Guaranteeing gainful employment

Buried in the Higher Education Act’s 800 pages of rules and regulations is a single sentence stating that career education programs “must prepare students for gainful employment in a recognized occupation” in order to receive funds, like Pell Grants and direct loans, from the federal government.

Such a stipulation may seem like common sense, but the fight to define “gainful employment” and when a program achieves it is on year four and counting. An earlier version of a regulation defining the term was vacated by the courts on a technicality in a 2011 suit brought by the well-heeled for-profit college lobbying group, the Association of Private Sector Colleges and Universities, whose members—despite the group’s name—derive most of their funding from federal tax dollars. Subsequently, the Department of Education restarted the rulemaking process to define gainful employment in 2012. For-profit colleges continue to fight all attempts to regulate their industry. But the AFT, along with a coalition of civil rights, student, veteran and consumer protection groups, as well as policy experts, remains committed to advocating for a strong gainful employment rule to prevent fraud and abuse.

The AFT and our allies want 
a few simple and transparent requirements:

  • Multiple measures: Consistent with AFT policy, we believe that multiple measures are needed to set a baseline for minimum program qualifications. In a draft version of the gainful employment regulation, we supported the use of a cohort default rate and a debt-to-earnings ratio on the rationale that someone who is well-prepared for gainful employment should be able to pay back his or her debt without going into default and such payment should not be overly burdensome.
  • Financial relief for defrauded students: 
If and when programs become ineligible for federal aid, they should be required to reimburse students who enrolled in the program, and students should be eligible to use their financial aid at other colleges. Providing full debt relief to all such students is not only fair, it also creates a greater incentive for schools to quickly improve their programs.
  • Closure of loopholes: Unscrupulous schools can easily manipulate job-placement rates and evade accountability by limiting program size, combining or disaggregating online “campuses,” and misleading students about the nature of a program’s accreditation. These standards must be raised.
  • Protection for low-cost programs: Low-cost programs where most graduates do not borrow at all should automatically meet the standards because, by definition, they do not consistently leave students with insurmountable debt.

The new, final gainful employment rule was released on Oct. 30. Unfortunately, after relentless lobbying by the Association of 
Private Sector Colleges and Universities and others in the for-profit college industry, the rule was seriously weakened. It relies on only one measure: the ratios of debt to earnings for recent program graduates.

The rule defines two metrics: One is based on graduates’ debt-to-gross income ratio; the other is based on their debt-to-discretionary income ratio. It creates passing, probationary and failing benchmarks based on these metrics. A program becomes ineligible for federal financial aid if it receives a failing grade for two out of any three consecutive years or if it receives less than a passing grade (any combination of probationary and failing) for four consecutive years.

A program passes when its graduates’ annual loan payments total less than 8 percent of their total earnings or less than 20 percent of their discretionary incomes. A program is labeled probationary when its graduates’ annual loan payments total 8 to 12 percent of their total earnings or 20 to 30 percent of their discretionary incomes. A failing program is one whose graduates’ annual loan payments total more than 12 percent of their total earnings and more than 30 percent of their discretionary earnings.

Notably, these metrics count only students who use federal financial aid and complete the program; a program is not penalized for students who do not graduate.

The rule goes into effect at the start of the 2015–16 school year. The first year a program can lose its eligibility to receive federal funding is 2017–18.

We are disappointed that the regulations, which leave out many of our demands, don’t address the core goal of helping students, 
especially since no accountability metric 
exists for those who do not graduate. And students—especially low-income students—will still have few protections.

On a positive note, the regulations did address accreditation and licensing issues, and we are hopeful that those changes will improve the for-profit college industry.

Despite the relative weakness of the new rule, APSCU, whose members include Bridgepoint Education, Career Education Corp. and DeVry Education Group, among others, has already filed suit to vacate this rule, just as it did in 2011.

The AFT will continue the fight to make college accessible and affordable. We believe students must be valued over profits and that federal dollars should go only to high-quality programs that don’t leave students with insurmountable debt. We will work with federal, state and local authorities to hold programs and institutions accountable for the taxpayer dollars they receive.

—AFT Higher Education Department

AFT On Campus, Winter 2014 Download PDF (4.32 MB)
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Gainful Employment Rule Basics

  • The gainful employment rule applies to programs with at least 
30 students in either a two- or four-year CTE program, not to 
entire institutions.
  • Only graduates/completers of 
the program count.
  • All programs at for-profit colleges are subject to the rule, but at other institutions only career-focused programs or programs in which students earn certificates after two years or less are generally considered gainful employment programs.