New America Foundation. August 2013. With a little bit more than a week until the next round of negotiated rulemaking on gainful employment kicks off on Sept. 9, the U.S. Department of Education today released its initial proposal for the new rule along with reams of supporting data. Higher Ed Watch will be digging into this information over the coming days, but here's what you need to know right now.
Tougher and Leaner
When the Association of Private Sector Colleges and Universities, a lobbying group representing a number of for-profit colleges, won its lawsuit to block the initial version of thegainful employment regulations, it looked like a big defeat for the Department since all that work had resulted in an overturned rule. This version looks like a reset, one that undoes many of the concessions given to the industry the first go around, provides higher standards, and fewer opportunities for failure. That said, it's a middle ground approach compared to the Department's initial full-fledged proposal for gainful employment, which was released in 2010, and had included things like immediately eligibility loss.
It's About Income
The biggest change in the proposed regulatory language from the 2011 final rule is that it would only rely on two measures: annual and discretionary debt-to-earnings ratios. Missing from this setup is the repayment rate, the metric that proved to be the weak link the last go around, as the judge ruled that the Department had not engaged in reasoned decisionmaking for the 35 percent repayment rate threshold. In striking it down, the judge also invalidated the entire accountability regime in the process. (Repayment rate does still appear as a disclosure metric in this new language.) Right away, this move would strengthen the rule compared to the final version implemented in 2011, roughly doubling the number of failing programs from 5 percent to 10 percent of those included. This is because a significant chunk of programs only passed via the repayment rate.
Back to Zones
The Department's suggested gainful employment regulation released in 2010 after the negotiation committee broke down last time featured three performance zones. Though they were eventually dropped in the final regulation, they are back now. Programs under this language would be classified as passing, failing, or zone (falling in between). The thresholds for passing and failing programs are the same from the last regulation that included them. A passing program needs to have either: an annual debt-to-earnings measure of 8 percent or less, a discretionary debt-to-earnings ratio of 20 percent or less, or both. A failing program is one in which the annual debt-to-earnings measure exceeds 12 percent and the discretionary debt-to-earnings measure exceeds 30 percent. Zone programs are ones that fall in between--no measures are good enough to pass and at least one doesn't fail. The Department projects that about 9 percent of programs would be in the failing zone, 79 percent in the passing zone, and the remaining 12 percent in between.
The final regulation in 2011 required a program to fail three times in a four-year period to lose eligibility. This proposal slices a year off, allowing for eligibility after two failures in a three-year period. It also adds a new wrinkle—a time limit of four consecutive years that a program can spend in the in-between zone before it also loses eligibility. This sends a strong message that mediocrity would only be tolerated so long.
10 is the Magic Number
Any program with at least 10 graduates whose earnings can be verified by the Social Security Administration is now subject to accountability. This would result in the faster capture of more programs, as the 2011 regulation required programs to have at least 30 graduates in order to be measured. Those that didn't meet the minimum size threshold could be aggregated over multiple years or similar program types, which would make up some of the difference, but those provisions are not suggested in the new language. This change alone increases the number of measured programs from 5,632 to 11,359 (though only about 100,000 more borrowers are included).
Title IV Students Only
A second ruling from the judge that threw out the 2011 rule established that the Department of Education could not include information on students who did not receive any federal Title IV student aid in the database it used to track students for gainful employment. Accordingly, the proposed language looks only at recipients of Title IV aid, though this includes both loan and grant recipients.
No Aid Growth for Failures
Under this proposed language, failing programs would no longer just be required to provide an escalating series of warnings and disclosures to students. They would also immediately see a cap placed on the total number of students that can receive Title IV aid. This prevents struggling programs from increasing the number of Title IV aid recipients above the number that received aid the prior year. In doing so, it would provide more immediate protections for prospective students potentially helping some to avoid taking on debt they would not be able to handle.
Fewer Earnings Alternatives
The final rule from 2011 contained a number of alternative ways to calculate debt-to-earnings ratios, including the use of data from the Bureau of Labor Statistics in the first years of implementation and the ability to use earnings of gradates in a different time period besides three and four years out of school. Those are all by and large gone. Except for specific medical offerings, programs will be judged on the earnings of graduates for the two-year period that occurs in the third and fourth year after they leave school. For example, measures calculated in the 2014-15 aid year would be based on graduates who entered repayment in the 2010-11 and 2011-12 aid year.
There are two exceptions to this. First, if draft rates produced between the 2014-15 and 2016-17 academic year show that a program would be anything but passing, then the Secretary will base the debt part of the calculation on the most recent completers of the program, but will not change the earnings data. This could in theory allow a program to pass if it has managed to cut the debt levels of its recent graduates in the intervening period.
Second, an institution can still use an alternative measure of earnings to challenge the debt-to-earnings ratios. But to do so it must perform a survey that follows a framework established by the National Center of Education Statistics and also produce an attestation by an independent public account or governmental auditor that the survey followed that framework. While the survey option was in the final 2011 rule, this provides clearer expectations for what degree of rigor is required to use it.
Goodbye, Debt Caps
The proposed language would count all debt taken out by students (federal, excluding Parent PLUS loans, private, and institutional) regardless of whether it went to direct program costs or to living expenses. This is a change from the 2011 regulation, which stipulated that programs could have the debt levels of students capped at the amount of tuition and required fees, in effect excluding any borrowing for living expenses from the calculation.
Better Disaggregated Disclosure Requirements
The biggest role of the repayment rate was a check on programs that enrolled large numbers of students and did not have them finish. That task would largely be accomplished with stronger disclosure requirements, which would now break out information for program completers, dropouts, and the combination of the two. This allows students to make much better comparisons of just how well off they will or will not be if they can finish the program. This could be particulalry important for programs that are tied to low-wage occupations, where students may not see as big of a difference between graduates and dropouts.
This new disclosure setup also tweaks the repayment and completion rates. Repayment rates would be based on borrowers, not loan dollars, which makes them much more intuitive for a consumer. Successful repayment is also redefined to be: (1) fully paying off a loan; (2) reducing the outstanding principal by at least $1 over a year; or (3) making all payments on an income-based plan. The principal reduction standard is similar to the tougher version of the repayment rate used in the 2010 draft rule as opposed to the 2011 final rule, which required only a $1 reduction in the balance owed. The making payments on an income-based plan does mean that programs can get credit for utilization of things like income-based repayment, but it is still better than how the 2011 rule handled the situation. In that rule, programs were just assumed to get a 3 percentage point repayment rate increase since there was no way at the time to judge utilization of income-based programs.
The completion rate, meanwhile, is now based on the percentage of all students who were in an enrollment cohort who finished in 100 percent of time, with a separate calculation for those who finish in 150 percent of time. This a change from the 2011 rule, which measured the completion rate as the percentage of students who finished on time out of all students who finished.
Odds and Ends
- All annual student debt payments (the numerator of the debt-to-earnings ratio) would be calculated assuming a 10-year repayment rate and interest rates on Direct Unsubsidized Loans. This would remove a concession in the final regulation that assumed different repayment timeframes depending on the credential level. So no longer would a bachelor's degree program and a certificate program with the same debt level result in the former having lower payments than the latter just because bachelor's degree recipients are assumed to repay over additional years.
- In-school enrollment would be more clearly defined to mean at least half-time enrollment for a period of 60 days. While this exclusion was present in the 2011 regulation, the proposed language provides an actual definition for what in-school enrollment means.
- The draft language keep a provision from the 2011 rule in which for each student that SSA cannot match, the Department will remove the corresponding highest debt levels from the annual loan payment calculation (e.g., if one student is not matched, the Department will remove the highest debt level; if six don't match, the six highest come out, etc.)
- The proposed regulations also include a provision stating that the Secretary will verify the accuracy of the classification of instructional program (CIP) code chosen for a program. This provides a mechanism to ensure that a program is what it claims to be.
- The Department will still continue to choose the higher of mean or median earnings for a program.