With this fifth and final post, we’re wrapping up our REGucation series on projecting gainful employment rates. We’re also pleased to announce that in the coming days, we’ll be publishing the entire series in a white paper format that will take you seamlessly through the projection process, and include some helpful charts and diagrams. Finally, for folks looking for a bit more gainful guidance, we encourage you to check out our free webinars. Both “Getting a Grip on Gainful” and “Projecting Debt-to-Earnings Rates” will be available on-demand by December 22, 2014, on our TCLE webinar site.
Step Eight: Estimate annual earnings
In our previous post, we discussed how to finalize the Annual Loan Payment for each GE Program, which constitutes the numerator for both the Annual Earning Rate and Discretionary Income Rate calculations, as illustrated below:
Annual Earnings Rate = Annual Loan Payment / Annual Earnings
Discretionary Income Rate = Annual Loan Payment / Discretionary Income
With the Annual Loan Payment in hand, all that remains is to calculate the denominator for each equation.
When determining Annual Earnings for a GE program, the Department will obtain from the Social Security Administration the most currently available mean and median annual earnings for the GE Students who completed the GE Program during the applicable cohort period, and use the higher of the mean or median annual earnings for purposes of the calculation. 34 C.F.R. 668.404(c).
Thus, when computing the 2014-15 D/E rates, for example, the Department will use SSA earnings data from calendar year 2014. We’ve set out below a chart that illustrates the earnings data that will used in the coming award years.
Click here to view the image.
Because this SSA data is not (and presumably will not be) made available to the public, for each GE Program, you will have to develop a proxy for the SSA earnings information. There are a variety of ways an institution can go about estimating earnings data, and the methodology used might differ from program to program, depending on the information available. Ultimately, your institution should seek to identify and use data that is most likely to resemble that of the SSA information that will be utilized by the Department.
For example, if your institution conducts graduate surveys that include salary information, it may be that you are able to estimate the average earnings of your graduates based on actual salary data. Alternatively, you might be able to determine a reasonable average by interviewing regional employers regarding their salary practices. Faculty, staff, program advisory committees, and experienced career services personnel also may be able to provide insight into the likely average salary of new graduates in particular fields.
You also could estimate earnings using the data included with the 2012 GE Informational Rates released by the Department in connection with the 2014 negotiated rulemaking. For every GE Program (at every institution), the 2012 GE Informational Rates spreadsheet includes 2011 calendar year annual earnings data for GE Students who completed the program between October 1, 2007, and September 30, 2009, as reported by SSA. If you adjust the 2011 earnings data for each of your GE programs, taking into account occupational demand, inflation, and other relevant variables, you may be able to formulate a very reliable earnings estimate for use with your current projections.
Because the Department’s data also can be sorted and filtered by state, zip code, industry sector, and CIP code, an institution also can calculate average earnings for programs in a select area, for example, or national earnings information for programs offered by a certain sector. This may prove useful if there is no 2011 data for your specific GE program (e.g., because your program was only recently introduced), or if your graduate population has shifted (e.g., because you recently began offering your program online).
Institutions unable to obtain wage and salary information using the methods described above may attempt to estimate average earnings using data made available by the U.S Department of Labor, Bureau of Labor Statistics (BLS), or by one or more State Employment Security Agencies (regional earnings data likely will be a better proxy for actual earnings where most graduates find employment within a specific geographic area).
If your institution decides to move in this direction, your best starting point may be the O*NET Online website. This website, sponsored by the U.S. Department of Labor, Employment and Training Administration, compiles both federal and state wage data in a single location. Institutions can locate salient earnings information through the website’s crosswalk page, which permits a user to search for job-specific data using a variety of inputs, including the CIP code associated with the program, or the Standard Occupational Classification (“SOC”) code associated with the occupation into which most graduates’ are placed.
Keep in mind, however, that earnings information generated by a government agency may not be a particularly worthy proxy for the SSA data the Department will compile for your institution. Indeed, in the preamble to the proposed rules, the Department dedicates several paragraphs to explaining why BLS salary data is unlikely to accurately represent the actual earnings of a GE program’s graduates. 79 Fed. Reg. 64941-42. Accordingly, if you do not presently gather actual earnings data from graduates through surveys or other means, you may want to introduce a process for doing so. Although this effort may not assist you with your near-term projections, it will provide you better data for projections made in years to come. Also, if you ever intend to challenge the SSA data the Department uses in calculating your D/E rates, you likely will need salary information gathered through institutional surveys to use as the basis of your claim.
Step Nine: Calculate discretionary income
The final step in our process involves calculating the Discretionary Income for each GE program, which constitutes the denominator of the program’s Discretionary Income Rate. For each GE program, the Discretionary Income is calculated by subtracting from the program’s Annual Earnings 150 percent of the Poverty Guideline for a single person residing in the continental United States, as published by the U.S. Department of Health and Human Services. The Department applies the Poverty Guideline for the calendar year immediately following the calendar year for which annual earnings are obtained. 34 C.F.R. 668.404(a)(1).
By way of example, the 2014 Poverty Guideline for a single person residing in the United States is $11,670. Thus, to calculate the Discretionary Income for a program with an Annual Earnings of $28,000, an institution would execute the following calculation:
$28,000 – ($11,670 x 1.5) = $10,495
The Poverty Guideline for a single person in the continental United States is published by the U.S. Department of Health and Human Services and available here. 34 C.F.R. 668.402. Each year institutions will want to check this website to ensure that the most current number in being used in the school’s GE projections.
Thank you again for following our series on projecting gainful employment rates. We know this topic has been top of mind for many postsecondary administrators, and hope our posts have been helpful. Keep an eye out for our white paper, and please feel free to contact me if you have any questions.