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Round two of the battle over gainful employment regulations has begun.

One week after President Obama announced a sweeping plan to rate colleges on value, the U.S. Department of Education released draft standards for the employment outcomes of academic programs at for-profit institutions and community colleges. A group of department-selected negotiators will begin a rulemaking discussion on the standards on Sept. 9.

The department previously conducted a controversial, multi-year effort to set minimum gainful-employment rules for vocational programs to be eligible for federal financial aid. But a federal judge last year struck down the standards that emerged from that grueling process, ruling that one of the three thresholds was set arbitrarily.

The new draft standards appear to be stricter, for the most part, than the stalled ones they replace.

“This version looks like a reset, one that undoes many of the concessions given to the industry the first go around,” said Ben Miller, a senior policy analyst for the New America Foundation and a former department official, in a blog entry.

Miller said the proposal sets higher standards and allows fewer opportunities for failure. But the rules are less aggressive than those the department first proposed in 2010, mostly because programs would not immediately lose aid eligibility if they fall below thresholds.

The process has begun differently this time, observers said, because the department was able to start at a more advanced stage. Only two rulemaking sessions are planned, as opposed to the usual three.

The draft standards go beyond an attempt to comply with the court’s ruling, said Noah Black, a spokesman for the Association of Private Sector Colleges and Universities, the for-profit sector’s primary trade group.

“This type of draft regulation raises doubts on the level of interest at the department for working with all of postsecondary education to create meaningful change that puts the interests and outcomes of students first,” Black said in a written statement. “Rather it appears the department is prepared to advance policies that limit access to those that stand to benefit the most from postsecondary education.”

Two key changes stand out as the most important in the draft regulations. The standards would be based only on two debt-to-earnings ratios, and would drop a measurement for loan repayment rates. The rules would also add a middle “zone” for programs that are not deemed to be clearly passing or failing.

More academic programs would be held accountable under the standards, the department said. The rules would apply to 11,359 total programs, more than double those covered in the previous version.

Fewer would pass, according to the department’s estimates. Roughly 90 percent of programs would have cleared the bar set by the previous rules, while 79 percent would under the draft standards. However, that difference would largely be due to those stuck in the limbo of the middle zone, which would snag 12 percent of programs. (A department analysis of which programs would be affected can be found below.)

The two measures used in the proposed rules would be an annual debt-to-income ratio and a discretionary income ratio. A failing program would be one with an annual ratio of more than 12 percent and a discretionary ratio of more than 30 percent. That means median annual debt payments of a program's graduates could be no more 12 percent of their annual earnings. (A "passing" program would by 8 percent or less.) Debt payments would be tied to a federal poverty level estimate for the discretionary ratio.

Programs would also fail quicker under the draft rules. They would lose aid eligibility after two failures in a three-year period, rather than three failures over four years.

The loan repayment rate threshold was the stumbling block for the previous gainful employment regulations. In response to a lawsuit filed by the for-profit association, the judge ruled that the department had failed to adequately justify the 35 percent minimum repayment rate it established.

However, the judge backed the department’s right to try to establish the regulations. And the ruling did not challenge the philosophical idea behind the repayment rate.

Some consumer advocates were disappointed that the feds did not include a loan repayment rate in the draft rules. That threshold would be the only way to measure how colleges perform with students that fail to graduate or earn a credential, some have long argued. Without that trigger the rules would fail to hold programs accountable for low completion rates.

Even so, consumer advocates found much more to like in the department’s draft rules than the for-profits did.

Advocates for the industry had asked the department to drop the planned rulemaking and to include gainful employment in the debate over the renewal of the Higher Education Act, which is the law governing federal aid. They had said that the regulation of for-profits should be folded into the broader discussion of President Obama’s plan to rate the value of colleges. That appears unlikely to happen, given the arrival of draft rules and the looming start of the rulemaking session.


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