White House issues much-anticipated rule to weed out high-debt, predatory colleges

The Biden administration on Wednesday issued its final version of what’s known as the gainful employment rule, a federal policy that's designed to weed out predatory or ineffective colleges.

At a time of mounting student loan debt and growing skepticism over a college degree’s worth, the rule aims to ensure students who sacrifice years of time, energy and money on higher education complete their programs with qualifications that justify those sacrifices. The administration estimates the rule will protect nearly 700,000 students annually who would've otherwise enrolled at one of close to 1,700 low-performing programs.

Generally speaking, the metric used for evaluating programs has been how much debt students carry after graduation, compared with how much they make. For-profit or certificate programs that consistently fail to produce so-called gainful employment risk losing eligibility for federal financial aid.

But questions over how exactly to judge colleges and what to do when they don’t meet expectations have been fraught since the Obama administration first set out to define the rule’s parameters more than a decade ago. For-profit college and trade school leaders said the rule singled them out, filing numerous lawsuits over the years. Under former President Donald Trump, the rule was altogether rescinded.

Now, Biden’s long-awaited rule is being described as the strongest protections yet for students at the front end of the college search and enrollment process.

"We are fixing a broken system and making sure that students know, before they take out loans, when college programs have a history of leaving graduates with high debts, low earnings, and poor career prospects," said Education Secretary Miguel Cardona in a statement.

Key facets of the new rule

In addition to being evaluated based on their debt-to-earnings ratio, colleges are judged on what’s known as the earnings premium test. It basically measures whether graduates’ median earnings exceed those of someone with a high school diploma only. If a program fails either of these tests for two out of three consecutive years, it loses eligibility for federal financial aid.

Separately, the final regulations include transparency provisions that the department says will provide students and families "with the most detailed information ever available about what they are likely to pay out-of-pocket for programs."

In previous iterations of the rule, only for-profit colleges and certificate programs that had been flagged for noncompliance with gainful employment had to disclose information related to attendance costs, graduates' earnings, typical borrowing amounts and other data.

Now, all institutions that receive federal financial aid, including private nonprofit colleges and public universities, must publish that information. The rule also requires that prospective students acknowledge the debt risks of enrolling in a given certificate or graduate program if they choose to attend.

Advocates say all of these barometers are critical for clamping down on institutions that leave students drowning with debt yet without the requisite training or resume for well-paying careers.

"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," said Kelly McManus of Arnold Ventures

As noted in the proposed rule that came out earlier this year, programs that produce significant amounts of student debt and relatively low salaries tend to have high default rates. While programs that fail the debt-to-earnings test under the new rule account for just 4% of federal financial aid recipients, they account for nearly three times as many defaulters (11%).

The earnings premium test, as the high school diploma metric is called, also helps to capture institutions that produce high default rates yet satisfy the debt-to-earnings requirements. In fact, default rates at these schools are higher than they are at programs that fail the debt-to-earnings test – even though the former usually have lower debt levels.

"It's frankly a generous threshold," said Peter Granville, a fellow at The Century Foundation. "For a program to pass, its graduates have to be better off than they would have been if they had never enrolled."

The fraught history of gainful employment

Industry leaders have argued the rule unfairly targets for-profit colleges and vocational programs while placing too much emphasis on earnings. Targeting them in this way, they say, ultimately deprives students of necessary higher education options.

The Trump administration highlighted these concerns when it got rid of the rule in 2019, a move that went into effect the following year. Rather than burden colleges with bureaucratic requirements, DeVos argued, the Education Department ought to focus on reforming aspects such as accreditation.

Yet polling has shown that most Americans want some form of gainful employment. A survey conducted by Morning Consult and the Century Foundation found 8 in 10 voters agree that “higher ed programs should demonstrate a record of leaving graduates with enough earnings to pay back their student loans.”

Biden early on in his presidency pledged to reinstate gainful employment as part of a larger suite of proposals to fix the country’s student debt crisis.

The administration’s proposed rules, published in May, were met with immediate backlash. Many in the for-profit college and certificate program world said they took things too far.

"Once again, the Department has rushed the process, overlooking critical issues, to hastily implement and weaponize a final Gainful Employment rule against for-profit institutions," said Jason Altmire, the president of Career Education Colleges and Universities, in a statement. "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."

“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,” he continued

Rule issued ahead of government shutdown, 2024 election

The rule’s publication comes just in time for a key deadline in the rulemaking process: Rules have to be finalized by Nov. 1 for them to take effect the following July.

If it had missed that deadline, it wouldn’t be until July 2025 at the earliest that a gainful employment rule would be back on the books. If a Republican is elected to the White House, it could be even longer.

Advocates say the weakening of gainful employment allows failing colleges to fester. Gainful employment is one of the few levers through which the federal government can hold colleges accountable for student outcomes – an idea that has, notably, been popular among conservatives who say institutions not taxpayers should be responsible for spiraling student debt.

A new analysis by the left-leaning Century Foundation found Biden’s gainful employment rule will lead to increased earnings for students by directing them away from high-debt, low earnings programs and into “higher value” ones. Financial aid recipients would, under Biden’s version of the rule, see their salaries increase by $3,400, researchers found.

Specifically, students who attend noncompliant institutions but then transfer to higher-value colleges would see their annual earnings rise by 45% – from $21,600 to $31,500. Their debt-to-earnings ratio would also shrink, with their annual debt payments falling by more than half from 7.8% to 3.7% of their income.

The analysis also challenges proponents’ claims that gainful employment deprives students in many communities of any higher education options. According to the Century Foundation’s calculations, a typical student enrolled in or considering a program deemed to be failing under gainful employment lives about five miles on average from an alternative institution with the same discipline.

When expanding the criteria out to other disciplines within the same field, the nearest alternative program is less than three miles away on average.

"Public trust in higher education is at a low and part of that is because people don't know if the return on their education is worth the investment," said the Century Foundation's Granville. Gainful employment, he said, ensures that students are putting their time and investment into high-value programs ... and the evidence suggests that the typical student will not have to look very far."

This article originally appeared on USA TODAY: Biden administration issues much-anticipated rule to weed out high-debt colleges