On October 30, the Department of Education published a new set of regulations detailing what it means to be providing an education program that leads to gainful employment in a recognized occupation. This “Gainful Employment Rule” will affect nearly all programs at proprietary institutions of higher education, as well as non-degree programs at non-profit institutions, all of which are required to prepare students for “gainful employment in a recognized occupation” in order to be eligible to receive Title IV financial aid. This rule does not apply to degree programs at non-profit institutions. As this fact sheet explains, the Department estimates approximately 1,400 programs – serving 840,000 students – will be impacted. The regulations are scheduled to come into effect July 1, 2015.

The new regulations (approximately 81 pages) largely mirror those proposed by the Department last March – with the notable exception of the elimination of the proposed “programmatic Cohort Default Rate.” The full regulatory package – to be published in the Federal Register on October 31 – is 945 pages in the pre-publication form. As such, the full text contains numerous provisions covering topics not addressed here (such as calculation appeals).

New eligibility requirements

The new regulations require that, in order to maintain eligibility, institutions meet certain debt-to-earnings rates for graduates of their programs that participated in the Title IV programs. The debt-to-earnings rates examine both those graduates’ annual earnings rate (calculated as the graduates’ annual loan payment divided by annual earnings) as well as discretionary income rate (calculated as the annual loan payment divided by a figure calculated as graduates’ annual earnings minus 1.5 times the national Poverty Guideline). As a general matter, the Department of Education calculates annual loan payment by determining the median loan debt of students who completed the program three and four years prior to the current financial aid award year. Annual income is generally calculated by determining the higher of the mean and median annual earnings of those same students.

Under the new regulations, a program is considered to be “passing” if its annual earnings rate is less than or equal to 8% (meaning the average student pays less than or exactly 8% of his annual earnings on student loans) or if its discretionary income rate is less than or equal to 20%. A program is “in the zone” if it is not a “passing” program and its annual income rate is more than 8% but not more than 12%, or its discretionary income rate is more than 20% but not more than 30%. A program is “failing” if its annual earnings rate exceeds 12% and its discretionary income rate exceeds 30%.

A program becomes ineligible for three years under the new regulations if it is either:

  1. Failing for two out of any three consecutive award years, or
  2. In the zone (or failing) for four consecutive award years.

These time-tables allow schools time to bring programs in to compliance, since debt-to-income ratios are a lagging indicator of programmatic success. Moreover, in an effort to have institutions reduce tuition and fees (and thus median loan debt) during a transition period, the Department will allow programs that are failing or in the zone to utilize the current-year median loan debt in the debt-to-earnings metric. However, given trends in the employment market and pressures from the 90/10 rule (34 CFR 668.28), it is unclear whether schools will be able to achieve the required ratios within the allotted time.

Reporting and disclosure requirements

The new regulations require the publication of consumer information, including the primary occupation that the program trains students to enter, program length, completion rates, graduate annual earnings and loan repayment rates. The process for calculating loan repayment rates, default rates and similar information is mandated under the regulations. The disclosure templates providing this information must be included on promotional material (including print and broadcast advertisements), web sites and directly to prospective students prior to enrollment. Institutions are also required to report specific student-related information to the Department in order to calculate the various rates and determinations above.

In addition, institutions in danger of losing Title IV eligibility must provide current and prospective students with specific warnings about the program.

Certification

The regulations impose new certification requirements on institutions, which may have a substantial impact on many programs. To be eligible for Title IV funds, an institution’s programs must satisfy, in addition to accreditation requirements, the education prerequisites for professional licensure or certification as required by the state in which the program is offered. Institutions must confirm in their program participation agreements with the Department of Education that they meet these certification requirements. It is unclear how this provision will affect online programs offered in many states – and how to address potentially conflicting requirements imposed by various states on the programs covered by the certification requirement. What is clear is that the new regulations eliminate the ability of schools to disclaim licensure as a condition of admission to any program.