Late last month, the Biden administration published the final version of its gainful-employment rule. When the rule goes into effect, in July 2024, it will make some degree programs ineligible to receive federal student aid if graduates don’t earn enough to justify the debt they have taken on.
To avoid the new regulation, college programs must meet two requirements. First, graduates’ estimated student-loan payments may not exceed a set percentage of their income. Second, most graduates must earn more than the median young adult in their state with only a high-school diploma. That increased accountability is good news for students and taxpayers, and the new regulation strengthens the Obama-era efforts that President Donald Trump subsequently abandoned. But the rule has one glaring shortcoming.
Crucially, gainful employment will again apply only to certificate programs and for-profit colleges. Degree programs at public and private nonprofit institutions, which enroll the vast majority of students in postsecondary education, will be exempt.
The Education Department has claimed its hands are tied because the wording of the Higher Education Act specifies the types of institutions and programs to which “gainful employment” can be applied. Whether or not that is true, the department could still have alerted students to questionable programs, and a draft version of the gainful-employment rule, released in May, would have done exactly that. The rule would have required students at flagged programs to acknowledge, before receiving aid, that they would be enrolling in a program that leads to unaffordable debt.
While that provision would have had no teeth — programs imposing a high debt burden would have continued access to federal aid — it could, at the very least, have dissuaded a few students from pursuing college degrees of dubious value. Colleges might also have shuttered some low-performing programs of their own volition, just as the “name and shame” power of student-outcomes transparency has led to program closures in the past.
While the draft provision would have had no teeth, it could have dissuaded a few students from pursuing college degrees of dubious value.
But higher education’s trade associations cried foul. In public comments submitted to the Education Department, the National Association of Independent Colleges and Universities, which represents private nonprofit colleges, claimed the transparency requirements would rely “too heavily on financial metrics” and “could discourage students, particularly first-generation college students, from choosing to attend the institution … where they are most likely to succeed.” The association called the transparency requirements “a potentially dangerous turning point in which the federal government begins to actively take a role in directing students on where and what to study.” The American Council on Education, another trade association, fretted about the administrative burden of reporting student outcomes.
In the final rule, the department surrendered. Students enrolling in an undergraduate degree program with a high debt burden will not need to acknowledge it. That change from the draft version is a loss for anyone who cares about transparency and accountability in higher education.
The Education Department argues that that change will “reduce burden for institutions and students” and claims that “high-debt-burden programs are relatively rare among undergraduate degree programs outside the proprietary sector.” There are several problems with that logic. First, the acknowledgment requirements are not a major administrative burden. The department will still, as planned in the draft version, collect data on student debt and earnings outcomes for undergraduate degree programs at all institutions, including nonprofits; the only difference is that it won’t need to secure an acknowledgment from students that they have seen and understood this information. The costs of data collection will still be there, but students won’t necessarily enjoy the benefits.
Second, the Education Department’s contention that programs with high debt burdens are “relatively rare” among undergraduate degrees at nonprofit colleges is questionable. According to my analysis of the department’s own data, more than 500 degree programs that will be exempt from the transparency requirements nonetheless imposed high debt burdens under its definition. Those programs enroll a total of 242,000 students.
By comparison, undergraduate-degree programs in the for-profit sector that lead to excessive student-debt burdens — and are thus subject to losing their federal aid — enroll roughly 275,000 students. Measured by the absolute number of students affected, high debt burdens are nearly as big a problem in the nonprofit sector as they are in the for-profit sector. “Relatively rare” they are not.
And it isn’t only obscure nonprofit colleges that leave their students with excessive debt burdens. Numerous degree programs at nationally known institutions fail to deliver, including drama programs at Boston University and Temple University and music programs at the Johns Hopkins University and Oberlin College.
High debt burdens are nearly as big a problem in the nonprofit sector as they are in the for-profit sector. “Relatively rare” they are not.
The rule’s exclusion of degree programs at nonprofit colleges creates some arbitrary distinctions. For instance, 13 degree programs at the University of Phoenix, a for-profit institution, would violate the gainful-employment regulation and lose access to federal aid. But after the University of Idaho acquires the University of Phoenix and restructures it as a nonprofit, those 13 programs may continue to receive federal funding — even if student outcomes remain abysmal.
Moreover, in calculating debt burdens, the Education Department has made the odd decision to exclude Parent PLUS loans, which are made to parents of undergraduates rather than to the students themselves (even though many parents expect their children to assist with repayment). Graduates of public and private nonprofit colleges are more likely to use Parent PLUS loans than are graduates of for-profit institutions. If the department included Parent PLUS in its calculation of debt burdens, more degree programs at nonprofits would appear to lead to excessive debt — and transparency requirements would have an even greater impact.
The Education Department’s surrender to pressure from higher-education lobbyists is a loss for students, taxpayers, and accountability advocates. As student debt continues to balloon, the value of college will increasingly come into question from families — especially if they learn too late that their investments aren’t paying off. College groups that have pushed for this latest lack of transparency may have won the battle, but they are also pushing the sector toward a larger eventual defeat.
