To the surprise of no one, negotiators on the Education Department’s gainful-employment rule-making panel have failed to reach consensus, leaving it to the department to write its own rule.
On Friday, the final day of their meeting, panel members on all sides said they still could not support the Obama administration’s proposed standards for career-oriented programs.
Student and consumer advocates said the draft rule, which would cut off federal aid to programs in which many borrowers struggle to repay their debt, didn’t do enough to protect students from predatory practices. Representatives of for-profit colleges said the rule was too harsh. And community colleges warned it would drive some good institutions from the federal student-loan program.
Close to 12,000 programs would be subject to the rule, and 13 percent—roughly 1,500 programs—would fail the two-part test the department has proposed, according to an analysis it released last week. The vast majority of those failures—94 percent—would occur at for-profit colleges, said the Association of Private Sector Colleges and Universities, the sector’s main trade group.
The rule has divided members of Congress, some of whom support the department’s effort to define “gainful employment” and some of whom say the definition should be left to lawmakers. One supporter—Rep. Elijah E. Cummings, Democrat of Maryland—attended Friday’s negotiations to monitor their progress.
“This is the proper forum, but we need to be constantly looking over [the department’s] shoulder to make sure that Congressional intent is being carried out,” he said in an interview. His chief goal, he said, was to ensure that students in his district would not be saddled with debt and worthless degrees.
“I hope the committee will keep its eye on the prize,” he said.
Lost Cause
From the start of negotiations, it was clear the department would have a tough time bridging the chasm between for-profit colleges and student and consumer groups.
That’s not to say department officials didn’t try. Over seven days of negotiations spanning four months, they revised the rule repeatedly, incorporating—and, in some cases, later stripping out—changes sought by panelists.
Under the department’s original proposal, introduced in August, career-oriented programs would have been evaluated solely on their graduates’ debt-to-income and discretionary-debt-to-income ratios. Programs that failed either test in two out of three years would have been disqualified from receiving federal student aid. Programs that fell into the zone between passing and failing would have had to issue warnings to students.
But the plan lacked a loan-repayment test and an upfront approval process for new programs—key elements of a 2011 rule that was overturned by the courts.
Those omissions troubled student and consumer advocates, who said the department was ignoring the debt burdens of people who don’t complete programs and was treating students as “guinea pigs” in unproven programs.
At the panel’s first rule-making session, in September, representatives of student and consumer groups pressed the department to restore a loan-repayment test and upfront program approval to the rule.
The for-profit sector’s representatives, by contrast, argued that the department’s standard was too strict. The draft rule covered many more programs than had the 2011 rule, and was harder for programs to comply with.
That’s because it included programs with as few as 10 students—rather than 30—and because it calculated all debt-to-income ratios based on a 10-year standard repayment plan, regardless of the length of the program. The 2011 rule assumed longer repayment periods for bachelor and master’s degrees.
For-profit colleges urged the department to revert to the 2011 rule on cohort size and repayment period, and to drop the new “zone” category.
Community colleges, meanwhile, complained that they would be punished when their students borrowed beyond the cost of attendance, and asked the department to cap the debt counted in the debt-to-income ratios at the cost of tuition and fees. They also asked for an exemption for low-cost programs with low borrowing rates.
Responding to those concerns, the department issued a revised rule last month that added two new measures—a loan-repayment test and a program-level cohort-default rate. To pass, programs would now have to show that all their borrowers, not just the completers, were paying the interest on their debt and not defaulting in large numbers.
Officials also agreed to screen at least some new vocational programs before granting them access to federal aid.
While the department refused to bend on cohort size or repayment period, it did agree to allow failing programs to avoid penalties by reducing their current students’ debt burdens through scholarships.
Round 3
But neither side was satisfied, and the department came back with a second round of changes and concessions last week. The new draft rule dropped the loan-repayment test and capped the amount of debt counted in the rule’s calculations at tuition and fees. It struck the “sudden death” penalty for programs with a one-year cohort-default rate above 40 percent, and scaled back the program-approval process, limiting it to programs with prior failures or closures.
Those changes pleased panelists representing for-profit institutions and community colleges, but they infuriated student and consumer advocates, who saw them as backpedaling. They blasted the decision to drop the repayment-rate metric, noting that cohort-default rates can be manipulated by colleges.
John Kolotos, the department’s negotiator on the panel, said officials simply “didn’t have enough data” to justify their loan-repayment metric, which would have considered whether a cohort of students was paying down its debt.
But Barmak Nassirian, director of federal-policy analysis for the American Association of State Colleges and Universities, didn’t buy it. He accused the department of using “the fog of war” to “eviscerate the rule.”
Mr. Nassirian, who had fought for upfront program approval, said limiting it to programs with prior problems would allow programs with no track record to treat students as guinea pigs.
Brian Jones, general counsel of Strayer University, a for-profit institution, disagreed. He argued that allowing the department to vet programs “before they’ve done anything wrong” would tread “dangerously close” to the Congressional prohibition on curricular control.
Representatives of community colleges, meanwhile, continued to press the department to exempt programs with low borrowing rates from the rule. They warned that the rule, as written, would force low-cost colleges to flee the student-loan program.
Their proposal was opposed by representatives of the for-profit sector, who said it would give a pass to programs with poor graduation and job-placement rates. Department officials ultimately rejected the proposal, saying they lacked the data to gauge its impact.
As Friday’s session came to a close, Mr. Kolotos reminded negotiators that the panel’s lack of consensus meant the department was “not bound by the proposed language.”
However, he promised, “your views will be carefully considered.”
