New Gainful Employment Rule Aims to Protect Students From Crushing Debt
Credit: Image Credit: Bloomberg / Getty Images- Under the new rule, the Department of Education would set a minimum threshold for students’ debt-to-earnings ratio.
- It also requires at least half of graduates from a program to have higher earnings than a typical high school graduate in their state’s labor force.
- An earlier version of the gainful employment rule was rescinded by the Trump administration in 2019.
- This change won’t go into effect until July 1, 2024.
President Joe Biden finalized a regulation meant to ensure for-profit colleges and career training programs at nonprofit colleges don’t saddle students with unmanageable debt.
The Department of Education (ED) on May 17 released the final version of its gainful employment (GE) rule that will hold programs — mostly at for-profit institutions — accountable for student outcomes and debt burdens. ED finalized the new rule in late September after reviewing more than 7,500 public comments over the summer.
It was the final step in a multi-year process of negotiations to reinstate a beefier version of the policy that former President Donald Trump struck down in 2019.
Biden’s new GE rule is more heavy-handed than the regulation Trump struck down in 2019.
Under the new GE rule, a program passed the GE requirement if its graduates left school with an annual loan payment less than 8% of their annual salary or that payment makes up less than 20% of their discretionary income.
It also created an income threshold where a program could fail the GE rule if its graduates’ median earnings are less than the median earnings of working adults in their state ages 25-34 who hold only a high school diploma or GED certificate.
The income threshold did not exist under the pre-Trump GE rule. This was something pushed by student and borrower advocates during negotiated rulemaking with ED in early 2022. Negotiators representing institutions, meanwhile, voted against the proposed rule in March.
Bradley Adams, who represented for-profit colleges and universities, was the most vocal critic of the rule at the time.
Another difference from the pre-Trump GE rule is the elimination of any warning zone. Previously, a program would be placed under “warning” status if graduates’ loan payments were between 8% and 12% of annual salary or between 20% and 30% of discretionary income. Now those ranges count as failing GE.
Biden’s regulation also adds a transparency requirement.
Programs that fall under GE oversight must also provide information about what students are likely to pay out-of-pocket, how much debt the average student takes on to enroll, and what the average salary of graduates is. This information will be made publicly available through a website run by ED, the department stated.
The new GE rule will affect all programs at for-profit institutions, as well as credential programs at public and private institutions.
It will likely, however, have an outsized impact on for-profit colleges and universities.
An analysis from New America found that only 5% of community colleges have any graduates in programs that would fail GE. Across all nonprofit and public schools, 97% have fewer than 10% of graduates in failing programs, meaning the impact will be minimal at the institutional level even for schools with failing programs.
Meanwhile, just 42% of for-profit institutions have fewer than 10% of graduates in failing programs, according to New America.
The Biden administration predicts that approximately 1,700 existing programs would fail this GE rule.