In the Final 'Gainful Employment' Rule, a Key Measure Vanishes

The Education Department will release on Thursday the final version of its "gainful employment" rule—the subject of years of intense debate, revision, and litigation. When it does so, it will add one last twist to the rule’s winding plot: One of two metrics for judging career programs has disappeared altogether.

Under the revised rule, programs will no longer be held accountable for their cohort default rates, which describe the percentage of borrowers who are defaulting on their student loans. Instead, the programs will be evaluated based solely on their graduates’ debt-to-earnings ratios.

The change is a win for community colleges, which had urged the department to scrap the default-rate metric. But student and consumer advocates say the change weakens the rule, allowing programs to saddle some students with unmanageable debt. And for-profit colleges say it does nothing to fix a proposal they say is "fundamentally flawed."

The elimination of the default measure is expected to spare 500 programs, most of them at for-profit institutions, that would have failed the two-part test laid out in a draft rule issued in March.

Even so, the department estimates that 1,400 programs—99 percent of them at for-profit colleges—will fail the rule in the first year. Those programs enroll some 840,000 students—one in five of those attending for-profit institutions. Programs that repeatedly fail the test will become ineligible to award federal student aid.

In a conference call with reporters on Wednesday night, Secretary of Education Arne Duncan and other Obama-administration officials defended the change, arguing that the "streamlined" rule would still identify programs that were sticking students with unaffordable debt. They repeatedly stressed that the final rule was stricter than an earlier version, proposed in 2012, under which only 193 programs were expected to fail.

"We think this rule is strong and meaningful, and as simple as possible to achieve our goals," said a White House official, speaking on the condition of anonymity. "We are very happy with the balance we struck."

‘The System Is Rigged’

Community colleges have argued that program-level default rates provide an unreliable gauge of their programs’ success or failure because relatively few community-college students borrow. The department estimated that 46 programs at community colleges would have failed the default-rate test.

But the changes aren’t sitting well with student and consumer advocates, who said the department had neutered a rule that was supposed to protect student borrowers.

Those advocacy groups have pushed the department to include a measure in the rule that captures dropouts. The debt-to-earnings metric looks only at students who complete their programs, meaning an institution that failed to graduate most of its students could still pass the rule.

"The final gainful-employment regulation does not do enough to stop the fleecing of students and taxpayers," said Pauline Abernathy, vice president of the Institute for College Access and Success. Ms. Abernathy said the rule "lets programs where most students borrow, but few graduate, keep using taxpayer dollars to bury students in debt they can’t repay, so long as they limit the debt of the few students who complete."

Maxwell John Love, president of the United States Student Association, said the final rule "reinforces concerns the system is rigged in favor of the industry and special interests, rather than to help students climb the economic ladder."

Asked about those concerns, department officials pointed out that programs would still be required to disclose their completion and cohort default rates. Those disclosures, the officials said, would help prospective students understand their chances of succeeding in a program.

Frustrated For-Profits

Lobbyists for for-profit colleges, meanwhile, had a different bone to pick. They accused the department of caving in to pressure from community colleges while ignoring for-profits’ concerns.

"Once again we see the department electing to arbitrarily change metrics and regulations to favor certain institutions over others," said Steve Gunderson, president and chief executive of the Association of Private Sector Colleges and Universities, the sector’s main lobbying group.

"The gainful-employment regulation is nothing more than a bad-faith attempt to cut off access to education for millions of students who have been historically underserved by higher education," he said. "Regulations created and issued based on bias against certain institutions have no place in our country."

For-profit colleges have sued the department over past versions of the rule, and Mr. Gunderson vowed that the colleges would "vigorously contest" the latest one as well.

Apart from the not-insignificant loss of the cohort default metric, the new rule, which takes effect next July, largely mirrors a draft released in March. The cutoffs for passing and failing the rule are unchanged, as are the penalties that will be imposed on programs that fail.

As in the draft, programs will fail if their graduates’ student-loan debt payments exceed 12 percent of their income and 30 percent of their discretionary income. Programs whose graduates have debt-to-income ratios of 8 to 12 percent or debt-to-discretionary-income ratios of 20 to 30 percent will fall in "the zone" and will have to warn students that the programs and, in turn, their students may become ineligible for aid.

Programs that fail both debt-to-income tests twice in any three-year period or are in the zone for four consecutive years will be ineligible for aid.