A New Gainful Employment Rule- How to Protect Today’s Student’s Investment in Their Education
With college enrollment continuing to decline even as COVID-19 precautions are being rolled back, it is becoming increasingly clear that Americans are questioning the value of a college education. A student who attends a program of higher education should know that the employment they pursue with their degree will allow them to, at a minimum, pay back their student loans and ultimately increase their socio economic mobility. When a student asks,“is college worth it?” they should be able to know the answer to that question with confidence.
This philosophy is at the heart of the “gainful employment rule,” a rule through the Higher Education Act (HEA) which states that all career education programs receiving federal student aid must “prepare students for gainful employment in a recognized occupation.” Despite its clear purpose to protect students and the taxpayer, the gainful employment rule has had a rocky history. The Obama administration intended to enforce a version of the gainful employment rule which was swiftly repealed by the Trump administration. Taxpayers are on the line for roughly $1.6 trillion in outstanding federal student loan debt (as of March 31, 2021), but the current system lacks guardrails to prevent federal aid from flowing into low-performing programs. The Biden Department of Education is currently undergoing a process of negotiated rulemaking, but has yet to start the process of proposing a new gainful employment rule. It should not miss this opportunity to resurrect a rule which provides a last line defense for students and taxpayers to prevent bad investments in programs that don’t work.
We propose a version of the gainful employment rule, similar to the original Obama era regulations, that uses a 35 percent loan repayment rate with at least one dollar paid on loan principal over three years of all students (completers & non-completers) who exit a career education program as a measurement for programs to remain eligible for federal aid. Additionally, the Department should adopt public reporting of student earnings and debt-to-income ratios to provide students with upfront information about their potential return on investment.
Program-level repayment rates are strong indicators of whether students are able to repay their loans and are in many ways even stronger than cohort default rates in measuring a successful program. By ensuring that the students are actually reducing their federal loan principal, the rule would do more to actually capture students who are on the path to paying back their federal loans and not just students who are meeting their monthly payments because of income driven repayment plans. Finally, because any career education program should provide a student with fair value, career preparation programs at all institutions should be included in the regulation, whether for-profit or non-profit.
The 2013 gainful employment rule regulations used student debt-to-income ratios as a primary accountability metric. While ultimately the program repayment rate is the more direct measure of a student’s ability to repay their debt, debt-to-income ratios are a useful measure for a student who is considering enrolling in a career education program. For the sake of transparency and consumer protection, institutions should still be required to report on the debt-to-income ratio of students who have exited their career education programs. There’s no magic number for how much debt any particular student should take on — but the availability of this data will make it much easier for students to decide whether a program is a worthwhile investment of their time and money.
As we enter a post-pandemic world, it is important to acknowledge that the end of the current moratorium in student loan payments, which is coming in January 2022, will be an eventful transition for students, institutions, and the Department of Education. But if we want to re-engage students with meaningful programs that will allow them to further their careers, we need to put in place accountability principles that give students a clear understanding of which programs are worth the time and the money. Strengthening the gainful employment rule would be an important first step in that direction.
