5 Things to Know About the Proposed Gainful-Employment Rule

March 14, 2014

Why is the Department of Education proposing a new gainful-employment rule?

Most of the original proposed rule was thrown out by a federal district court in June 2012, after the Association of Private Sector Colleges and Universities, the main trade group of the for-profit-college industry, challenged it in a lawsuit.

A judge appointed by President Obama agreed that the department had the right to issue the regulation but said the department had been "arbitrary and capricious" in setting the thresholds for one of the three key criteria it would use to determine whether a program would lose eligibility for federal student aid.

Since that debt-repayment measure was closely linked with the two other criteria, the judge vacated those other measures as well, leaving a rule that was basically toothless.

In March 2013, the judge, Rudolph Contreras of the U.S. District Court for the District of Columbia, rejected the department’s motion to restore some of the criteria.

In May 2013, the department said it would drop any further efforts to revive the old rule and would instead develop a new one. It released a draft of the new proposed rule in August 2013.

Will this new version of the rule satisfy the coalition of more than 50 consumer, student, and veterans groups that have urged the Obama administration to enact an even tougher rule than the one the department unveiled in August?

Probably not. Among other concerns, the groups identified what they consider a loophole in the department’s proposal that would allow colleges to continue to operate programs even if 99 percent of the students dropped out.

To deal with that, they proposed that the department also include criteria based on how many students—whether they dropped out or not—were repaying their loans. The proposed rule being unveiled on Friday does not include any measures based on repayment rates.

Will the latest rule satisfy community colleges?

They may not be so happy, either. The colleges still face many of the expense and time burdens of complying with the gainful-employment rule, even though many of their programs are not at risk of failing the rule’s tests. That’s because their programs cost less and don’t require students to borrow as much.

Nonetheless, the rule would require all affected colleges to "make public disclosures regarding the performance and outcomes of their gainful-employment programs," the Education Department said in a news release.

The required disclosures include information on programs’ costs and their graduates’ earnings, debt, default rates, and completion rates.

The community colleges had sought some exemptions for low-cost programs where few students borrow. Even if the rule includes such an exemption—the details on that were not available Thursday night—it probably would not go as far as the community colleges would like.

So is there anything in the new version that advocates for a stricter rule will be cheering about?

Yes. According to the department, the new rule would require colleges to certify that each of their gainful-employment programs "meet applicable institutional or program-level accreditation requirements and state or federal licensure standards." That was a priority for veterans groups and other student-advocacy groups concerned that students were finding themselves unable to enter certain careers because the program they had enrolled in wasn't properly licensed.

Is this regulation likely to be challenged in court?

You bet. Although the department did make some of the changes sought by the Association of Private Sector Colleges and Universities as recently as Thursday, the association—the main trade group for for-profit colleges—was still reiterating broad objections to the department’s process for developing the latest rule and its expected substance.

Apscu, as the trade group is known, has maintained that the criteria "should be set at levels supported by research rather than arbitrarily selected"—the same argument it used in its first, successful lawsuit challenging the rule.

And in a letter it sent on Thursday to top White House officials, the association said that "no particular research has been cited" by the department for some of the thresholds in the new proposed rule.

In a prepared statement, Apscu described the latest round of negotiations over the rule "a sham"—all a pretty clear sign that the group will not let this latest proposal go unchallenged in court.

Correction (3/14/2014, 6:50 a.m.): This article originally misdated a federal judge's decision on an earlier gainful-employment rule. The decision was issued in June 2012, not July. The article has been updated to reflect this correction.