DC Shuttle: Gainful Employment Rules, Reducing Loan Defaults and Other Higher Ed News from Washington

On Thursday, the Education Department released the final “gainful employment” rules for vocational schools. In order to qualify for federal financial aid, for-profit and certificate programs will be required to prepare students for gainful employment by meeting one of three requirements: the average annual student loan payment is not more than 30% of a graduate’s discretionary income; the average annual student loan payment is not more than 12% of a graduate’s total income; or at least 35% of graduates are repaying their student loans. Schools will also be required to publish information on students’ loan repayment rates, debt-to-income ratios, total program costs, and other data to help prospective students make informed choices. An Education Department statement notes that while the rules will apply to all occupational training programs, those at for-profit colleges “are most likely to leave their students with unaffordable debts and poor employment prospects.”
The requirements were scaled back slightly after the first proposal last July was met with heavy criticism from for-profit advocates. In addition, instead of losing federal aid upon the first violation, programs would have to fail three times in four years before their funding would be cut. Tighter regulations would be phased in over four years to allow institutions to adapt. A provision to block the initial regulations was successful in the House, but Senate Health, Education, Labor and Pensions Committee Chair Tom Harkin (D-IA) is a fierce advocate of the new rules and has promised to kill any measure which would block them. Sen. Harkin plans to hold the fifth in a series of hearings on for-profit colleges on June 7, with Education Secretary Arne Duncan as the primary witness.

The Education Department estimated that about 8% of all vocational programs will fail the new measures at some point, with 2% ultimately losing their federal support. For programs at for-profit institutions, those estimates rise to 18% failing at one time and 5% losing federal student aid. Secretary Duncan said that the requirements were very reasonable considering the high percentage of federal student aid making up for-profit colleges’ income. “We’re asking companies that get up to 90% of their profits and their revenue from taxpayer dollars to be at least 35% effective,” he said. Opponents of the new rules say that it will disproportionately affect underserved and low-income students and restrict their access to higher education and skill-building programs. The rules are scheduled to go into effect in July 2012.

On Tuesday, the Education Department announced that it is inviting state and nonprofit guarantors to propose cost-effective methods to help reduce student loan default and delinquencies. Guarantee agencies would enter into “voluntary flexible agreements” with the Education Department, which serves as the official originator of federal student loans since a restructuring of the Federal Family Education Loan (FFEL) program last year. That restructuring largely cut guarantors out of the federal student loan process in an effort to streamline the system and cut costs, but now they are being offered a new opportunity to participate. The Education Department hopes that the voluntary agreements with guarantors will “improve services to students, schools and lenders; use federal resources more cost-effectively and efficiently; and enhance the integrity and stability of the FFEL Program.”

From the New England Council’s Weekly Washington Report Higher Education Update, June 6, 2011. NEBHE is a member of the Council and will publish this column each week.

Founded in 1925, the New England Council is a nonpartisan alliance of businesses, academic and health institutions, and public and private organizations throughout New England formed to promote economic growth and a high quality of life in the New England region. The Council’s mission is to identify and support federal public policies and articulate the voice of its membership regionally and nationally on important issues facing New England. For more information, please visit www.newenglandcouncil.com.


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