By Abbie Barondess, NASFAA Policy Staff

Editor's Note: This is the first in a series of three articles examining Gainful Employment (GE) regulations. This article focuses on the history and motivation behind GE, while providing a brief timeline of regulations as well as detailing the justification for a strong GE rule. Subsequent articles will detail previous iterations of GE, lessons learned, the current GE proposal, equity concerns, and NASFAA’s recommendations. 

Part 1: Gainful Employment 101

While the purpose and scope of higher education has changed over time, it has long been viewed as a path toward social and economic mobility for all. Even in the wake of rising college costs, higher education continues to be a worthwhile investment for many students. From high school to completion of a master’s degree, higher levels of education are associated with higher earnings, across race and sex. In 2021, median earnings for bachelor’s degree completers aged 25 to 34 were 55% higher than those with a high school diploma. While higher education is intended to level the playing field for students from all backgrounds, gains in economic and social mobility are not evenly distributed. As the benefits of higher education become increasingly stratified, evaluating the value of postsecondary institutions is more important now than ever.

The value of higher education goes beyond economic returns, however, assessing graduates' ability to recoup the cost of college is a key measure in determining if higher education is serving its intended purpose. However, students’ return on investment is not merely a function of the credential they earn or the institution they attend but is influenced by economic status, familial and generational wealth, race, immigration status, and many other individual student characteristics that impact students’ ability to finance their education, as well as their ability to reap the benefits in the labor market. This is especially true for Black students, who despite increasing college attainment levels, still face higher unemployment and lower wages in the labor market. Bachelor’s degree completion rates for Black students have risen steadily since the 1970s, and the likelihood of Black students receiving a bachelor's degree compared to White students rose from 40.5% in 1972 to 71.9% in 2020. Despite this, the Black-White unemployment ratio has remained around 2:1 across all levels of education, suggesting factors at play outside of educational attainment.

Given this complexity, it is clear why there is no single agreed-upon value metric in higher education. Systemic inequities such as the growing racial wealth gap and labor market discrimination cannot be solved by higher education alone, but require large-scale policy changes across the board. However, institutions can and should be held accountable for what is in their control, and at the minimum, ensure that their programs are not putting students in a worse economic position. Federal efforts to provide quality assurance have primarily taken the form of Gainful Employment (GE) rules, which seek to hold programs that prepare students for gainful employment accountable for student outcomes in the labor market. Gainful Employment rules are intended to work as a consumer protection mechanism that sets minimum standards qualifying programs must meet to receive Title IV federal funds. By requiring programs to meet a minimum debt-to-earnings ratio (D/E) and — in the latest iteration, result in earnings at least equal to those of a high school graduate — GE seeks to ensure that student and taxpayer investments in higher education lead to a positive return on investment through increased economic mobility for students.

While GE regulations have received substantial attention over the past three presidential administrations, the concept was codified in the Higher Education Act of 1965. However, the vague language of the HEA has left the definition of gainful employment up to ED’s interpretation and set the stage for a decades-long struggle to define and implement GE. The debate over Gainful Employment has been fueled by increasing college costs, rising student debt levels, and the rise of for-profit institutions.

A Brief Timeline of GE Regulations

The HEA provides federal student aid funds to institutions that provide programs that “prepare students for gainful employment in a recognized occupation”. This includes the majority of both degree and non-degree programs at for-profit institutions and non-degree credentials at all public and non-profit institutions. Congress reaffirmed the application of the “gainful employment” standard to vocational programs, rather than all postsecondary programs, as recently as 2008. 

GE in the Obama Administration

• 2009–The Obama administration began a negotiated rulemaking process to define gainful employment as established by the HEA. The committee failed to reach consensus, leaving ED free to develop their own rule. 

• 2011–A final regulation was issued and established a loan repayment rate and two debt-to-earnings thresholds that programs had to meet to receive federal student aid. The rules applied to all non-degree programs at public and private nonprofit institutions, and most degree and non-degree programs at proprietary institutions. Institutions that failed both metrics for three out of four years would lose Title IV eligibility. 

• 2012–The Association of Private Sector Colleges and Universities (APSCU) challenged the rule, which was ultimately struck down by a federal district court on the basis that ED’s repayment rate threshold was arbitrary and lacked justification.

• 2014–A second round of negotiated rule-making began, with no consensus reached. ED developed a new regulation finalized in 2014 set to take effect in 2015. The regulation removed the repayment rate metric but required programs to meet two debt-to-income thresholds to remain eligible for federal student aid. Once again, the rules applied to all non-degree programs at public and private nonprofit institutions, and most degree and non-degree programs at proprietary institutions. To pass, graduates' annual loan payments had to stay under 20% of their discretionary income or 8% of their total income. Title IV eligibility would be lost after a program failed to meet the debt-to-earnings threshold for two out of three consecutive years. The regulations also established a zone for GE programs with a discretionary income rate greater than 20% and less than or equal to 30% or an annual earnings rate greater than 8% and less than or equal to 12%, with eligibility loss tied to rates either in the zone or failing for four consecutive years. The regulation was once again challenged by the APSCU, as well as several career preparation programs, but was upheld.

GE in the Trump Administration

• 2017- The Trump administration announced their intent to negotiate GE, and refused to enforce the 2014 GE rule, which was only in effect for one year. A third negotiated rulemaking effort to repeal the rule began, ending without consensus. 

• 2019 - ED rescinded the 2014 GE regulation altogether, effective in July 2020.

GE in the Biden Administration  

• 2021-22–ED conducted a fourth negotiated rulemaking effort, ending without consensus.

• 2023 - ED published a proposed rule open for public comment. A revised final GE rule is expected by November 1, and will likely include measures that increase transparency and reporting requirements for non GE-programs.

Justification for a Strong GE Rule 

The college-going process and decisions around selecting an institution, major, and financing of higher education are complex and nuanced. Increasing consumer information around program outcomes will allow students to make more informed college decisions. Aside from consumer protection, GE rules are intended to ensure that the $130 billion federal investment in student aid is money well spent. 

While the 2014 GE regulations were not in effect long enough for any programs to lose eligibility, data released in 2017 offers key insights into the type of institutions and programs that pay off and highlights the need for strong GE rules. In 2017, over 1.1 million students graduated from a GE program, and 10% of students graduated from a program that failed the GE metric in 2015. Another 20% of students graduated from a program in the warning zone. Failing programs were concentrated in a small number of states and institutions, with 10 states accounting for 74% of graduates from failed programs. A total of 803 institutions out of 8,637 programs failed the GE metric, with proprietary institutions accounting for 98% of failing programs, while only representing 66% of all programs evaluated. 

The high proportion of proprietary programs failing GE metrics is particularly alarming considering that they enroll disproportionately high numbers of low-income and students of color. In 2021, Black students represented 13% of all undergraduates, but made up over half of all two- and four-year for-profit enrollment. Even when accounting for student characteristics, for-profits have lower graduation rates and higher loan default rates than other institution types. For-profit colleges account for more than one-third of all student loan defaults while enrolling less than 10% of all students. 

One concern surrounding GE regulations is that they will negatively impact non-traditional, low-income, and students of color who are overrepresented in for-profit and career education programs, by cutting off federal student aid eligibility for students enrolled in those programs. Critics of GE often cite student demographics as a reason for these institutions' poor outcomes and institutions' difficulty in meeting GE standards. Interestingly, HBCUs, which serve a similar population, were less likely to fail the 2014 GE metric than any other institution type. Additionally, a study in the Journal of Economic Perspectives found that institution type and major, rather than student characteristics, explain most of the variation in outcomes across programs. When controlling for student demographics, students in GE programs at for-profit institutions have lower earnings and higher debt burdens than those in similar programs in other sectors.

Opponents of GE are concerned that regulations will result in decreased higher education attainment for low-income and students of color. Additional evidence is needed to understand the effects of GE regulations on higher education enrollment and attainment for historically underrepresented students. However, a study in the American Economic Journal showed that students enrolled at for-profits that did not meet GE metrics overwhelmingly did not lose access, but were absorbed into the public sector. Regardless, access without institutional accountability and concern for student outcomes has the potential to put students in a worse position, incurring debt without a degree. To ensure the current iteration of GE regulations are equitable, they will need to consider implications for access as well as outcomes.

The next blog will detail the 2014 GE regulations, comments and concerns, and challenges to GE regulations moving forward.

Publication Date: 9/1/2023

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