Friday Gainful Updates

Final review phase & potential AV / ED rift

Author

Phil Hill
August 18, 2023

Was this forwarded to you by a friend? Sign up, and get your own copy of the news that matters sent to your inbox every week. Sign up for the On EdTech newsletter. Interested in additional analysis? Try with our 30-day free trial and Upgrade to the On EdTech+ newsletter.

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:

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:

Potential Rift

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.

Back in June, mere hours after the Supreme Court rejected the Biden administration’s first attempt at broad-based student debt relief, the White House kicked off a renewed push. The president announced a new effort to cancel student debt, this time under a different legal authority than the “national emergency” one used previously. The latest attempt, which requires a lengthy rulemaking process before it could take effect, cites the education secretary’s authority to “compromise” federal student loans in certain cases. With this latest effort, the administration hopes to navigate the Supreme Court’s clear pronouncement that the education secretary lacked the authority to “rewrite [the] statute from the ground up.”

Unfortunately, what’s likely to follow is a repeat of last year’s legal back-and-forth: a lawsuit, a protracted court battle and persistent uncertainty for borrowers. And even if this new gambit is successful, it won’t solve the underlying problem. America’s student loan debt will likely again reach $1.6 trillion — today’s staggering total — within just a few short years. In the meantime, the rest of the administration’s important higher education agenda will almost certainly shift to the backburner as attention is placed instead on regulating debt cancellation.

Given the time and distraction required for a long-shot chance at winning in court, the administration would be wise to consider a different approach to its higher education agenda. By instead focusing on holding colleges accountable for their value and ensuring borrowers have the support they need, it could make a meaningful and tangible difference in the lives of students and borrowers — improvements that will endure well beyond Joe Biden’s tenure as president.

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.

The administration must also work with Congress to craft lasting solutions to increase the return on investment for higher education. Working only through executive action and regulations leaves progress fleeting, vulnerable to backtracking under a different administration.

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:

But to realize the goals of those regulations — protecting both students and taxpayers from wasting time and money in programs that never pay off — they must be finalized this year by the Department of Education and enforced quickly.

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.

The main On EdTech newsletter is free to share in part or in whole. All we ask is attribution.

Thanks for being a subscriber./