Final Gainful Employment Rule Offers Students Necessary Protections

This week, the U.S. Department of Education released its final gainful employment rule. This rule has been a long time in the making and will be a critical measure to protect students from low-financial-value programs. It establishes a minimum and common sense floor: a program’s graduates must earn more than they would have with only their high school degree and earn enough to reasonably pay down their student loan debt. Career-oriented programs that fail to meet this bar will lose access to federal student aid programs. All other programs will be required to report this information, and if they fail to meet the standards may be required to proactively inform prospective students.

This is a huge victory for students. Too many have been attending low-value programs even when a program nearby (often at their original school or a local community college) would have served them much better. The students who instead attend a similar non-failing program are expected to earn a staggering 45 percent more. This is also a $14 billion win for taxpayers who will no longer pour billions of dollars into a higher education system with very few accountability controls.

The Department must be commended for this strong gainful employment rule. But the fight is not over yet, and the history of this rule is an important lesson on how industry and politics can undo hard-won gains for students and taxpayers.

New Earnings Data and Transparency Measures Provide Necessary Protections

The Department’s success in protecting students has been a long time in the making. The Obama administration first attempted to increase accountability for career-oriented programs, only to have the regulations reversed under the Trump administration. Since that time, low-value career programs operated with little accountability – and they took advantage by enrolling more students and saddling them with more debt and degrees that left them in poverty-level jobs.

While there is no way to make up for lost time, the new rule builds upon the Obama administration 2014 rule’s debt-to-earnings test, while adding several other provisions that strengthen it further. Career programs can pass the debt-to-earnings test if their graduates leave school with debt that is less than 8 percent of their income or less than 20 percent of their income above 150 percent of the poverty level. This important provision protects students’ financial well-being while tackling the student debt crisis by preventing the issuing of unaffordable debt in the first place.

In addition to the debt-to-earnings test, this GE rule adds a new earnings threshold in recognition of what survey after survey has confirmed – students go to college hoping to make more than they would have with just a high school diploma. The earnings threshold would require the majority of graduates to earn more than the average high school graduate aged 25 to 34 in their state. While the threshold varies across states, it averages about $25,000 nationally. The concept of an earnings threshold makes some worry about underpaid professions, like teachers, but it is critical to understand that the threshold is well below the starting salary of a teacher in every single state. In fact, the threshold is so low that it falls short of a living wage in almost all states, so it is reasonable to expect all subsidized programs to clear it.

Although Congress wrote the law (which has existed for decades) so that only career-oriented programs could lose federal student aid based on gainful employment, the Department’s new rule is a huge step forward in terms of transparency for students in all types of programs. The regulations call for the creation of a new Department-run website to publicize information about how all college programs perform on the earnings threshold and debt-to-earnings test. This will help prospective students understand the likely outcomes of a college investment, key information for anybody attempting to successfully navigate today's college landscape of high costs and variable returns on investment.

The Beginning of a New Push for Accountability

Although the rule is a clear win for students, gainful employment has met opposition throughout its history (even beyond the Trump administration). Anything that poses a threat to the flow of taxpayer dollars (even if it’s loss of access for just a few programs that are consistently harming students) causes the powerful and highly-resourced higher education lobby to mobilize together in opposition. Gainful employment is one of those issues the higher education lobby has repeatedly fought at every step of the way, from the negotiated rulemaking process to litigating final rules.

In 2011, for example, the trade association representing for-profit colleges and universities challenged the rule in court and won. A revised rule, which was put into place in 2014, survived legal challenges, only to be rescinded under the industry-friendly Trump Administration. Given the contentious history of gainful employment, this new rule, too, will likely face industry opposition in the courts and through political interference.

Gainful employment should not be contentious. Of course someone who earns a postsecondary credential should make more than they would have with only their high school degree. Of course students should be able to reasonably repay their loans. Basic quality standards should be part of the agreement institutions enter into with the federal government when they gain access to federal student aid.

The good news is that the Department is now gaining tools in its arsenal to ensure postsecondary credentials provide at least a minimal level of value. Soon-to-be final programmatic eligibility rules and soon-to-be negotiated rules on accreditation and other issues will also add to that arsenal. The final GE rule must be the beginning, and not the end, of more robust accountability that protects students and taxpayers.

Correction: This piece was updated 09/29/23 to make clear that reporting requirements for programs that are not career education programs will only have to inform prospective students that they fail to meet certain standards. A previous draft erroneously included that the institution would have to inform currently enrolled students as well.