Gainful Employment Negotiators Dig Into Merits, Drawbacks of Debt-to-Earnings Rates in Day Two of Deliberations

By Allie Bidwell, Communications Staff

Committee members working to rewrite the federal gainful employment (GE) regulations on Tuesday began to discuss the specifics of the accountability and transparency metrics used within the rule, which is intended to ensure students attending for-profit institutions and in non-degree-granting programs in any sector were well-served and could find work in their fields of study which could support the level of debt they incurred in earning their credentials.

After on the first day discussing the scope and purpose of a GE rule – whether it should apply to all institutions, to just the for-profit sector, or to non-degree-granting programs – members of the negotiated rulemaking (neg reg) committee began to deliberate on the measures used to hold institutions accountable and to ensure transparency through mandatory disclosures.

The 2014 GE regulations use a debt-to-earnings rate to determine whether a program leads to gainful employment. A program would pass if the median loan payment for its graduates does not exceed 20 percent of the higher of the award year cohort’s median or mean discretionary income, or 8 percent of the average graduate's total income. Programs whose graduates have annual loan payments greater than 12 percent of total earnings and greater than 30 percent of discretionary earnings would fail and be at risk of losing their Title IV eligibility.

The regulations also outlined a “zone” rating, which programs would fall into if their median annual loan payments were between 20 percent and 30 percent of the average graduate’s discretionary income, or between 8 percent and 12 percent of a graduate’s total earnings. Programs that failed in any two of three consecutive years, or fell into either the “zone” for four consecutive years would become ineligible to receive federal student aid.

Throughout the deliberations, some committee members brought up the idea of revisiting the accountability metrics used in the GE regulations finalized in 2011. Although a key tenet of those regulations – the proposed repayment rate – was vacated by a federal judge, many negotiators appeared open to the idea of further discussing the other metrics: that the estimated annual loan payment of a typical graduate does not exceed 30 percent of his or her discretionary income, or the estimated annual loan payment of a typical graduate does not exceed 12 percent of his or her total earnings.

The negotiators throughout the day also discussed whether to use a debt-to-earnings metric at all in a new GE rule, or whether a different set of data would be more appropriate. While some negotiators suggested using data from the Bureau of Labor Statistics (BLS) or from the College Scorecard, others pointed out flaws in those data. Using earnings information from the BLS would address the current concern with use of Social Security Administration (SSA) data of unreported or under-reported individual incomes for self- employed individuals and for those working in cash-based businesses or whose incomes include tips. However, BLS data is available for an occupation as a whole and does not get at the programmatic-level data sought for GE purposes, and College Scorecard data includes all federal aid recipients – not just those who graduate. Both of those weaknesses could skew the data, some argued.

Rather than scrapping the debt-to-earnings metric altogether, some negotiators suggested using it alongside other measures, such as cohort default rates, completion rates, or some type of repayment rate.

Other points of debate included whether gainful employment should include programs that graduate fewer than 30 students, and whether the practice of “rolling up” debt should change. Currently, if a student completes one GE undergraduate program, such as an associate degree at a proprietary institution, and subsequently completed a bachelor’s degree at the same institution, that student’s debt would be “rolled up,” and the debt from the lower-level credential would be attributed to the higher credential. Some negotiators asked whether the debt could be separated and reported respective to each program, but other negotiators representing institutions worried that could create unnecessary administrative burden.

Moving forward, negotiators will regroup on Wednesday to continue their discussions. ED officials reiterated throughout the day on Tuesday that this first four-day session is intended to be a listening session to gather information, and that no proposals or draft regulatory language will be put forth until the next session in February.


Publication Date: 12/6/2017

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