The U.S. Department of Education announced its long-awaited final gainful employment rule, which will take effect July 1, 2015. In making this announcement, the Department estimated 1,400 programs currently serving 840,000 college students would not pass the Department’s new standards, which penalize institutions for high student debt-to-earnings ratios.
Those programs are therefore at risk of losing access to federal student aid. Without an alternate means of funding available to students, programs falling short of the Department’s regulations will likely cease to exist, no longer available for students.
Notably, 99 percent of the students enrolled in the programs at risk of losing federal student aid under the new rule attend for-profit educational institutions. Most programs at not-for-profit institutions are exempt from gainful employment requirements, even though many graduates of those programs also have high debt-to-earnings ratios.
It is mainly the shorter career and trades-focused programs that will suffer here. Examples of programs at risk of losing access to federal student aid include: automotive technology, cosmetology, HVAC, and various allied health programs. Many of these programs take less time and cost less than programs at four-year institutions. It remains to be seen where prospective gainful employment program students will turn if they wish to participate in career or trade-based training programs.
The silver lining is that the Department removed student loan default rates – a factor included in earlier versions of the rule – as a touch point for imposing penalties.
The gainful employment rule does not directly correct any underlying educational deficiencies with the programs it penalizes, nor does it consider nuances such as the needs of the populations those programs serve. By focusing as a practical matter on programs at for-profit institutions, the rule does not address over-borrowing that may occur at other schools. Other than potentially ending some questionable programs, on initial review, the new rule demonstrates little potential for bringing gains to higher education institutions, their programs, or their students.