Why a Strong Gainful Employment Rule is More Important Now Than Ever

Co-authored by Beth Stein and Brett Robertson

The Education Department just announced its final gainful employment (GE) rule repealing protections that have led to lower costs for students attending career programs and big savings for taxpayers.  The idea behind the GE rule was simple:  typical graduates need to earn enough to repay their loans. By eliminating the protections of the rule, unscrupulous schools will be able to enroll as many students as possible at as high a price as the student loan system will support.  Students will be left with few means to judge the quality of training programs and many will be left without the earning that will allow them to repay their debts.

There should be no doubt – the GE rule worked.  Since its inception in 2010, costs of career programs have gone down, scholarship aid has increased, and some colleges now offer free trial periods. Even industry representatives have acknowledged that the GE rule forced for-profit colleges to reduce the cost of programs and offer students greater value.

Had the GE rule been enforced, schools that have closed precipitously over the last year, and left students stranded with debt and little path to completion would have instead been largely ineligible for federal aid. Based on how programs performed on the GE Rule the Department should have known that Virginia College, Vatterott College, and Argosy College – three schools that closed impacting tens of thousands of students – offered too many risky programs.  Fewer than 10 percent of the programs offered at Virginia and Vatterott Colleges could show that graduates earned enough to repay loans[1].

 

 

With this now final action the Department has sent a clear message to companies that operate large for-profit colleges – you are back in business. With no eligibility limitations regardless of how large a graduate’s debt or how low their earnings may be, large for-profit education companies that spend millions to enroll disproportionate numbers of veterans and students of color are once again growing. While many for-profit colleges continue to struggle and overall enrollments have dropped, some companies have announced new and expanded enrollments to investors including Career Education Corporation (“new enrollment growth was the strongest it has been in over five years”), Lincoln Educational Services Corporation (“six consecutive quarters of solid start growth”), and Universal Technical Institute (“[d]uring our second quarter of fiscal 2019, new student starts grew 11.2% compared to the prior year”).

To taxpayers and students seeking a better future the Department has acknowledged the price tag of the new rule:  $6.2 billion over ten years. How is that $6.2 billion likely to translate into future student debt for low-earning graduates of career programs? We don’t know. But we do know that:

  • A total of 350,000 students graduated from career education programs that failed or were at risk of failing the GE rule. Together these students hold nearly $7.5 billion in student loan debt that they are unlikely to be able to repay.
  • Approximately 375,000 students graduated from career programs where the typical graduate’s debt is so large, that under the standard repayment plan, it is more than their entire discretionary income (earnings minus a basic living allowance of $18,000).
  • Approximately 170,000 students graduated from career programs where the typical student’s earnings were less than the federal minimum wage ($15,080 per year).

While today’s action finalizes the new rule, it is not the end of the road.  States and legal organizations may also challenge whether the Department had a reasoned basis for today’s rule.  Since the rule imposes no eligibility limitations regardless of how large a graduates’ debt or how low their earning are, fails to analyze the benefits to students from the previous rule, and largely ignores and occasionally misrepresents the extensive evidentiary record, it will be interesting to see how such challenges proceed. And, of course, Congress and states are both currently looking at legislation that could address these issues. But at the end of the day there is no question that today’s final rule is a step backwards for students looking for affordable career programs that lead to good jobs and for taxpayers who provide hundreds of millions of dollars in subsidies each year to colleges that offer these programs.

 

[1] TICAS analysis of U.S. Department of Education data published in January 2019, available at https://bit.ly/2gkRzjm.

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