NASFAA Summary: Gainful Employment Final Rules

Karen McCarthy, NASFAA Policy and Federal Relations Staff 

Final Gainful Employment (GE) rules released by the Department of Education (ED) on Friday are similar to the 2011 regulations that were largely vacated by court order, but with one major modification – the elimination of the program-level cohort default rate (pCDR) as a metric.

Through regulations, ED is seeking to establish an a framework for accountability that will define what it means to prepare students for gainful employment. These measures would assess whether programs provide quality education and training to their students that lead to earnings that will allow students to pay back their student loan debts, and a transparency framework that would increase the quality and availability of information about the outcomes of students enrolled in GE programs.


As in the 2011 rules, the new metrics include debt-to-earnings (D/E) rates that evaluate the amount of debt students who completed a GE program incurred to attend that program in comparison to those same students’ discretionary and annual earnings after completing the program.   The calculation of the D/E ratios is largely the same in the final rules as in the NPRM. One difference is that rather than using an average interest rate over the previous six years for programs of all lengths, as proposed in the NPRM, the final rules stipulate that ED will use an average interest rate over the previous three years for programs that are two years in length or shorter. The six-year average will apply to all other program lengths. 

The final rules eliminate the pCDR metric, which is significant because pCDR accounted for all borrowers, including non-completers. The D/E ratios only account for program completers, which ED believes is appropriate for various reasons, including concern that including non-completers in the D/E ratios may skew the ratios because early drop-outs are likely to have low amounts of debt. 

In the preamble to the final rules, ED states its concern for including non-completers in the metrics, but believes further study is necessary before pCDR or another accountability metric that would take into account the outcomes of non-completers could be adopted. In response to concerns from the aid community about the existing CDR framework, they also believe further study is necessary before adopting other metrics based on CDR, including “borrowing indices” that take into account CDR and the percentage of students who take out loans at the institution. In the preamble discussion, ED hinted at its interest in developing a robust measure of outcomes for students who do not complete a program, which may include some measure based on repayment behavior.

While pCDR was removed as a metric, the final rules retain it as a possible disclosure item.

Thresholds of Eligibility 

The thresholds of eligibility in the final rules are unchanged from the proposed rule. Programs would fail the metrics if the annual debt-to-annual income exceeded 12 percent and the debt-to-discretionary income exceeded 30 percent. Programs with debt-to-income ratios of 8 to 12 percent or debt-to-discretionary-income ratios of 20 to 30 percent would fall in "the zone," and would therefore have to warn students that they might become ineligible for aid.

A program would become ineligible after failing both debt-to-income tests in two out of any three consecutive award years instead of in three out of any four consecutive fiscal years as the 2011 rules provided. In addition, programs that failed both debt-to-income tests or were in the zone for four consecutive years, or any combination of the two, would be ineligible for federal student aid.

The proposed rules incorporated a transition period that would apply during the first four years of implementation. During the transition period, an alternative D/E rates calculation would be made so that institutions could benefit from any immediate reductions in cost they make. During these four years, the transition period and zone together would allow institutions to make improvements to their programs in order to become passing. As a result of public comment, ED extended the length of the transition period in the final rules to ensure that institutions that make sufficient reductions in tuition and fees are able to benefit from such efforts. The final rules extend the transition period to five award years for a program that is one year or less in length; six award years for a program that is between one and two years in length; and seven award years for a program that is more than two years in length.

Schools with Low Borrowing Rates 

The final rules eliminate the provision in the proposed rules which provided that, if a program is failing or in “the zone” under the D/E rates measure, the institution may demonstrate mitigating circumstances (and thus, be deemed to pass the D/E rates measure) by showing that less than 50 percent of all individuals, both Title IV recipients and non-Title IV recipients, who completed the program during the applicable cohort period incurred any loan debt for enrollment in the program. 

In eliminating the “low borrowing” provision, ED sided with those commenters who pointed out that such programs are not necessarily low-risk programs. In the preamble, ED also pointed out that these programs are likely to pass the D/E ratios anyway, since the metric looks at all Title IV recipients and the majority of Title IV recipients in these programs receive only Pell Grants, which would improve the program’s D/E ratios.

Certification Requirements for GE Programs 

The final rules related to certification requirements are largely the same as the proposed rules, with a modification to the certification regarding programmatic accreditation and the addition of a certification for a new program. The final rule would require a school’s most senior executive officer to certify, as part of the program participation agreement, that each of its eligible GE programs offered by the institution satisfies ED’s certification requirements:

(1) Each eligible GE program it offers is included in the institution’s accreditation by its recognized accrediting agency, or, if the institution is a public postsecondary vocational institution, the program is approved by a recognized State agency for the approval of public postsecondary vocational education in lieu of accreditation; 

(2) Each eligible GE program it offers is programmatically accredited, if required by a Federal governmental entity or required by a governmental entity in the State in which the institution is located or in which the institution is otherwise required to obtain State approval under 600.9;

(3) For the State in which the institution is located and in all other States within the institution’s MSA, each eligible program it offers satisfies the licensure or certification requirements of those states so that a student who completes the program and seeks employment in those states qualifies to take any licensure or certification exam that is needed for the student to practice or find employment in an occupation that the program prepares students to enter; and

(4) For a new program, the program is not substantially similar to a program offered by the institution that, in the prior three years, became ineligible for title IV, HEA program funds under the D/E rates measure or was failing, or in the zone with respect to, the D/E rates measure and was voluntarily discontinued by the institution.


From year to year, in a notice published in the Federal Register, ED will identify: 

  • Which of the 16 possible disclosure items institutions must include on their disclosure templates; 
  • Where applicable, whether the disclosures should be disaggregated to reflect students who completed the program, students who did not complete the program, or both students who completed and those who did not complete the program; and 
  • Any other information that must be disclosed.
  • The most significant changes to the disclosure requirements from the proposed to the final rules require that the institution must:
  • Disclose whether the GE program meets the licensure and certification requirements of each State within the institution’s MSA, and any other State in which the institution has made a determination regarding those requirements;
  • Include a statement that the institution has not made a determination with respect to the licensure or certification requirements of other States not already identified;
  • Disclose, in addition to whether the program is programmatically accredited, the name of the accrediting agency;
  • Include any required warnings in its disclosure;
  • Provide a separate disclosure template for each length of the program;
  • Deliver the disclosure template to prospective students or a third party acting on behalf of the student by hand-delivery to the prospective student or third party individually or as part of a group presentation or sending the disclosure template to the primary email address used by the institution for communicating with the prospective student or third party about the program;
  • If the disclosure template is provided by email, include the template as the only substantive content in the email;
  • Receive written or other electronic acknowledgement of the prospective student’s or third party’s receipt of the disclosure template;
  • Send the disclosure template using a different address or method of delivery if the institution receives a response that the email could not be delivered; and
  • Maintain records of its efforts to provide the disclosure template.

The final rules related to GE disclosures are effective on January 1, 2017. Current disclosure requirements apply through December 31, 2016.

Reporting Requirements 

The only significant change to the proposed reporting requirements is an additional requirement that institutions must report to ED a placement rate for each GE program, if the institution is required by its accrediting agency or state to calculate a placement rate for either the institution or the program, or both, using the methodology required by that accrediting agency or state, and the name of that accrediting agency or state.

Stay Tuned! 

NASFAA will be offering a free training webinar on the final rules in the near future, for NASFAA members only. Stay tuned to Today’s News for the webinar announcement and further analysis on the final rules.


Publication Date: 11/3/2014

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