As we countdown to July 1, 2015, two words dominate the operational mindsets of the for –profit higher education sector: Gainful Employment.
Operators and Administrators of most for-profit programs and certificate programs at private non-profit and public institutions are no strangers to the Gainful Employment legislation which was first proposed in 2011, and later revised in 2014. On the surface, the legislation seems to offer a paradigm for institutional accountability, but with its singular scope of legislative focus and questionable metrics, there is no scarcity of opposition.
Along with ensuring that career education programs adhere to all applicable accreditation requirements in addition to state and/or federal licensure standards, the regulations would also levy a metric-driven loan debt formula that would determine federal financial aid eligibility. Both Debt to Earnings standards and Program-Level Cohort Default Rates represent the key benchmarks that institutions will have to prioritize in order to maintain eligibility for Title IV funding. The following is a summary of these two important elements of the new Gainful Employment regulations:
Debt-to-Earnings: Gainful employment programs would “pass” the debt-to-earnings standard if completers who receive federal student aid spend less than 8 percent of their annual earnings on federal student loan payments, or less than 20 percent of their discretionary earnings on payments – defined as income above 150% of the federal poverty level for a single person. Programs would “fail” if their payments were above 12 percent on annual and 30 percent on discretionary. Those in the “zone” would fall between the passing and failing standards. Programs that failed both annual and discretionary debt-to-earnings tests twice in any three-year period, or are in the zone for four consecutive years, would become ineligible for Title IV student aid. Both debt payments and earnings would be evaluated by median levels. Earnings information will be obtained through Social Security Administration data.
Program-Level Cohort Default Rates (pCDR): Much like institutional CDRs, this metric would judge the number of student borrowers who enter repayment and subsequently default within three fiscal years. However, the pCDR metric would evaluate those default rates at the program level. Individual programs with a default rate at or above 30.0 percent for three consecutive years would be ineligible for Title IV aid. Similar corrections, adjustments, and appeals processes for institutional CDRs – such as the Participation Rate Index appeal – would be available. A minimum number of 30 borrowers entering repayment would be needed for the metric to apply to programs.
With no “stay of implementation” on the horizon, the proposed Gainful Employment legislation is on the precipice of becoming reality. Institutions affected by the regulations must be more diligent than ever in assigning appropriate resources to Program viability assessments, as well as Career Placement and Default Management efforts. Regardless of any perceived flaws or unintended consequences that characterize the Gainful Employment regulations, and on July 1st the legislation goes into effect as does the foundation for its future impact.