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Friday Gainful Updates
Final review phase & potential AV / ED rift
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As predicted, the regulatory landscape is heating up again.
Gainful Employment Moves to Final Stage
The Gainful Employment (GE) regulatory proposal quietly entered the “final review” stage on Wednesday, less than two months after the US Department of Education (ED) received nearly 7,600 comments during the Notice of Proposed Rule Making (NPRM) comment period where GE was the headline. Unexplained is the striking difference in comments submitted (7583) and comments posted (3906).
For a quick background that doesn’t capture all of the details but gives a broad outline:
The original Higher Education Act (HEA) of 1965 did not apply to for-profit institutions, and instead Congress setup a separate student loan program for vocational programs with “useful employment in recognized occupations.”
In 2011 the Obama administration interpreted HEA and clarified this intent with the initial Gainful Employment regulations that applied to all programs at for-profit institutions and for nonprofit institutions “only certificate or credentialed nondegree programs of at least one academic year.” Programs that failed would not be authorized to receive federal financial aid.
GE metrics at the time were primarily focused on student debt, particularly debt-to-earnings (DTE) ratios and debt default rates. “a program is now considered to lead to gainful employment if it has a repayment rate of at least 35 percent or its annual loan payment under the debt-to-earnings ratios is 12 percent or less of annual earnings or 30 percent or less of discretionary income.” Discretionary income is based on 150% of the federal poverty level.
In 2011 a judge struck down the rules, specifically calling the repayment rates as arbitrary, leading to ED releasing renewed GE rules in 2014 that removed repayment rates but keeping the DTE metric. These rules survived several legal challenges.
In 2017 there were two new lawsuits, one arguing that usage of Social Security Administration data to determine earnings ignored unreported cash tips, and another focusing on professions that were largely cash-based and relied on independent contractor (vs. employee) status - both essentially saying that earnings data were understated.
The Trump administration rescinded the GE rules in 2019.
The Biden administration proposed new GE rules in 2023 (those in question for this post), maintaining the usage of debt-to-earnings metrics but adding a new one - Earnings Premium, which looked to see if reported earnings three years after completion were higher than high school graduate earnings on a state-by-state basis (initially taken from Census Department data).
For additional history from two different viewpoints, these are two good sources:
Center for American Progress (pro GE rules): The Tortured Path of the Gainful Employment Rule
James Martin Center (anti GE rules): What Do “Gainful Employment” Regulations Accomplish?
There are no changes between the proposed Gainful Employment rule submitted in May 2023 and the final proposed rules based on the thousands of comments. ED is supposed to review all comments and respond, and even with the abbreviated 3,906 posted comments, that is a short time, which I suspect is based on the need to pass final review by November 1st so that the rules can be in place by July 2024.
Remember that Gainful Employment rules target all academic programs at for-profit colleges and universities, and many non-degree programs at all (for-profit and nonprofit) colleges and universities. What has not been placed in final review, however, are the Financial Transparency proposed regulations that would use these same GE metrics to be publicly disclosed for all academic programs.
For context, see these posts:
Last week, Arnold Ventures’ president and CEO Kelli Rhee wrote an op-ed at CNN titled “There’s a better way to tackle America’s student debt crisis.” The op-ed reads like a rebuke of the Biden Administration’s zeal to focus on debt relief, which might put other work in jeopardy.
As written, it’s hard to argue with that setup. The administration’s continued focus on student debt relief is unlikely to yield meaningful long-term changes beyond political benefits, and this focus does jeopardize other initiatives such as Gainful Employment and Financial Transparency.
How does this argument square with the Arnold Ventures funded consortium’s push for third-party servicer (TPS) expansion through guidance? With the possible exception of the referenced student debt forgiveness, TPS expansion represents the highest level of “working only through executive action” seen by ED. The optimistic interpretation (from my perspective) is that AV is learning and adjusting its approach. The pessimistic interpretation involves a lack of self-awareness.
See “A Matter of Kind, Not Degree” for a discussion of the methods employed by ED and supported by the Arnold Ventures funded consortium.
Rhee’s argument on Gainful Employment:
It seems significant to me that Arnold Ventures’ president publicly called out the Biden Administration and ED to get their head back in the game on the multiple regulatory actions that they feel are achievable. And lo and behold, Gainful Employment quickly enters the next phase for final review.
If you accept my argument that Arnold Ventures holds enormous sway at ED and the administration, and that this public rebuke is significant, then it is worth noting what else that Rhee wants action on instead of rulemaking on student debt relief. Financial Transparency, reforming oversight of state regulators (i.e., gutting reciprocity agreements) and accrediting agencies.
Left unmentioned was TPS expansion. That doesn’t mean that the CNN op-ed is a playbook, but it does provide signals on what to expect and what to watch in terms of a possible rift.
Expect more news soon in the OPM market and in the regulatory world, and have a great weekend.
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