Improving Gainful Employment

Today the Education Policy Program at the New America Foundation is releasing "Improving Gainful Employment". This policy brief lays out recommendations for strengthening the Obama Administration's proposal to ensure that career training programs are providing students high-quality options that lead them into good-paying jobs at a reasonable price, not over indebted with minimal job prospects.

The brief is in response to a proposal released this August and subsequent regulatory work by the U.S. Department of Education to define what it means for programs at institutions of higher education to prepare students for "gainful employment in a recognized occupation." This is a statutory requirement within the Higher Education Act that applies to nearly all programs at for-profit colleges as well as some non-degree programs at public and private nonprofit institutions. The Administration proposes to create a stronger definition for what this phrase means due to concerns about excessive debt levels, low economic returns, and high levels of non-completion and student loan defaults among these career-oriented programs.

The proposed definition laid out by the Department is the second attempt to define what gainful employment means after a judge's ruling in 2012 invalidated the prior regulation hours before it was going to take effect. The new proposal from the Department is a simpler and stronger version of what was created the last time.

But the Department's proposal contains potential loopholes, which if left unaddressed could undermine the rule's effectiveness, allowing programs that are not serving students well to keep operating. This brief addresses those challenges by laying out recommendations for the Department and others involved in the regulatory process to adopt in order to strengthen the rule. Among the highlights:

• Programs should only be subject to one measure of the average debt levels of graduates compared to their annual earnings, unlike the Department's proposal which included a second measure of income adjusted for basic living expenses.

• Instead of the second measure of debt compared to earnings, programs would have to meet three minimum performance tests:
  • A minimum withdrawal rate test, which shows that no more than 33 percent of students in a program withdrew between the start and end of an academic year--a requirement based on an existing regulatory provision that dates back nearly 40 years.
  • A student loan repayment rate test that avoids some of the legal challenges this measure faced in the past by replacing a percentage threshold with a test of whether the total amount of outstanding student loan principal owed by students who attended a program is at least $1 lower than it was at the time those loans entered repayment.
  • A minimum income test that shows the average earnings of graduates from any program where graduates have student loan debt are at least equal to a full-time minimum wage employee--a standard that protects against programs that avoid penalties due to low debt levels while still leaving student in or close to poverty.

• A program that fails all of these minimum standards and/or has graduates with too much debt on average compared to their annual income would risk losing the ability to receive federal student aid.

• Programs would "pass," "struggle," or "fail," based upon how they did on either the annual debt-to-earnings measure or the three minimum performance standards. But a program can be no better than the worst level achieved on either the minimum performance tests or the annual debt-to-earnings rate--so failing either means a program fails.

• Most struggling and failing programs would be given opportunities to improve. However, programs whose student loan payments relative to the income of graduates are more than 300 percent above expert-recommended levels should lose access to aid immediately. This immediate eligibility loss idea is borrowed from the existing measure of student loan default and reflects the idea that there is some level of performance so low that the likelihood of great harm to students outweighs the chances of improvement.

Through this proposal, career-oriented programs would need to focus on all the students they serve, not just graduates but potential dropouts too. It also acknowledges that programs should not pass if they have low levels of student debt and lack sufficient earnings. After all, student debt is just one type of investment in a program--students are also spending billions in federal grant aid and arguably an even more precious resource, their time.  They should expect better than living in or near poverty after completing a postsecondary program.

The President has been very clear that he wants to stop providing federal support to schools that are not producing good results for their students. The recommendations presented in this brief ensure that promise is delivered upon for career oriented programs, a part of higher education with some of the worst results for students.

To read "Improving Gainful Employment," click here.