Many for-profits would fail under gainful-employment rule change

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Under the Biden administration’s proposed gainful-employment rule, 40 percent of programs at for-profit colleges would fail, potentially risking their ability to qualify for federal student aid, according to a new study released Wednesday by the Institute for College Access and Success.

Under the proposed change, the study found, nearly double the number of for-profit colleges would not meet gainful-employment standards compared to the original 2014 rule.

“The basic economics of a college education, even if a student does not complete it, is supposed to be associated with higher earnings than if that student had not attended college at all,” said Marshall Anthony, research director at TICAS. “Failing GE programs, especially the disproportionately substantial share of failing GE programs at for-profits, are in fact not ensuring students an adequate return on their education.”

Proposed Changes to Gainful Employment

Gainful employment is a metric used by the Education Department to measure whether the student debt college graduates leave college with is proportional to their relative earnings. This metric is used to ensure college graduates are not taking on unaffordable levels of student debt and also to determine which programs are leading to well-paying jobs.

For a program to pass the gainful-employment rule, it had to prove that graduates’ student loan payments are less than 8 percent of their total income. If a program’s average graduate debt-to-income ratio was over 12 percent, the program would fail gainful employment, and if the program continued to fail for two years, it was at risk of losing eligibility for federal aid.

The first gainful-employment rule was revoked under the Trump administration in 2019, removing this check on the outcomes of educational programs. Supporters of gainful employment argued that without the metric, colleges—particularly for-profit colleges—could not be evaluated to ensure graduates were being placed in jobs with incomes needed to cover their student debt.

“I think there’s a lot of concern, obviously, that there are some programs that consistently lead to bad outcomes for their students and there shouldn’t be any programs that lead to bad outcomes for their students,” said Jon Fansmith, assistant vice president of government relations at the American Council on Education. “So in terms of gainful employment as a tool to keep that from happening, I think colleges and universities are supportive of that.”

In January, the Education Department proposed reinstating the gainful-employment metric. As part of this proposal, the department recommended comparing graduates’ earnings to those of high school graduates in their states. Under this system, the income of a graduate with a general education degree would be compared to that of a 25-year-old with a high school diploma, as opposed to the formerly used debt to income ratio. (The research is done on graduates as a whole, not individually.)

The Education Department has been negotiating with stakeholders to reach a consensus on the final language of the new gainful-employment rule through the process of negotiated rule making, which is expected to conclude by the end of the summer. The department is not expected to find agreement with leaders in higher education on this issue.

Some have argued that the proposed change does not provide equal accountability across all sectors of higher education.

“It is not an apples-to-apples comparison and the [Education] Department knows that,” said Jason Altmire, president of Career Education Colleges and Universities, which represents for-profit colleges. “We absolutely support accountability that applies across the board, to all schools and all sectors, but we are opposed to gainful employment as it is currently designed.”

Other Key Findings

  • Under the proposed new rule, half of undergraduate certificate or diploma-level general education programs would fail compared to the former metrics.
  • At for-profits, nearly 70 percent of general education undergraduate certificate or diploma-level programs would fail.

One concern with the outcomes of the study is its impacts on Black and Latino students, who attend for-profit institutions in larger numbers and have higher debt burdens.

“The extremely concerning pass-fail rates of the 2014 GE rule, particularly at for-profits, highlight one aspect of systematic inequalities,” said Anthony. “Students of color are disproportionately burdened by debt incurred to attend programs that do not pass the GE rule.”

During the pandemic, enrollment in general education programs at for-profit institutions in the 2019–20 academic year was made up of 90 percent Black and Latino students. General education programs have typically been offered by institutions that disproportionately enroll larger numbers of lower-income students, such as for-profit and community colleges.

Supporters of general education argue that reimplementation of this rule will help to resurface these data on accountability to the Education Department so that there can be a greater focus on equity with program outcomes.

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