The Biden administration has announced new regulations that aim to protect students from career training programs that fail to deliver on their promises. The regulations, which will take effect in July 2024, will cut off federal student aid to programs that do not meet certain standards of quality and affordability.
The gainful employment rule is back
The new regulations are a revival of the gainful employment rule, an Obama-era policy that was repealed by the Trump administration in 2019. The rule was designed to hold career and certificate programs accountable for the outcomes of their graduates, by measuring their debt-to-earnings ratios. Programs that had high ratios of debt to income, or low rates of loan repayment, would lose access to federal student aid, such as Pell Grants and loans.
The rule was mainly targeted at for-profit colleges, which have been accused of misleading students about the value and cost of their programs, and leaving them with unmanageable debt and poor job prospects. According to the Education Department, students at for-profit colleges represent 9% of all postsecondary students, but account for 34% of all federal student loan defaults.
The Trump administration argued that the rule was unfair and burdensome to for-profit colleges, and that it did not adequately measure the quality of education. It also claimed that the rule discouraged innovation and limited student choice. The repeal of the rule was welcomed by the for-profit college industry, but criticized by consumer advocates and student groups.
The new regulations are stricter and more comprehensive
The Biden administration has restored the gainful employment rule, but with some changes that make it more stringent and inclusive. The new regulations will apply to all career and certificate programs, not just those at for-profit colleges. This means that public and nonprofit institutions will also have to demonstrate that their programs provide a reasonable return on investment for their students.
The new regulations will also use a different metric to measure the debt-to-earnings ratios of programs. Instead of using the average earnings of graduates, the regulations will use the median earnings of graduates who received federal student aid. This will ensure that the data reflects the actual outcomes of students who rely on federal aid to pay for their education.
The new regulations will also lower the threshold for programs to pass the debt-to-earnings test. Programs will have to show that their graduates’ annual loan payments do not exceed 8% of their median earnings, or 20% of their discretionary income. Programs that fail this test for two out of three consecutive years, or have a debt-to-earnings ratio above 12%, will lose eligibility for federal student aid.
The new regulations will also require programs to disclose information about their costs, completion rates, earnings, and debt levels to prospective and current students. This will help students make informed decisions about their education and career paths.
The expected impact of the new regulations
The Education Department estimates that the new regulations will affect about 8,000 programs that serve about 2 million students. Of these programs, about 1,900 are expected to fail the debt-to-earnings test, and about 800 are expected to be at risk of failing. The majority of these programs are at for-profit colleges, but some are also at public and nonprofit institutions.
The Education Department expects that the new regulations will save taxpayers about $5.3 billion over 10 years, by reducing the amount of federal student aid that goes to low-performing programs. The department also expects that the new regulations will encourage programs to improve their quality and affordability, or to close down if they cannot meet the standards.
The new regulations have been praised by consumer advocates, student groups, and some lawmakers as a step forward in protecting students from predatory and low-quality programs. However, they have also faced opposition from some industry groups, such as Career Education Colleges and Universities (CECU), which represents for-profit colleges. CECU has argued that the new regulations are based on flawed data and methodology, and that they will harm students’ access to education and career opportunities.