To qualify for federal student aid, career schools and community colleges that provide vocational education must ensure that graduates land jobs earning enough to repay their student loans. A program is considered to lead to “gainful employment” if the annual loan payment of a typical graduate does not exceed 20 percent of their discretionary income or 8 percent of their total earnings. Surpassing those debt-to-earnings rates means possible expulsion from the federal student aid program.
Roughly 803 of the 8,700 programs reviewed by education officials failed to meet the thresholds, with graduates paying at least 30 percent of discretionary income and more than 12 percent of total earnings toward debt, according to the report. Ninety-eight percent of those programs are offered by for-profit colleges, while the remaining 2 percent are at private nonprofit schools. No community college programs failed.
Another 1,239 programs received a “zone” ratings because a high number of graduates had an annual loan payment that falls between 20 percent and 30 percent of discretionary income and 8 percent and 12 percent of total earnings. The government will cut off federal student aid to any program that receives a zone rating for four consecutive years or fails twice in three consecutive years. Failing programs have 30 days to notify students that they are at risk for losing access to federal aid.
“It’s clear that low performance is concentrated in the for-profit sector. Many of these programs leave graduates with substantial debt and very low earnings,” Undersecretary of Education Ted Mitchell said on the call. “On the other hand, it is clear that nearly all programs at community college provide an exceptional value.”
Mitchell lauded the gainful employment rule for “reshaping” the for-profit industry by forcing schools to disclose earnings, debt and graduation rates to perspective students. As a result of the rule, he said, some schools have preemptively shut down poorly performing programs to focus on those with better outcomes for students. When the department published the rule in 2014, there were an estimated 38,000 general education programs.. Now there are 29,000.
The gainful employment regulation has been a lightning rod for controversy since the Obama administration first proposed it in 2009. For-profit educators have assailed the rule as a thinly-veiled attempt to put their schools out of business, while student advocates and some higher-education experts say it doesn’t go far enough to weed out the worst actors.
“The question the department should answer is why programs this toxic were allowed to enroll students and saddle them with debt in the first place,” said Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities. “If the department took upfront gatekeeping more seriously, we wouldn’t have to wait for statistics on how many shoddy providers have been offering worthless programs at the students’ and taxpayers’ expense.”
Proponents of for-profit colleges, meanwhile, take issue with the release of the findings before schools were given a chance to appeal. Steve Gunderson, president and chief executive of Career Education Colleges and Universities, said the decision “makes clear this is all about political motivations and harming institutions, and has nothing to do with expanding higher-education access and opportunity or creating sound public policy.”
Since the election of President-elect Donald Trump, who campaigned on reducing regulation across industries, conservative policy analysts have speculated that the incoming administration could try to repeal the stringent employment rule. But unraveling the regulation would mean going through the same arduous rulemaking process that produced the rule after years of negotiations. To avoid that headache, the next administration could decide not to enforce the rule.
“We’re not going to speculate on the priorities of the next administration, but these rules are in regulation. We followed the regulatory process in developing the rule and finalizing the rule,” King said. “A future administration could certainly revisit the regulatory process, but we’re confident that this rule reflects the best interest of students and taxpayers.”
Monday’s report is a follow-up to an earlier study that found graduates of career-training programs at public colleges earn nearly $9,000 more than those who attended comparable programs at for-profit institutions. The study looked at the earnings of 1.3 million people who obtained certificates from 28,817 programs at about 3,700 for-profit and public institutions between 2008 and 2012. That study found the average earnings of graduates in the same field were higher at 80 percent of the public programs, while the average difference in pay was about $2,700 more for programs at public colleges.
Beginning this month, schools offering career training must inform current and prospective students of program earnings, along with costs and graduation rates, as well as whether they are falling short of the gainful standards. The program-level data will also be added to the government’s College Scorecard.
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