Colleges will soon be subject to stringent federal regulations designed to ensure that their career-focused and technical-education offerings prepare students for jobs that pay well with minimal loan debt.
This week, the Biden administration rolled out its final rules on gainful employment, part of a series of efforts that Education Department officials say will hold colleges accountable and protect students from being misled into signing up for expensive, low-quality programs.
The rules are largely similar to the Biden administration’s proposal released in May, and they build on Obama-era affordability protections that were wiped out by the Trump administration.
Some higher-education groups and policy experts said on Thursday that the changes are good news for students, ensuring that they won’t pay tens of thousands of dollars for career training that won’t pay off. But the association representing for-profit colleges, which are most likely to be affected, blasted the rules as unfair and misguided.
Under the new regulations, all programs at for-profit colleges, as well as certificate programs at private nonprofit and public colleges, must meet two criteria to receive federal student aid.
They must demonstrate that at least half of their graduates earn more than someone with only a high-school diploma; that’s known as the earnings-premium metric. They must also comply with what’s called a debt-to-earnings test, meaning that graduates must not have to spend more than 8 percent of their total earnings or 20 percent of their discretionary income on student-loan repayment each year. The latter requirement isn’t new; it existed under the Obama-era regulations.
Institutions must report the data to the federal government each year, and if they fail to meet one or both requirements for two out of three consecutive years, they’ll lose access to federal aid.
A total of 1,700 “low-performing programs” nationwide are already at risk of failing when the rules go into effect, in July 2024, according to the Education Department.
Another significant shift made by the Biden administration is the addition of what it calls financial-value transparency, a framework that will require many colleges to disclose to students if they’re enrolling in a program that leaves graduates with a lot of debt.
The proposed regulations initially would have required all undergraduate and graduate programs at private nonprofit and public colleges to disclose student-debt burdens; the final version exempted undergraduate programs. The financial-disclosure requirement still covers all for-profit and graduate programs.
The education secretary, Miguel A. Cardona, said the Biden administration has emphasized accountability as a tool to achieve affordability.
It’s about ensuring that students get their money’s worth, he said. “Higher education is supposed to be a valuable investment in your future. There’s nothing valuable about being ripped off or sold on a worthless degree,” he said during a news conference on Wednesday.
Several activist groups that participated in negotiations over the proposed regulations expressed support for the new rules. Among them was the nonprofit students’-rights organization Student Defense, which lobbied for the high-school earnings benchmark. In a written statement, the group’s president, Aaron Ament, called the new rules “a major step towards enacting more front-end protections to ensure students aren’t being taken advantage of by predatory schools and programs.”
Rep. Virginia Foxx, the North Carolina Republican who is chair of the Committee on Education and the Workforce, said in a written statement that the Biden administration is “attacking proprietary institutions through flawed and arbitrary regulations while giving a pass to the thousands of low-value programs at institutions serving the vast majority of students.”
What’s Next
The American Council on Education, higher ed’s chief lobbying group, said it supported the exemption of undergraduate programs from disclosing graduates’ debt burdens, which was one of the most significant differences between the initial proposal and the final rule.
In negotiations with the Education Department, ACE argued for all public and private nonprofit campuses to be excluded from the financial-transparency mandates. Emmanual A. Guillory, ACE’s senior director of government relations, served as a negotiator for the regulations and said he felt the inclusion of all colleges expanded the scope of gainful employment beyond its original purpose.
Ultimately, graduate programs at private nonprofit and public colleges will still have to post information about student-debt burdens.
“We are committed to ensuring that all institutions are transparent about the ways they serve their students and that they are appropriately accountable for their outcome,” Guillory said. “But in the matter of how we do, that is the conversation we want to continue to have.”
Jason Altmire, president and chief executive of Career Education Colleges and Universities, which represents for-profit higher education, said the debt-disclosure mandate unfairly targets for-profit institutions, which account for a large portion of career-oriented programs and students. He argued that if private nonprofit and public colleges were held to the same gainful-employment standards, many of their programs would fail, too.
“We do not oppose accountability,” he said. “All we say is, Apply that accountability measure to all schools in all sectors … We just want fairness, and we want every student in the country to benefit from the same protections.”
Many experts expect legal challenges to the regulations. Altmire said that while his group has no current plans to sue, it is talking with other organizations in the sector and “exploring all options.”
But Tia Caldwell, a higher-education policy analyst for New America, said the rules aren’t unfair because for-profit institutions operate differently than nonprofits do. “For-profit schools are held to different standards than nonprofit and public schools because they have more flexibility to do what they want with the money they get,” she said.
Caldwell said the regulations would protect students by sounding the alarm on failing programs and redirecting students to higher-quality ones. Often, she said, the latter are cheaper, and students end up earning more and shouldering less debt. By the Century Foundation’s estimates, those students will earn 45 percent more than they would have in a program that failed the new gainful-employment tests.
Rachel Fishman, acting director of higher education at New America, said the financial-transparency clause is a “step in the right direction” toward informing students of the financial weight of attending higher education.
“All students also deserve to know whether they’re going to, on average, be able to reasonably pay down their debt. That’s not just something that we should be concerned about with career programs,” Fishman said. It’s “helping students and families understand which programs and credentials are going to pay off and which ones they should perhaps be reconsidering as they look at the numbers.”
Amber D. Villalobos, a fellow at the Century Foundation, said the debt-to-earnings ratio and the earnings premium set “a pretty generous bar” in which graduates simply have to come out of a program better off. She also said the measures will help colleges to better evaluate their own programs.
“This sort of accounting,” Villalobos said, “it’ll allow institutions the opportunity to stop and say, Which of our programs are not leaving students better off than they were if they hadn’t enrolled, and which of our programs are not leaving students with sufficient earnings and manageable debt?”
