In one of the Obama administration’s final education policy actions, the U.S. Department of Education released a long-awaited dataset of earnings and debt burdens under the gainful employment accountability regulations. These regulations, which survived several legal challenges from the for-profit college sector, require programs that are defined to be vocationally-oriented in nature (the majority of programs at for-profit colleges and a small subset of nondegree programs at public and private nonprofit colleges) to meet one of two debt-to-earnings metrics in order to continue receiving federal financial aid.
Option 1 (annual earnings): The average student loan payment of graduates in a program must be less than 8% of either mean or median earnings in order to pass. Payments between 8% and 12% of income puts programs “in the zone,” while payments above 12% of income result in a failure.
Option 2 (discretionary income): The average student loan payment of graduates in a program must be less than 20% of discretionary income (earnings above 150% of the federal poverty line) in order to pass. Payments between 20% and 30% of discretionary income puts programs “in the zone,” while payments above 30% of discretionary income result in a failure.
Any colleges that fail both metrics twice in a three-year period (using both mean and median earnings) or colleges in the oversight zone for four consecutive years are currently at risk of losing access to federal financial aid. However, both the Trump administration and Congressional Republicans have expressed interest in scrapping this accountability metric, meaning that colleges may not actually face sanctions in the future.
This data release covered 8,637 programs at 2,616 colleges, with about two-thirds of these programs being at for-profit institutions. Overall, 803 programs (9.3%) failed and 1,239 programs (14.4%) were in the oversight zone, with the remaining 76% of programs passing. As shown below, there were large differences in the pass rates by type of institution. No public colleges failed (likely due to lower tuition levels because of state and local subsidies), and failure rates in the private nonprofit sector were also fairly low. Yet Harvard, Johns Hopkins, and the University of Southern California all had one program fail—leaving these prestigious institutions with some egg on their face.
| Distribution of gainful employment scores by sector and level. | ||||
| Percentage of colleges | ||||
| Sector | Fail | Pass | Zone | N |
| Public, <2 year | 0.0 | 0.7 | 99.3 | 293 |
| Public, 2-3 year | 0.0 | 0.3 | 99.7 | 1,898 |
| Public, 4+ year | 0.0 | 0.3 | 99.7 | 302 |
| Private nonprofit, <2 year | 0.0 | 10.3 | 89.7 | 78 |
| Private nonprofit, 2-3 year | 3.5 | 22.0 | 74.6 | 173 |
| Private nonprofit, 4+ year | 4.7 | 9.0 | 86.3 | 212 |
| For-profit, <2 year | 4.4 | 19.7 | 76.0 | 1,460 |
| For-profit, 2-3 year | 11.5 | 20.1 | 68.4 | 2,042 |
| For-profit, 4+ year | 22.5 | 21.4 | 56.1 | 2,174 |
| Total | 9.3 | 14.4 | 76.4 | 8,637 |
| Source: U.S. Department of Education. | ||||
| Notes: | ||||
| (1) Percentages may not add up to 100 due to rounding. | ||||
| (2) The “total” row excludes five foreign colleges. |
For-profit colleges that only offer shorter programs (primarily certificates) did pretty well in the gainful employment metrics, with only 4% failing and 20% in the oversight zone. The worst outcomes were by far among four-year for-profit colleges, with 23% failing and 21% in the oversight zone. These poorer outcomes are not being driven by the large for-profit chains. DeVry, Kaplan, Strayer, and Phoenix combined to have just 16 programs fail, while four colleges (Vaterott, Sanford-Brown, the Art Institute of Phoenix, and Virginia College) all had at least 19 programs fail.
I then examined how the different sectors of colleges performed on the debt-to-earnings ratios for both annual income and discretionary income, with the distributions of ratios shown on the charts below. (Red vertical lines represent the cutoffs for being in the oversight zone (left) and failing (right).) These graphs confirm that public colleges have the lowest debt-to-earnings ratios, followed by private nonprofit colleges and for-profit colleges.
There are three important drawbacks of this data release that are worth emphasizing. First, 133 programs, all at for-profit colleges, are still in the process of appealing their classification (67 that failed and 66 that are in the oversight zone). Second, this only includes a small subset of programs at public and private nonprofit colleges even as similar programs are covered at for-profit colleges. For example, for-profit law schools are included in the gainful employment regulations (and the outcomes aren’t always great). But law programs at nonprofit law schools aren’t covered by the regulations, even though the goal at the end of the program is similar and many colleges expect their law schools to generate excess revenue for their university. Third, by only covering people who completed a program, colleges with low completion rates may look good even if the quality of education induces students to leave the program in disgust.
Regardless of whether federal financial aid dollars are tied to graduates’ debt-to-earnings ratios, it is important to make more program-level outcome data available to students, their families, and the general public. There have been discussions about including program-level data in the College Scorecard, but that is far from a certainty at this point. At the very least, the incoming Trump administration should propose making comparable earnings and debt available for vocationally-focused degree programs at public and private nonprofit colleges.
[Cross-posted at Kelchen on Education]
