the spigot of federal financial aid to new education companies, putting students and taxpayers at risk of wasted money and unaffordable loans.

Replacing institutional cohort default rates (CDRs) with program-level repayment rates will make it easier for low-quality schools to evade accountability and continue wasting federal funds.

The Department of Education currently holds schools accountable for default using the cohort default rate (CDR). The CDR measures the percentage of a college’s students entering repayment who default within three years. If a school has a CDR at or above 30% for three years, it is no longer eligible to receive Title IV funds from the government. If its CDR exceeds 40% for a single year, a school is no longer eligible for federal student loans.

The PROSPER Act replaces the CDR with a new program level repayment rate, to be calculated as the share of borrowers who took loans for each respective program and are either fully repaid, not 90 days delinquent, or in deferment after two fiscal years (the amount that a student in repayment has paid doesn’t matter). If a program’s repayment rate is less than 45% for three consecutive years, it would lose eligibility for three years. This specific calculation of the proposed repayment rate is new, which means there is no way to know how programs may fare under this standard.  

Swapping out the CDR for a brand new accountability metric is not a solution to shortcomings of the CDR, which we agree can and should be addressed, and could in fact invite unintended negative consequences for students. While repayment rates hold promise for measuring a broad range of borrower outcomes, eliminating the CDR entirely moves colleges’ attention away from focusing on the most devastating borrower outcome: default. Additionally, while school-level CDRs are not immune to gaming by unscrupulous schools, program-level accountability measures are particularly ripe for manipulation because of how simple it is for schools to make slight modifications to their program offerings in order to make failing programs look like new, untested programs. For instance, the gainful employment rule (also program-based) prohibits colleges from shortening a failing Associate of Arts program to a certificate program to get continued federal aid eligibility. The PROSPER Act does not propose any such protections or prohibitions with regards to how repayment rate accountability would be implemented, opening the door to more gaming of accountability rather than less.

Eliminating distinctions between for-profit and public/nonprofit colleges could have wide-reaching effects.

With some small exceptions, the bill eliminates the distinction between for-profit and other colleges as defined by the Higher Education Act, a longstanding policy priority of the for-profit college industry. All types of colleges should be subject to appropriate oversight and accountability, but the reality is that public and nonprofit colleges are already subject to significant oversight by states, while for-profit colleges – which are almost entirely federally funded – are not. This change would make for-profit colleges eligible for a range of programs across the federal government. According to a 2007 report from the Government Accountability Office, the current definition of “Institution of higher education” – which currently excludes for-profit colleges – was cited more than 350 times across the U.S. Code at the time of the report’s publication. While the full ramifications of this change are unclear, for-profit college advocates believe that the single definition could lead to, among other things, expanded eligibility for state financial aid, and more favorable treatment of their colleges’ credits in transfer policies. According to the GAO, the change could also lead to increased political influence of for-profit colleges within states. Moreover, allowing for-profit colleges to have an even greater share of limited federal dollars would be unwise given ample research about poor outcomes at many of these schools.


Taken together, the accountability-related provisions in the PROSPER Act signal more an assault on reasonable quality assurances in higher education than an attempt to improve and strengthen existing federal efforts to hold colleges accountable. Without the protections singled out for elimination in this bill, we know that students will face higher debt loads to attend programs that are less likely to pay off. Congress must use the opportunity HEA reauthorization presents to strengthen protections for students and taxpayers, not gut them.

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