ED Releases Final Rule on Gainful Employment and Financial Value Transparency Framework
By Hugh T. Ferguson, NASFAA Senior Staff Reporter
The Department of Education (ED) on Wednesday released its final rule on gainful employment and its financial value transparency framework, with top department officials calling the new regulations a “revitalized and strengthened” version of GE. The final rule is a result of negotiated rulemaking conducted in the winter of 2021 and early spring of 2022.
Education Secretary Miguel Cardona said the final rule was an important step in ensuring that students have the most effective protections in place against “unaffordable” college debt.
“As we fight for greater college affordability we must demand greater accountability,” Cardona said. “We can't keep throwing taxpayer funded financial aid dollars at colleges that cost students an arm and a leg and then leave them in a ditch unable to climb the economic ladder.”
According to ED the final rule largely mirrors their proposed GE regulations that were unveiled in May.
During a press call on Wednesday officials from ED said they incorporated changes in the final rule seeking to reduce burden on smaller programs, and incorporated provisions that would give programs a chance to demonstrate the value they create and account for some programs having a significant earnings growth following a post-graduate training period.
Under the final rule ED will assess most programs offered by private for-profit institutions and all certificate programs at all types of institutions by using two separate metrics: a debt-to-earnings (D/E) rate along with a new earnings premium test.
Under the D/E ratio the annual amount a typical graduate needs to devote to their student loans must be equal to or less than 8% of annual earnings, or equal to or less than 20% of their discretionary earnings (i.e., their annual earnings above 150% of the Federal poverty guideline for a single individual).
The new earnings premium test would require at least half of program graduates to have higher earnings than a typical high school graduate in their state’s labor force who never enrolled in postsecondary education.
According to ED, programs will be assessed separately on D/E and earnings premium metric. If a program fails either metric in a single year they will be required to provide warnings to current and prospective students that their program could be at risk of ineligibility for federal funding.
If a program fails the same metric in two of three consecutive years it will no longer be eligible to participate in federal student aid programs.
This final rule also contains a new Financial Value Transparency (FVT) framework, which according to ED “will give all students the most detailed information ever available about the cost of postsecondary programs, and the financial outcomes they can expect.”
A significant change to the financial value transparency regulations from ED’s original proposal is that, while information will be collected and shared for all students at all programs, only prospective students at certificate and graduate programs would be required to acknowledge that a program has a high debt burden. Undergraduate programs are excluded from these acknowledgments. The financial value transparency framework will use the same metrics as the gainful employment framework: annual and discretionary debt-to-earnings (D/E), and the “earnings premium,” or EP. The financial value transparency regulations relate exclusively to transparency. No penalties or sanctions are associated with the financial value transparency regulations.
“While we have done a lot on loan forgiveness I am just as proud of the work we’re doing to ensure that we’re not in the same position five years from now,” Cardona said.
Career Education Colleges and Universities (CECU), the organization representing proprietary institutions, said that ED has “rushed” its rulemaking process.
“The Department continues to put its thumb on the scale to circumvent established procedures and advance a partisan rule that fails to protect the vast majority of students,” said Jason Altmire, CECU’s president and CEO, in a statement. “CECU has continually advocated for a rule that ensures the protection of all students and maintains equal accountability for public, private nonprofit, and for-profit institutions – an objective this rule does not achieve.”
Rep. Virginia Foxx (R-N.C.), chairwoman of the House Committee on Education and the Workforce, said that the final rule does little to serve the needs of disadvantaged students and instead attacks proprietary schools.
“[The department] has proven time and again that it would rather march to the beat of its own bureaucratic drum than work to foster both accountability and transparency in postsecondary education,” Foxx said. “Unfortunately, that means attacking proprietary institutions through flawed and arbitrary regulations while giving a pass to the thousands of low-value programs at institutions serving the vast majority of students.”
Wednesday’s action did garner praise from Kelly McManus, vice president of higher education at Arnold Ventures who said that the final rule would hold programs accountable.
“These accountability regulations, which set the strongest standard for student outcomes of any rule to date, will provide students and borrowers with critical protections and ensure taxpayer dollars aren’t wasted on educational programs that don’t produce real value,” McManus said. “We congratulate Secretary Cardona and the Education Department on their efforts to instate a strong gainful employment regulation and urge the Biden administration to move quickly to finalize additional regulations increasing oversight of colleges.”
The final rule was formally released before what appears to be an impending government shutdown, which could have delayed the publication of the final rule and jeopardized the regulations’ effective date.
With Wednesday’s release the rule is slated to take effect in July of 2024. According to ED the first official metrics will be published in early 2025 and the first year that programs may become ineligible for federal student aid programs is 2026. The financial transparency institutional reporting provisions are also effective next July, with the first acknowledgment requirements beginning in 2026.
For more details, background and history of GE be sure to check out NASFAA’s Gainful Employment web center and recent blog series that examined GE regulations. The three part series focused on the history and motivation behind GE, the 2014 GE regulations, lessons learned, and challenges to GE moving forward, as well as the current GE proposal.
Read Today’s News for updates on GE, including updates on implementation.
Publication Date: 9/27/2023
Sheree T | 10/23/2023 1:27:50 PM
You very conceivably will have circumstances where students graduate from the same programs, get the same job, make the same salary, but the students paid more to attend the private or proprietary institution, so the program fails the metric despite having the same outcome. It is clearly designed to target private education. GE regulations should be tossed into the trash heap of history.
Ben R | 9/29/2023 8:46:23 AM
Though it's a step in the right direction, the biggest loopholes in this rule are 1) ignoring borrowing for indirect cost, which accounts for about 2/3 of all borrowing, especially for graduate students, and 2) ignoring repayment rates. This means that, for example, a student who borrows $90,000 for a $25,000 graduate program then earns no more than $50,000 "passes" the Debt/Earnings measure because they are only counting borrowing for direct cost and (2) means schools with abysmal repayment rates can "pass" the Debt/Earnings measure, or alternatively those with high repayment rates could also fail the D/E measure.
Helen F | 9/28/2023 7:11:03 PM
I find this statement in the executive summary deeply troubling: "But too
many programs fail to increase graduates’ wages, having little
or even negative effects on graduates’ earnings." This is clearly conflating correlation with causation, and points to a flaw in the logic underlying this rule. I cannot think of a single reason any program would CAUSE a graduate to earn LESS than an average high school grad in the same state. It's almost certainly the case that the postsecondary graduate was far less prepared for successful employment than an average high school grad to begin with and that the postsecondary program and the student's efforts in the program didn't bridge this gap enough to raise their wages above the average. Conversely, something else may be impacting the postsecondary grad's earning potential: caring for children or other family members, facing a serious health condition, or even joining a household with another primary earner, reducing their need to contribute financially.
Mary Ellen D | 9/28/2023 4:7:34 PM
Using borrower earnings to measure the value of an educational program completely disregards the fact that many people do not choose their career paths based on their income potential.
Ask any urban teacher, barber, commercial truck driver, or FA Administrator if they chose their careers for the money they would make. I expect it's highly unlikely many would answer yes. All of these programs are going to be measured with the GE income yardstick, yet all of these careers contribute to our society.
Jonathan T | 9/28/2023 2:40:48 PM
The HEA master calendar requires the rule to be published in the Federal Register by November 1 in order to take effect next July 1. The release of the pre-publication version is not sufficient, and today's Federal Register public inspection version indicates that the rule is scheduled to be published on October 10. If there is a lengthy government shutdown as of this weekend, meeting the November 1 deadline for official publication might come into question.
Jeff A | 9/28/2023 12:0:45 PM
Actually Foxx is absolutely correct. The rule only applies to 5% of students enrolled in HE and declares it is 'protecting students'. There are way more disadvantaged students enrolled in programs not subject to GE that are being failed by HE. programs with extremely low grad rates, placement rates, employment rates, etc. GE rule has major flaws that do not recognize post grad earnings have a very high reverse correlation to success rates (grad rates), The flaws with this rule go on and on and on.
David S | 9/28/2023 11:46:46 AM
"Rep. Virginia Foxx...said that the final rule does little to serve the needs of disadvantaged students and instead attacks proprietary schools."
Care to guess what member of Congress receives the most campaign contributions from proprietary schools? By a lot?
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