Proposed Gainful Employment Regulations Are Smart for Students, Taxpayers

Last year, a federal judge tossed out much of the gainful employment regulation the Department of Education issued in 2011, while at the same time insisting the department has the authority to ensure career education programs prepare students for gainful employment. Since the initial rule was issued, the public cry for an enforceable definition of gainful employment has grown louder, and the department's new proposed regulation is a step in the right direction toward holding these programs accountable for preparing their students.

Currently, career education programs, which generally are found at both for-profit college companies and community colleges, may receive federal financial aid for students to attend programs that "lead to gainful employment in a recognized occupation." Yet before the department's current efforts, "gainful employment" had not been defined.

The Education Trust — along with other organizations that work on behalf of students and college access, consumers, veterans, and civil rights — has been pushing for a strong gainful employment rule that would protect students and taxpayers from fraud and abusive practices in career education programs. For-profit education companies offer a large share of these programs and primarily rely on federal money to do so. They represent just 11 percent of college enrollment nationwide, yet receive one-quarter of the financial aid pie. Worse, though, is that almost 23 percent of for-profit students default on their loans (compared with 11 percent at private nonprofits and 7.5 percent at publics). Almost half of all student loan defaults nationally come from students who attended for-profit companies. A recent report from Sen. Tom Harkin (D-Iowa) exposed for-profits for lackluster graduation rates and high student loan default rates, an indication that they were not preparing their students to secure work sufficient to pay down their debt.

Under the department's proposed regulation, for-profits like these would no longer be able to exploit students and taxpayers by taking federal dollars and leaving high percentages of graduates with unmanageable amounts of loan debt. If overall graduates' debt in a career education program exceeds 30 percent of their discretionary income and 12 percent of their annual income for 2 out of 3 years, that program loses access to federal financial aid. The regulations also include a new warning "zone" for colleges whose graduates' debt is more than 8 percent of discretionary income or 20 percent of annual income. Programs in this "zone" must limit enrollment and notify students of their status. After four years without improvement, they would also lose financial aid.

According to department estimates, the proposal would subject more than 11,000 career education programs to regulation, and about 9 percent would fail. Another 12 percent, the department estimates, would be in the warning "zone." That's almost 2,400 programs that are contributing to debilitating mountains of student loan debt while doing very little to help the next generation secure work that is self-sustaining. Thus, a new regulation is desperately needed.

The Department of Education deserves kudos for moving forward with these proceedings.

—Ed Trust Staff
September 10, 2013