Further on Gainful Employment

Education Department proposes perhaps its strictest proposed language on the rules so far, a week before negotiators get back to business.

November 12, 2013

The U.S. Department of Education has upped the ante in its pursuit of “gainful employment” accountability requirements for vocational programs at for-profit institutions and community colleges.

On Friday agency officials released draft regulatory language that is substantially stiffer than what they proposed in September, before a group of negotiators began discussing the issue. And experts said the latest draft also goes further than proposed and final rules from the previous gainful employment battles a couple years ago.

Not surprisingly, consumer groups liked the new language. The for-profit sector did not.

The department’s initial stab at the standards this time around was based only on two measures of the debt-to-earnings ratios of graduates of academic programs. That rankled critics of for-profits, who said the rules would not account for students who fail to graduate or earn a credential.

The revised draft, however, includes both a loan default metric and a measure of repayment rates across a program’s entire “portfolio” of loans. Both would include students who borrow but don’t complete.

“Bringing back the repayment rate is huge,” said Debbie Cochrane, research director for the Institute for College Access and Success, an advocacy group.

Cochrane said the two loan-related rates would close “loopholes” for some for-profit programs that have high dropout rates.

The proposed language arrived about a week before the committee of department-selected negotiators begins its second round of meetings. The gulf between the viewpoints its members have shared so far has been wide, and most observers predict the meetings will fail to result in a formal consensus.

If that proves to be true, the department can still move forward with its favored approach to the rules. And federal officials can choose to accept guidance from the committee, or ignore it.

For-profits are certain to fight the loan repayment rate thresholds. The issue was the sticking point that scuttled the previous version of gainful employment.

In response to a lawsuit filed by the Association of Private Sector Colleges and Universities, which is the for-profit sector’s primary trade group, a federal judge ruled that the department had failed to adequately justify the 35 percent minimum repayment rate it established. However, the judge also said the department was on firm ground with its overall philosophy of seeking to set gainful employment standards.

A spokesman for the for-profit association said the latest iteration is evidence that the Obama administration’s Education Department is pursuing regulations that are based on ideology.

“The revised regulation could have represented the diverse views expressed at the negotiation table, but the department pursued another path,” Noah Black, the association’s spokesman, said in an email. “The impact of this ideologically driven regulatory process will be the students most in need of an opportunity denied access and a nation in need of skilled workers wondering why they don’t exist.”

Estimating the Impact

Both critics and supporters of new proposals were forced to scramble over the weekend to make sense of the 73-page draft. And, as was the case with the September release, the department picked the eve of a federal holiday to drop the language.

Some observers said they would seek clarification on aspects of the draft rules. One reason, they said, is that the feds did not include an analysis of the expected impacts of the standards this time. The department typically includes those estimates with its proposals.

In September, for example, department officials said the initial proposed rules would apply to 11,359 total programs, more than double those covered by the stalled standards from a couple years ago. More would fail, with roughly 90 percent of programs clearing the bar set by the previous rules, according to the analysis, while 79 percent would pass under the first draft of the new standards.

Jee Hang Lee, vice president for public policy and external relations at the Association of Community College Trustees, said his group planned to write to the department to request more information about various details of the proposed rules, including about reporting requirements and triggers for loan repayment rate thresholds.

“We would like to know what problems they’re going after,” Lee said.

The New America Foundation, which is supportive of tighter regulation of for-profits, on Monday published a detailed analysis of the proposed language.

Ben Miller, a former department official who is a senior policy analyst for the group, wrote that the newly bulked-up language sends a strong signal that the department is willing to be aggressive.

“This proposal contains provisions that would almost immediately knock out programs that can’t possibly provide gainful employment because they lack sufficient approvals and accreditations,” he wrote. “And for the first time penalties would go beyond just of loss of federal student aid -- programs here could be on the hook for some loan dollars even before they leave the program.”

The program cohort default rate was first raised by the department in September, during the negotiators’ initial batch of meetings. The proposed programmatic rates are similar to existing rules for institutions, with a maximum threshold of 40 percent of borrowers in default for one year, or 30 percent for three consecutive years.

Newly proposed is a “loan portfolio repayment” rate. Miller said the rule would require that the total principal owed on all loans borrowed for a program is less at the end of the year than at the beginning.

The draft language also includes a student protection measure, which would require programs that might lose their federal-aid eligibility under gainful employment to set aside money for student borrowers.

Miller called that provision a “huge win for consumer advocates.”


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