Department of Education Releases Proposal on Gainful Employment

Jul 27, 2010

The U.S. Department of Education has finally released their proposed regulation defining the 'gainful employment' requirement for federal student aid. The new rule has been met with intense resistance from the for-profit sector in higher education, but is being championed by consumer advocates who feel that it will reduce student debt.

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Funding For-Profit Education

The Education Department has been pushing through a series of new regulations governing the use of federal student aid. Intended to increase transparency and fiscal responsibility on the part of colleges and universities, the rules cover student eligibility, college recruitment practices and institutional eligibility.

Back in June, the Department released an initial set of 13 proposed rules and definitions. (Read more about them on the Blog.) However, the first proposal officially postponed the controversial 14th regulation governing 'gainful employment.' Seen as targeting the for-profit education sector, the regulation has been vigorously opposed by lobbyists for proprietary colleges.

Why is employment related to federal student aid? The problem lies in debt to income ratio. Many students at for-profit schools graduate with excessive debt relative to their earning potential. These institutions are seen as vocational schools, and Title IV of the Higher Education Act of 1965 requires such programs to prepare students for 'gainful employment in a recognized occupation.' If proprietary colleges aren't sufficiently preparing their graduates for employment, then student debt continues to spiral out of control. And that isn't good for the taxpayer, who is ultimately responsible for funding federal student aid. Commenting on the proposed rule, Education Secretary Arne Duncan said, 'These schools - and their investors - benefit from billions of dollars in subsidies from taxpayers, and in return, taxpayers have a right to know that these programs are providing solid preparation for a job.'

The way things stand, 5% of vocational programs would stand to lose Title IV funds under the new rule if they didn't make sufficient changes before the 2012-2013 school year. That represents about 8% of the college population. If the rule went into effect immediately, the Department of Education estimates that only 40% of programs would remain fully eligible for federal aid dollars. Fifty-five percent would face increased debt disclosure requirements and restrictions on their enrollment.


A Few Bad Apples

Nevertheless, the current form of the rule is seen as a compromise between consumer advocates and the for-profit education sector. The more restrictive rules that were initially being considered would have effectively shut down the majority of proprietary schools. These institutions serve a rapidly growing percentage of the population and fill an important need - as public universities and community colleges have become overcrowded, more and more people are turning to proprietary schools to get undergraduate and vocational education.

In order to protect this resource, the Department of Education has narrowed the scope of the proposed regulation. It provides for multiple paths to Title IV eligibility, and focuses only on the worst offenders. Striking a conciliatory tone after months of intense lobbying from the proprietary schools, Duncan asserted, 'Overall I firmly believe that for-profit schools are doing a good job of preparing students' for employment and 'the many good actors should be protected from being tainted or being tarnished' by the failures of the minority.

The Notice of Proposed Rulemaking (NPRM) was published in the Federal Register on July 26. It will be open to public comment for 45 days, after which the Department will begin making revisions. Their goal is to publish the final rule by November 1, 2010 so it may go into effect July 1, 2011.

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