Neg Reg Day 2: Gainful Employment Dominates Discussions, With Negotiators Also Focusing on Financial Responsibility

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

By Owen Daugherty and Hugh T. Ferguson, NASFAA Staff Reporters

The second day of the negotiated rulemaking session on Institutional and Programmatic Eligibility on Wednesday saw two of the committee’s most pressing issues take center stage, as negotiators were tasked with completing discussions on administrative capability and kicked off their discussion on gainful employment (GE).

The discussion on the standards of administrative capability picked up Wednesday where it left off the day before, as negotiators dissected the Department of Education’s (ED) draft regulatory language.

Notably, ED is proposing to add several new standards in the administrative capability rules including that an institution would be determined not administratively capable if it had engaged in misrepresentation or aggressive recruiting.

After a negotiator raised a concern about voting on these provisions when final language on misrepresentation and aggressive recruiting was not yet available, Greg Martin, a federal negotiator, said parts of the language for these issues are yet to be completed since they were part of the Affordability and Student Loans negotiated rulemaking session that concluded in December.

Yael Shavit, a negotiator on behalf of state attorneys general, asked ED to provide the committee with the proposed language for review if it is not yet final so they could get a general understanding of the language.

Martin said he would see what is possible, though was unable to commit to providing draft language to the committee before the end of this session. The committee then took a temperature check on the new section of the administrative capability regulations addressing misrepresentation and aggressive recruiting.

The temperature check yielded one thumbs down vote from Brad Adams, a negotiator on behalf of proprietary institutions. Adams said his decision was due to the fact that ED had not yet responded to a proposal he had submitted regarding the definition of misrepresentation.

After lengthy discussions on ED’s proposed language on adequate procedures for institutions to follow when they or the secretary of education believe a student’s high school diploma is invalid, facilitators took a temperature check, which yielded no thumbs down on the topic.

The committee then moved on to gainful employment, and unlike other issue papers ED distributed ahead of the committee’s work, the one on gainful employment does not include drafted regulatory language, instead including only a list of questions to spur conversation among negotiators.

The conversation surrounding gainful employment was spirited Wednesday, with many negotiators suggesting the department use the 2014 rule as a baseline for the new regulations and look to improve on it from there.

A temperature check on using the 2014 gainful employment rule as a baseline brought a thumbs down from Adams, who said he would like to see a gainful employment rule for all sectors of higher education instead, asking ED to conduct a temperature check on a gainful employment rule for all. His request was denied.

“We strongly believe all students deserve the same protections, but the 2014 gainful employment regulations exempted institutions serving more than 75% of students enrolled in higher education,” said Dr. Jason Altmire, president and CEO of Career Education Colleges and Universities, in a statement. “As negotiations continue, we hope the department will give serious consideration to equity across higher education.”

Before taking a lunch break, the committee discussed the first question in the gainful employment issue paper, which asks what metrics best “distinguish between programs that prepare students for gainful employment versus those that do not.”

Shavit reiterated her and many other negotiators' desire to have the 2014 rule be the baseline and said any additional metrics should simply be additions.

“There's simply no reason to reinvent the wheel here,” she said. “It may well be the case that in the intervening years we've identified potential opportunities for additional protections and additional metrics, potentially in the earnings threshold. And these types of additions should be considered, but the modifications should be minimal to the 2014 baseline.”

Johnson Tyler, a negotiator on behalf of the legal assistance organizations that represent students or borrowers, said it would be helpful to include earnings of GE program alumni as compared to earnings of high school graduates, noting that it would be easy for lawmakers to understand.

The negotiators had a back-and-forth discussion on how they would approach temperature checks on this issue paper. Unlike previously discussed papers, ED's materials provided on the gainful employment discussion did not contain regulatory language and were instead a list of questions that ED requested feedback on. As a result, ED was not amenable to any temperature checks concerning this issue paper.

The conversation then turned to the second and third questions on the issue paper, which concerned programs that lead to low earnings and whether a single metric or a combination of metrics is the best choice.

In this discussion, ED said they had not yet determined the measurement concerning low earnings outcomes and were considering a three- and five-year time frame with negotiators and highlighted the varying benefits and concerns for the metric. Both negotiators and ED underscored that by using a five-year horizon, there would be an expectation of higher earnings, but the downside of this longer time frame is that it inherently delays the calculation and effectiveness of the metric.

Other metrics that were promoted by the questions from ED concerned a debt-to-income ratio, coming up with clear provisions that incentivize schools to reduce debt to students, and using existing data to measure earnings by comparing high school graduates to higher education graduates.

The issue paper’s next question prompted conversation on the data implications for allowing institutions to record multiple consecutive years of failing a metric. 

With the ongoing pandemic, negotiators questioned if there would be an impact on how programs were measured and whether there could be an opportunity for institutions to implement an improvement plan that could respond to unique economic challenges. 

Negotiators also urged ED to take into consideration what consecutive years of recorded failings means for entire cohorts of students, and that delaying actions could further imperil large swaths of vulnerable students.

The next discussion question on the gainful employment paper concerned institutional reporting burdens.

Adams urged ED to provide as much automation as possible to prevent institutional burden, recalling manual data entry work that was conducted through excel spreadsheets as a result of the 2014 rule. This process required data requests from the IRS to obtain graduate salary records and was costly for institutions.

Adams in his remarks cited NASFAA as having reported on these issues. You can find some of that coverage in our recently published GE web center under 2015 Gainful Employment, where NASFAA reported on these rollout issues.

Marvin Smith FAAC®, representing four-year public institutions of higher education, highlighted that the burden of institutional reporting has dissuaded public institutions from offering non-degree programs, arguing that the institutional burden ultimately hurts low-income students looking to enroll in certificate programs.

ED also sought feedback on how the department should address the presence of income that is unreported to the IRS.

Negotiators noted that colleges cannot control whether students report tipped income to the IRS, and argued that concerns over unreported income may be inflated, given the prevalence of credit card use over cash.

In the next question, ED sought feedback on how to address programs that are too small to have their program debt or earnings information disclosed.

A general point of concern was that some actions could result in incentivizing institutions to split their programs into smaller sizes to avoid intended oversight.

On the issue of metric disclosures being made available to students, ED sought feedback on potential data formats and what sort of data would be most useful to prospective students.

There was discussion over how much of an emphasis to place on data disclosure, with negotiators urging ED to keep students informed on relevant program data that will not overwhelm them, and be readily available and easily understood. Negotiators also stressed, though, that disclosures should not be relied upon to solve the problems the GE regulations intend to address, citing evidence that disclosures aren’t always effective, especially for students of color.

The final question that ED highlighted was seeking ways to ensure that institutions are not simply shutting down old programs and starting up new, similar programs to avoid the consequences of gainful employment.

That conversation resulted in negotiators calling for more consequences within the regulatory text that clearly penalizes institutions that repackage programs for purposes of evading the GE regulations.

ED then moved on to the financial responsibility paper, which contained regulatory changes seeking to increase the ability to identify high-risk events and require financial protection as needed. ED provided a walkthrough of the regulatory language, underscoring that they were not proposing changes to the composite score calculation at this time, while acknowledging that ED is aware of issues with the composite score and intends to consider it for a future rulemaking sesion.

In the first section of the issue paper, which included language requiring financial statements from institutions by the earlier of 30 days following an auditor's report or six months after the last day of the institution's fiscal year, a positive temperature check was recorded.

ED then went into sections concerning general standards of financial responsibility. Proposed additions to existing provisions include whether an institution is able to meet payroll, whether it has financial obligations that are more than 90 days past due, or if it borrows from retirement plans without authorization. This section resulted in a positive temperature check.

The final discussion of the day concerned mandatory triggering events, the committee will continue conversations and comments on this section of the financial responsibility paper during Thursday’s session.

Public comments for the day focused on gainful employment, for-profit regulations, and experiences of how the 90/10 rule impacts veterans, with some public commenters calling for tighter regulations and others saying the rules were too burdensome for students.

Stay tuned to NASFAA’s Today’s News for more coverage of negotiated rulemaking sessions throughout the week, and read up on our previous rulemaking coverage


Publication Date: 1/20/2022

Ben R | 1/21/2022 8:10:51 AM

Failing financial responsibility due to timely disbursements is perhaps a bit ironic since one of the best ways to weed out fraudulent uses of TIV is with delayed disbursements (a 30 delay is required for first time borrowers at schools with a high default rate for this very reason). Requiring students to be in class for a predetermined set of time prevents the "take the money and run" issue and ensures students earn their aid and are not there merely for a refund check.

Peter G | 1/20/2022 12:14:38 PM

Perhaps it is just not mentioned here, but I'm surprised there wasn't more discussion of the 'disbursement date' proposal (section (k) under Admin Capability. I recognize several sectors don't have much of a stake here, but from a community college standpoint, depending on the specifics of how this is written, this could potentially represent a very significant and potentially painful shift for many, and may create harm for a number of students even while seeking to remedy harm for some.

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