With public confidence in the value of higher education declining and outstanding student debt exceeding $1.5 trillion, policy makers have spent much of the last two decades trying to tackle issues of affordability and accountability. One of the key areas of discussion (and disagreement) has been a once-obscure portion of the Higher Education Act called “gainful employment.” Under that legislation, the Department of Education is allowed to set conditions that vocationally focused programs must meet in order to receive federal financial aid. This covers virtually all programs at for-profit colleges as well as certificate programs at public and private nonprofit institutions.
Some career training programs are scandalously bad, leaving graduates with no way to repay their loans. Strong standards that force programs to either provide a valuable education or close their doors will protect students and taxpayers from grievous financial harm.
The Obama administration tried twice to implement gainful employment rules. The first effort, which began in 2009, was struck down by a federal judge in 2012 for not being sufficiently supported by data. The second effort began soon after, and the first set of data on program-level outcomes came out in the final weeks of the Obama administration in early 2017 after going through the full regulatory process and surviving multiple lawsuits.
My research is on the effects of federal and state higher education accountability policies, and I conducted the first study on the effects of the Obama-era gainful employment effort, tracking whether affected programs and colleges remained open. Even though it was clear by the release of data in 2017 that the Trump administration would not enforce the Obama administration’s rule (which they officially reversed in July 2020), programs that posted a failing score were more likely to close in following years than programs that barely passed.
With a Democrat back in the White House, efforts to put gainful employment rules back into place quickly resumed. After going back through the complex process of negotiated rulemaking, the Biden administration just released its version of gainful employment, which will take effect in July 2024 (barring successful lawsuits). It was crucial for the administration to release the rule last week due to the possibility of a protracted government shutdown; rules generally must be published by November 1 for them to take effect in the following July.
How do the Biden administration’s rules compare to the Obama administration’s attempts? The previous gainful employment rule featured a debt-to-earnings ratio that covered programs must pass in order to continue being eligible to receive federal financial aid. This version has the same threshold: a debt-to-earnings ratio of less than 8 percent of annual earnings or 20 percent of earnings above 150 percent of the poverty line. What is new is the addition of an earnings premium test that requires graduates of programs to have earnings of at least the median high school graduate between the ages of 25 and 34. This varies by state, but is roughly $25,000. This flags programs that may not leave students with large amounts of debt, but do little to improve students’ financial well-being.
The debt-to-earnings ratio is on sound legal footing at this point after having survived previous lawsuits, and it is more important than ever given recent changes that make income-driven repayment plans more generous to borrowers. But I would not be surprised to see the earnings premium metric face multiple legal challenges, particularly from cosmetology programs, where graduates often get a large portion of their earnings in tips that somehow do not get reported as wages. As a taxpayer, I’m not sympathetic to the argument that people are not reporting their full wages and I wrote as much in my 2018 public comments to the Trump administration on the topic.
Another major change from previous gainful employment efforts is that the Biden administration will be publishing outcomes for all programs with sufficient data (including at public and private nonprofit colleges), not just programs that are covered by gainful employment. In theory, this should be an area of bipartisan support as it combines Democratic interests in consumer protection with Republican interests in market-based accountability. Much of the data is already public through recent improvements to the College Scorecard, but putting a label on programs as “good” or “not good” could theoretically drive student and institutional behaviors.
The Biden administration standards should help clean up the vocational education marketplace, if they stay in place and if the Department of Education is willing to pull the plug on poor-performing programs. These are regulations issued by the executive branch, not laws passed by Congress. Beyond potential legal challenges, the rules could again be throttled by a change in the White House, as we saw in the Trump administration.
The final rules should be in place by July 2024, but fresh data from the vocational programs won’t be made public until 2026. Without that data, the federal government can’t shut down failing programs. Therefore, whether students will be protected from choosing the poorest-performing programs may ultimately hinge on the outcome of the next presidential election.
