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The Biden administration wants to use the earnings of adults who didn’t go to college as a new benchmark to gauge whether graduates of career education programs are gainfully employed.
Advocates praised that decision, saying it would strengthen the gainful-employment rule by preventing programs that result in low wages from passing the test. Critics of the move, including the association representing for-profit colleges, questioned the fairness of the earnings threshold and said the concept hasn’t been studied enough to warrant inclusion in federal regulations.
The metric, which was not part of previous versions of gainful-employment rules proposed during the Obama administration, will likely be a point of contention.
“I think the research and analytical understanding of the high school threshold is pretty thin for it to become law,” said Jason Delisle, a senior policy fellow at the Urban Institute’s Center on Education Data and Policy. “People have made a conceptual argument in favor of it, but it is not the kind of thing that I think has been sort of well studied and really vetted. I think the administration is making new policy rather than defining what the term ‘gainful employment’ means.”
Key questions ahead of the department will be where, exactly, to set the threshold and how to account for labor market considerations outside an institution’s control, though supporters argue that the standard is a low bar that only the worst-performing programs would fail to clear. If the proposal moves forward and is part of the final rule, the earnings test could become a key prism through which students, oversight entities, institutions and other groups think about the value of higher education, similar to how metrics in previous versions of the gainful rule shaped the conversation.
“I think this has the potential to influence a lot of other areas of work and activity in education right now,” said Michelle Van Noy, director of the Education and Employment Research Center at Rutgers University.
She added that an earnings threshold that varies by state likely won’t capture the variations in earnings by field of study or industry, which is one challenge with the metric. Still, she said high school earnings are increasingly being used by researchers and policy makers as a baseline.
The Biden administration’s gainful-employment rule, released last week, builds on 2014 Obama-era regulations that were rescinded during the Trump administration and adds the earnings test. In proposing the earnings threshold or earnings premium, department officials said the agency was recognizing that student borrowers need to be able to afford more than just their student loan payments and that postsecondary programs should help students reach a minimal level of labor market earnings.
“Exceeding parity with the earnings of students who never attend college is a modest expectation,” officials wrote in the draft regulations.
The gainful-employment regulations apply to programs at for-profit institutions as well as nondegree programs in any sector.
More programs would fail the Biden administration’s proposed rule under the earnings test.
In order to pass the earnings test, programs would have to show that their graduates make more than an adult with only a high school diploma. Nationally, the median annual earnings of a high school graduate are about $25,000, according to the department.
The department is planning to report data on how all postsecondary programs fare against the threshold, though only those that fail the test and are subject to gainful employment—career-oriented programs, primarily at for-profit institutions—could lose access to federal financial aid.
The earnings threshold is one of two tests in the proposed regulations. The other, similar to previous versions of the rule, measures whether graduates can afford their student loans using a debt-to-earnings ratio. A gainful-employment program would need to pass both tests under the proposed rule. If programs failed in two out of three consecutive years, they could lose access to federal student aid.
Kyle Southern, associate vice president of higher education quality at the Institute for College Access and Success, said the threshold is a “common-sense” measure.
TICAS research into the earnings threshold found that the number of for-profit programs that fail the gainful-employment earnings test would double compared to those that failed just the debt-to-earnings ratio.
“It’s really important, because it’s true that many students go to programs where, for instance, a Pell Grant might cover the lion’s share or even all of the tuition price,” he said. “But if you’re coming out of that program, and you still can’t get a job equal to $30,000 a year, there’s nowhere in America where you can even afford a one-bedroom apartment at a decent standard of living based on that kind of income outcome.”
Policy Gaining Steam
The threshold concept is relatively new. The College Scorecard included data on how earnings compared to those of an average high school graduate when it launched in 2015. Since then, academic researchers and think tank analysts have made the case for why it’s a good measure of a program’s value.
Michelle Dimino, deputy director of education at Third Way, a center-left think tank, said the idea of an earnings threshold or premium has been circulating for several years.
“It has been picking up more and more steam as folks have latched on to how intuitive it is,” she said.
The department’s proposed threshold is “a logical, justifiable bar,” she said.
Under the high school earnings threshold, graduates or completers would need to make more money on average than the average of earnings of adults in their state ages 25 to 34 who didn’t go to college in order for the program they graduated from to remain eligible for federal financial aid. The earnings thresholds are based on Census data and vary by state, according to the proposed regulations.
Thresholds range from $20,859 in Mississippi to $31,294 in North Dakota.
“Taking a step to move away from just looking at debt is really powerful in how we think about what a college education means and what it should deliver if they’re going to profit off of taxpayer dollars,” Dimino said. “It’s codifying the fact that we think about high school outcomes as that baseline going into higher ed, and so it makes sense to hold programs accountable for delivering at least that.”
Third Way proposed a version of the earnings premium in 2020 as a way to think about how to measure value in higher education.
Dimino said that Third Way polling from last year on the draft gainful-employment rule found broad support for the earnings threshold.
“It resonates for people that if you’re pursuing higher education, you should be earning more than you would have without that credential at all,” she said.
Delisle, with the Urban Institute, said an underlying assumption of the measure is that students would be better off and have higher earnings if they didn’t attend a career education program that fails the gainful-employment tests. But, he said, he hasn’t seen the evidence to back up that assumption.
“My main concern is that we do see that people have earnings growth after completing the program, and I hear people say these programs are leaving people worse off than if they had just worked with their high school diploma, but we don’t know what their earnings are with the high school diploma,” he said.
Delisle said data show that even though students make less money than an average high school graduate after completing a program, “their earnings were considerably lower before they completed the credential.”
“I’m not completely convinced that students haven’t gotten anything out of these programs—not [to] the point where I would be comfortable saying this is a good standard,” he said. “I just have more reservations about it given that it was first proposed a year ago and is now about to become the law of the land.”
He added that he doesn’t think the threshold concept has received as much research and scrutiny as he would expect for something like this. He also was surprised the metric doesn’t take into account return on investment or economic mobility.
“Maybe this is an effective way to approach judging the quality of these programs, but I think [the argument] has been made mostly on conceptual grounds, like, this sounds like a good rule of thumb,” he said.
A New Floor
Rachel Fishman, acting director of education policy at New America, a left-leaning think tank, said that the earnings threshold will make the overall gainful-employment rule stronger than previous iterations and establish a floor for what it means to provide a low value to students and taxpayers.
“I think the earnings threshold was really recognition that you could still have low debt in your program, or no real debt in your program, but you could still be having very bad outcomes in terms of earnings,” Fishman said. “It establishes that floor at the end of the day to make sure that you’re meeting these very low benchmarks, that we’re not leaving you worse off than if you’ve never attempted this program in the first place.”
However, she and Tia Caldwell, a policy analyst with New America, said the standard doesn’t make as much sense for the graduate programs that would be subject to the new rule. Caldwell said an earnings threshold based on earnings with a bachelor’s degree would make more sense.
Caldwell found in her research that the average high school graduate’s earnings in 46 states are lower than what would be considered a living wage in those states.
“It’s a low bar,” she said of the threshold measure.
Nicholas Kent, chief policy officer at Career Education Colleges and Universities, which represents the proprietary higher education sector, said the association broadly supports the idea of an earnings threshold to hold programs accountable.
“A floor makes sense,” Kent said. “The question is, where is that floor?”
Kent takes issue with the comparison group that the department has proposed to use to measure graduates’ earnings against. Under the rule, students’ wages three years after graduation will be compared to the median wages of high school graduates ages 25 to 34.
Referencing research from the Urban Institute, Kent said that there are gender and age disparities between two groups that would make the proposed comparison unfair.
“Sixty-eight percent of students enrolled in for-profits are women,” he said. “It doesn’t seem like an appropriate comparison group.”
Kent said CECU has argued to compare the earnings to those of 18- to 24-year-olds with a high school diploma.
The department said in the draft regulations that the typical undergraduate program graduate three years after completion would be 30 years old, while the average age of students in undergraduate certificate programs three years after completion is 31.
To address some of those concerns, Preston Cooper, a senior fellow at the Foundation for Research on Equal Opportunity who studies the economics of higher education, has proposed setting the threshold to 85 percent of the average high school graduate’s earnings in a state.
“This modification would allow most certificate programs that provide real financial value for their students to continue receiving federal support,” he wrote in October. “However, the threshold is still high enough to terminate truly low-value or scam programs.”
Cooper said in an interview that his analysis has found that the earnings threshold is too strict from some programs such as medical assisting. He found that almost 70 percent of medical assisting certificate programs would fail under gainful employment based on an analysis of department data from last year. However, the foundation’s return-on-investment model shows that most of those programs are considered to have a positive ROI.
“I do find that when you compare certificate programs like medical assisting to a demographically similar group of high school graduates, we do see that even though those graduates in the medical assisting program are earning less than the typical high school graduates, they’re earning more than a demographically similar group of high school graduates,” he said.