Dept. of Education’s Rationale for the Gainful Employment Repeal
by Dan Brozovic
Many in the higher education community are aware of the Department of Education’s (“ED” or the “Department”) latest proposal for the Gainful Employment (“GE”) rule: to rescind it, replace it with expanded College Scorecard disclosures for all institutions, and possibly also require institutions to make expanded disclosures on their own websites.
This is the first time the Department has proposed to repeal the rule outright, rather than to revise the current version as contemplated in negotiated rulemaking proceedings that concluded earlier this year. The overall rationale—and supporting evidence—for repeal is contained in the Department’s Notice of Proposed Rulemaking (“NPRM”). The Department’s rationale can be summarized under the following five categories:
- Research Findings Undermine Validity of D/E Rates
- Factors Outside Institutional Control Undermine Validity of D/E Rates
- Students and Public Better-Served by Disclosures that Apply to All Programs, at All Schools
- Current Disclosure Requirements are Unreliable and Burdensome
- Current Rule Threatens Access to Training in High-Demand Fields
The Department is accepting public comment on the proposal through September 13, 2018, and instructions for submitting comments can be found in the NPRM.
Research Findings Undermine Validity of D/E Rates
ED asserts that research findings and other factors undermining the validity of the debt-to-earnings rates (“D/E rates”) “were not accurately interpreted during the development of the 2014 GE regulations, were published subsequent to the promulgation of those regulations, or were presented by committee members at [the 2018] negotiated rulemaking sessions.”
Current Thresholds Inapplicable to Student Loan Debt. First, ED argues that the current D/E rate thresholds for unacceptable debt levels were taken from a paper discussing mortgage affordability, and that there is no reason to believe they should be used as a benchmark of student loan eligibility:
In promulgating the 2011 and 2014 regulations, the Department cited as justification for the 8 percent D/E rates threshold a research paper published in 2006 by Baum and Schwartz that described the 8 percent threshold as a commonly utilized mortgage eligibility standard. However, the Baum & Schwartz paper makes clear that the 8 percent mortgage eligibility standard “has no particular merit or justification” when proposed as a benchmark for manageable student loan debt. [Baum, S. & Schwartz, S. How Much Debt is Too Much? Defining Benchmarks for Manageable Student Debt. College Board, 2008. Available at https://files.eric.ed.gov/fulltext/ED562688.pdf.] The Department previously dismissed this statement by pointing to Baum and Schwartz’s acknowledging the “widespread acceptance” of the 8 percent standard and concluding that it is “not unreasonable.” 79 FR 64889, 64919. Upon further review, we believe that the recognition by Baum and Schwartz that the 8 percent mortgage eligibility standard “has no particular merit or justification” when proposed as a benchmark for manageable student loan debt is more significant than the Department previously acknowledged and raises questions about the reasonableness of the 8 percent threshold as a critical, high-stakes test of purported program performance.
Miscellaneous Additional Research Findings. The NPRM summarizes additional findings that lead ED to conclude that “the analysis and assumptions with respect to earnings underlying the GE regulations are flawed”:
“In 2014, upon the introduction of the GE regulations, the Department claimed that graduates of many GE programs had earnings less than those of the average high school dropout. The Washington Post highlighted several errors in this comparison including that the Department failed to explain that the three-year post-graduation GE earnings compared the earnings of recent graduates with the earnings of a population of high school graduates that could include those who are nearing the end of 40-year careers or who own successful long-existing businesses. [Citations omitted.]”
“The Census Bureau, in its landmark 2002 report, The Big Payoff, was careful to explain that individual earnings may differ significantly due to a variety of factors, including an individual’s work history, college major, personal ambition, and lifestyle choices. The report also pointed out that even some individuals with graduate degrees, such as those in social work or education, may fail to earn as much as a high school graduate who works in the skilled trades. In other words, both debt and earnings outcomes depend on a number of factors other than program quality or institutional performance. There are tremendous complexities involved in comparing earnings, especially since prevailing wages differ significantly from one occupation to the next and one geographic region to the next. Therefore, a bright-line D/E rates measure ignores the many research findings that were either not taken into account in publishing the GE regulations or that were published since the GE regulations were promulgated, that have demonstrated over and over again that gender, socioeconomic status, race, geographic location, and many other factors affect earnings. Even among the graduates of the Nation’s most prestigious colleges, earnings vary considerably depending upon the graduate’s gender, the field the graduate pursued, whether or not the graduate pursued full-time work, and the importance of work-life balance to the individual. And yet, the Department has never contended that the majors completed by the lower-earning graduates were lower performing or lower quality than those that result in the highest wages.” [Citations omitted.]
The NPRM’s further arguments about the impact of demographics, student choices, and other factors outside an institution’s control are detailed below.
Factors Outside Institutional Control Undermine Validity of D/E Rates
As noted above, the NPRM argues that earnings and debt levels are impacted by numerous factors that have no bearing on program quality or that are otherwise outside of an institution’s control.
Differences in Cost of Delivering Program. In acknowledging that some programs simply cost more than others to deliver, ED noted:
[T]he highest quality programs could fail the D/E rates measure simply because it costs more to deliver the highest quality program and as a result the debt level is higher.
Importantly, the HEA does not limit title IV aid to those students who attend the lowest cost institution or program. On the contrary, because the primary purpose of the title IV, HEA programs is to ensure that low-income students have the same opportunities and choices in pursuing higher education as their higher-income peers, title IV aid is awarded based on the institution’s actual cost of attendance, rather than a fixed tuition rate that limits low-income students to the lowest cost institutions [citation omitted].
For example, the NPRM notes that “[i]n the case of cosmetology programs, State licensure requirements and the high costs of delivering programs that require specialized facilities and expensive consumable supplies may make these programs expensive to operate, which may be why many public institutions do not offer them.”
In a similar vein, the NPRM acknowledges that many students are unable to choose an institution and program based on costs alone, and that the availability of federal student aid has never been contingent on a student selecting the cheapest program. Some students may “enroll in a program that costs more simply because a lower-cost program is too far from home or work or does not offer a schedule that aligns with the student’s work or household responsibilities,” and ED notes that this phenomenon is not limited to the career education sector:
In the same way that title IV programs enable traditional students to select the more expensive option simply because of the amenities an institution offers, or its location in the country, they should similarly enable adult learners to select the more expensive program due to its convenience, its more personalized environment, or its better learning facilities.
Questions Regarding Accuracy of Earnings Data. The NPRM also notes that institutions have no way of verifying the earnings data used determine D/E rates. Due to the potential for persons in certain occupations (the NPRM uses cosmetology professionals as an example) to underreport their income to the IRS “in a way that institutions cannot control,” ED recognizes the need for an alternate earnings appeal process whereby institutions could collect earnings data “directly from graduates.” However, the NPRM then discusses the challenges faced by both the Department and institutions in constructing and navigating a workable appeal process. It notes that “the process for developing such an appeal has proven to be more difficult to navigate than the Department originally planned,” and that the Department has “corroborated claims from institutions that the survey response requirements of the earnings appeals methodology are burdensome given that program graduates are not required to report their earnings to their institution or to the Department, and there is no mechanism in place for institutions to track students after they complete the program.” Finally, the NPRM notes that given institutional confusion over the appeal process and requirements, it “would be problematic if those earnings were still tied to any kind of eligibility threshold.”
Demographic Factors Impact both Earnings and Borrowing Levels. The Department also asserts that demographic factors—and not institutional or program quality—influence both the amount that students borrow to attend school and their earnings after graduation.
First, ED expresses concern about the impact of the GE rule on institutions serving large numbers of traditionally underserved students. It concludes that in developing the current version of the GE rule, ED failed to account for research showing that “student demographics and socioeconomic status play a significant role in determining student outcomes.” Elsewhere, the NPRM states:
[R]esearch findings suggest that D/E rates-based eligibility creates unnecessary barriers for institutions or programs that serve larger proportions of women and minority students. Such research indicates that even with a college education, women and minorities, on average, earn less than white men who also have a college degree, and in many cases, less than white men who do not have a college degree [citation omitted].
Disagreement exists as to whether this is due to differences in career choices across subgroups, time out of the workforce for childcare responsibilities, barriers to high-paying fields that disproportionately impact certain groups, or the interest of females or minority students in pursuing careers that pay less but enable them to give back to their communities. Regardless of the cause of pay disparities, the GE regulations could significantly disadvantage institutions or programs that serve larger proportions of women and minority students and further reduce the educational options available to those students.
Second, the NPRM asserts that the GE rule unfairly penalizes institutions with large adult student populations—who tend to incur higher federal loan debt—even though the institutions cannot control student borrowing decisions:
[A] program’s D/E rates can be negatively affected by the fact that it enrolls a large number of adult students who have higher Federal borrowing limits, thus higher debt levels, and may be more likely than a traditionally aged student to seek part-time work after graduation in order to balance family and work responsibilities. . . . Regardless of whether students elect to work part-time or full-time, the cost to the institution of administering the program is the same, and it is the cost of administering the program that determines the cost of tuition and fees. In general, programs that serve large proportions of adult learners may have very different outcomes from those that serve large proportions of traditionally aged learners, and yet the D/E rates measure fails to take any of these important factors into account.
In sum, the current GE rule “failed to take into account the abundance of research that links student outcomes with a variety of socioeconomic and demographic risk factors, and similarly failed to acknowledge that institutions serving an older student population will likely have higher median debt since Congress has provided higher borrowing limits for older students who are less likely than traditional students to receive financial support from parents.”
Student Choice, Location, and Broader Economic Conditions Impact D/E Rates. The Department argues that, ultimately, “[s]tudents select institutions and college majors for a wide variety of reasons, with cost and future earnings serving as only two data points within a more complex decision-making process.” According to the NPRM, factors outside the institution’s control that impact student earnings and debt levels include the following:
First, previously-published outcomes show that earnings, and therefore D/E rates, “vary significantly from one occupation to the next, and across geographic regions within a single occupation.” The NPRM indicates that the extent of differences in earnings due to geography were underestimated in the prior GE rulemaking.
The NPRM also acknowledges that proprietary institutions are at a disadvantage compared to community colleges and other taxpayer-subsidized institutions. “According to Delisle and Cooper, because public institutions receive State and local taxpayer subsidies, ‘even if a for-profit institution and a public institution have similar overall expenditures (costs) and graduate earnings (returns on investment), the for-profit institution will be more likely to fail the GE rule, since more of its costs are reflected in student debt.’”
The Department further recognizes “a number of errors” in its prior analysis of the GE rule, including its conclusion that “changes in economic outlook” would not cause a program to have low D/E rates. The Great Recession “lasted for well over two years, and was followed by an extended ‘jobless’ recovery,” which, according to the NPRM, undermines ED’s prior position that the average recession does not endure long enough to negatively impact a program’s D/E rates performance. The Department also notes that the recession caused widespread underemployment, and therefore reduced earnings, among graduates from all sectors of higher education:
The Department concedes that an extended recession coupled with rampant underemployment, could have a significant impact on a program’s D/E rates for a period of time that would span most or all of the zone period. Underemployment during the Great Recession was not limited to the graduates of GE programs, but included graduates of all types of institutions, including elite private institutions. [Citations omitted.]
Finally, the NPRM acknowledges that even minor changes to the prevailing interest rate on federal loans (used to calculate D/E rates) could have a meaningful impact on GE program performance, “even if nothing changed about the programs’ content or student outcomes,” and that “our justifications in the 2014 GE regulation did not adequately take these nuances into account. . .” ED asserts that “any metric that could render a program ineligible to participate in title IV, HEA programs simply because the economy is strong and interest rates rise is faulty.” It also asserts that the assumed amortization periods (loan repayment terms) included in the current rule are inappropriate given the availability of longer-term extended repayment options, calling the shorter terms “an unacceptable and unnecessary double standard.”
Students and Public Better-Served by Disclosures that Apply to All Programs, at All Schools
Given that all degree programs at public and nonprofit institutions are exempt from the GE rule, including the GE disclosure requirements, the NPRM explains that “it is not appropriate to require [GE] disclosures for only one type of program when such information would be valuable for all programs and institutions that receive title IV, HEA funds.” As noted above, ED is therefore interested in receiving public comment as to whether it “should require that all institutions disclose information, such as net price, program size, completion rates, and accreditation and licensing requirements, on their program web pages. . .”
The NPRM also notes that current disclosures do not adequately “inform consumer choice since only a small proportion of postsecondary programs are required to report program-level outcomes data and, even among GE programs, many programs graduate fewer than 10 students per year and are not required to provide student outcome information on the GE disclosure.” Perhaps more importantly, the Department does not believe it is appropriate to attach punitive actions to program-level outcomes published by some programs but not others.”
Indeed, the NPRM notes that whereas the current GE rule focuses on the for-profit sector, “the Department believes that there are good and bad actors in all sectors.” As recent examples of “bad actors” in more traditional higher education settings, ED points to “[w]ell-publicized incidents of non-profit institutions misrepresenting their selectivity levels, inflating the job placement rates of their law school graduates, and even awarding credit for classes that never existed.” (As support, ED cites articles from Forbes, the New York Times, CNN, and the Wall Street Journal.)
Current Disclosure Requirements are Unreliable and Burdensome
Close observers of the GE rule saga might remember that while the regulation contemplates that ED would calculate most disclosure elements itself (see 34 C.F.R. 668.413), ED ultimately placed the burden on institutions to calculate this information on their own. The NPRM notes that ED has “discovered a variety of challenges and errors associated with the [required GE] disclosures.”
The Department’s comments in this area focus on the “significant variation in methodologies used by institutions” to determine job placement rates. Such variation “could mislead students into choosing a lower performing program that simply appears to be higher performing because a less rigorous methodology was employed to calculate in-field job placement rates.” For example:
In some cases, a program is not required to report job placement outcomes because it is not required by its accreditor or State to do so. In other cases, GE programs at public institutions in some States (such as community colleges in Colorado) define an in-field job placement for the purpose of the GE disclosure as any job that pays a wage, regardless of the field in which the graduate is working. Meanwhile, institutions accredited by the Accrediting Commission of Career Schools and Colleges must consider the alignment between the job and the majority of the educational and training objectives of the program, which can be a difficult standard to meet since educational programs are designed to prepare students broadly for the various jobs that may be available to them, but jobs are frequently more narrowly defined to meet the needs of a specific employer.
Due to challenges with reporting reliable and consistent placement figures, the NPRM instead proposes to rely on disclosure of program-level earnings data. The Department refers to prior, unsuccessful attempt to establish a nationwide placement rate methodology. An NCES Technical Review Panel (“TRP”) convened for this purpose found in 2013 that “job placement determinations [are] ‘highly subjective’ in nature,” and failed to agree “on a single, acceptable definition of a job placement” or on a “reliable data source to enable institutions to accurately determine and report job placement outcomes.” Due to these challenges, the NPRM asserts that disclosure of program-level earnings data will be more valuable to students:
In light of the failure of the TRP to develop a consistent definition of a job placement, and well-known instances of intentional or accidental job placement rate misrepresentations, the Department believes it would be irresponsible to continue requiring institutions to report job placement rates. Instead, the Department believes that program-level earnings data that will be provided by the Secretary through the College Scorecard or its successor is the more accurate and reliable way to report job outcomes in a format that students can use to compare the various institutions and programs they are considering. [Citations omitted.]
Finally, the NPRM asserts that ED underestimated the burden associated with the requirement to distribute the GE disclosure template directly to all prospective students:
A negotiator representing financial aid officials confirmed our concerns, stating that large campuses, such as community colleges that serve tens of thousands of students and are in contact with many more prospective students, would not be able to, for example, distribute paper or electronic disclosures to all the prospective students in contact with the institution. . . . ED recognizes that even [the requirement to provide disclosures to prospective students before they sign an enrollment agreement, complete registration, or make a financial commitment] has an associated burden, especially since institutions are required to retain documentation that each student acknowledges that they have received the disclosure.
To address both concerns regarding the disclosures—providing consistent information and reducing burden—the NPRM takes the position that students would be better served by receiving disclosures calculated and provided directly by the Department—that is, via College Scorecard. This would have the benefit of “allow[ing] prospective students to compare all institutions through a single portal, ensuring that important consumer information is available to students while minimizing institutional burden.”
Current Rule Threatens Access to Training in High-Demand Fields
Finally, while not a focus of the NPRM, ED does note that “it is during these times of economic growth, when demand for skilled workers is greatest, that it is most critical that shorter-term career and technical programs are not unduly burdened or eliminated.”
The Department explains that the first set of D/E rates, published in 2017, raised concerns about how the D/E rates “affect the opportunities for Americans to prepare for high-demand occupations in the healthcare, hospitality, and personal services industries, among others.” It goes on to say that “[a]t a time when 6 million jobs remain unfilled due to the lack of qualified workers [citation omitted], the Department is re-evaluating the wisdom of a regulatory regime that creates additional burden for, and restricts, programs designed to increase opportunities for workforce readiness.”
The NPRM also notes that the current GE provisions “reinforce an inaccurate and outdated belief that career and vocational programs are less valuable to students and less valued by society, and that these programs should be held to a higher degree of accountability than traditional two- and four-year degree programs that may have less market value.”
Dan Brozovic is an associate in the Education Group at Powers, representing institutions of higher education, investors, and education loan lenders. Dan’s experience in the higher education sector enables him to provide practical, real-world advice that clients can understand and implement with confidence. Dan focuses on advising clients in transactions regulated by the U.S. Department of Education, and in regulatory matters and administrative litigation before the Department of Education. In addition, he counsels educational institutions regarding compliance with federal, state, accrediting agency, and grant funding agency standards.