On May 19, 2023, the Department of Education (ED) published in the Federal Register proposed regulations concerning gainful employment (GE), threatening to cut off federal financial aid for approximately 1,800 career training programs at community colleges, public universities, private-nonprofit institutions and proprietary institutions. See 88 Fed. Reg. 32300 (May 19, 2023).
ED provides an Excel spreadsheet of career programs at various public, private and proprietary institutions across the United States to demonstrate which programs would lose eligibility for federal financial aid under the proposed metrics. ED estimates that 58% of proprietary institutions have at least one program that could lose such eligibility. ED’s proposed GE rule remains open for public comment until June 20, 2023.
The notice of proposed rulemaking also addresses financial responsibility, certification procedures to receive federal financial aid through a program participation agreement, standards of administrative capability, and ability to benefit. This alert focuses on the proposed GE rule.
1. What programs will be affected by the proposed GE rule?
The proposed GE rule applies to educational programs that prepare students for gainful employment in a recognized occupation. The proposed GE rule will apply to programs at proprietary institutions and all nondegree programs across the sector, including at public institutions and private, nonprofit institutions.
ED will identify these programs through an institution’s Office of Postsecondary Education ID (OPEID) number, the program’s six-digit CIP code as assigned by the institution or as determined by ED, and the program’s credential level.
2. What are the gainful employment metrics?
Career training programs will be assessed under two independent metrics to determine if students and graduates are prepared for gainful employment. ED will penalize programs that fail one or both metrics.
The first metric is a debt‑to‑earnings ratio, which is intended to avoid high‑debt burden for graduates. The debt‑to‑earnings ratio compares the median earnings of graduates who received federal financial aid to those graduates’ median annual payments on their loan debt borrowed for the career training program.
A program fails to meet the debt-to-earnings ratio if it cannot show that a graduate’s debt payments are less than 8% of annual earnings or 20% of discretionary earnings. Discretionary earnings are defined as annual earnings less 150% of the applicable federal poverty guideline threshold. To illustrate, for a single individual in 2023, discretionary earnings are roughly $21,870.
The second metric is the earnings premium test, which is intended to avoid low-earnings issues that may hinder graduates from meeting their loan payment obligations. The earnings premium test measures whether typical graduates of a career training program earn at least as much as typical high school graduates in their state. ED quantifies this metric by focusing the inquiry on a high school graduate who is between the ages of 25 and 34, and who is part of the state’s labor force. ED proposes to obtain from an unspecified federal agency (likely the IRS) the most currently available median annual earnings of the students who completed the program during the applicable cohort period and who are not excluded for various reasons. ED proposes to use the median annual earnings of students with a high school diploma or GED using data from the Census Bureau to calculate the earnings threshold.
A program fails the earnings premium test if program graduates earn less than typical high school graduates in their state. In some states, a typical high school graduate earns roughly $25,000.
3. What consequences can a school face if a program fails the gainful employment metrics?
The first year that a program fails to meet one of the metrics, ED will require the school to issue warnings to enrolled students, informing them that the program is at risk of losing eligibility for federal financial aid. Schools must provide the following additional warnings to students:
- A description of academic and financial options available in the school’s other programs, in the event that the program loses eligibility to participate in federal financial aid programs.
- An indication whether the school will continue to offer the program if it loses eligibility to participate in federal financial aid programs.
- An indication whether the school will refund tuition, fees and other enrollment charges if the program loses eligibility to participate in federal financial aid programs.
- An explanation, in the event that the program loses eligibility to participate in federal financial aid programs, whether students can transfer their earned credits to another institution.
If the program continues to fail the same metric in two out of three consecutive award years, the program will no longer be eligible to participate in federal financial aid programs. Specifically, the program becomes ineligible and its participation in federal financial aid programs ends upon the earliest of the following:
- The issuance of a new Eligibility and Certification Approval Report that does not include that program.
- The completion of a termination action of program eligibility, if an action is initiated under subpart G of 34 C.F.R. Part 668.
- A revocation of program eligibility, if the institution is provisionally certified.
4. How long does the period of ineligibility for a program last?
The period of ineligibility for a program is three years following the earlier of the date when the program loses eligibility or the date when the institution voluntarily discontinued a failing program.
5. What is the disclosure website discussed under the proposed GE rule?
In the hope of eventually creating a “watch list” of programs that ED determines provide low financial value to students, ED incorporates into the proposed GE rule its intention to create a disclosure website. ED states that the disclosure website is a step toward promoting “financial value transparency.”
ED’s disclosure website will provide students and their families personalized estimates of out‑of‑pocket expenses and information on the debt and earnings outcomes of program graduates. For example, the website will feature information on program costs, nonfederal grant aid, private and/or federal loan burden, earnings of individuals who complete programs, any applicable occupational and licensing requirements, and licensure success exam passage rates.
6. How will the disclosure website provisions affect schools and students?
Schools with a program that ED determines is a “high-debt-burden” program must provide current and prospective students with information sufficient for them to access ED’s disclosure website. Before prospective students can enroll (or before current students can re-enroll) in a program tagged by ED as a high‑debt‑burden program, they must acknowledge that they accessed and viewed ED’s disclosure website.
Absent the prospective or continuing students’ acknowledgment that they viewed a warning on ED’s disclosure website that the school’s program may become ineligible for federal financial aid for the next award year, the school cannot enter into federal financial aid agreements with students. Before the school can enroll, register or enter into a financial commitment with a prospective student, the school must observe a “cooling‑off period” of at least three days from the time that the student received the warnings and the information about the disclosure website.
7. When will the proposed regulations take effect?
ED’s proposed regulations remain open for public comment until June 20, 2023. Comments must be submitted via the Federal eRulemaking Portal at regulations.gov.
ED has announced an intention to release final regulations by Nov. 1, 2023. If the final regulations are published in the Federal Register by Nov. 1, 2023, they will take effect on July 1, 2024, under the master calendar rule in Title IV of the Higher Education Act of 1965, as amended.
8. What should schools do now?
Schools should consider submitting public comments, using ED’s modeling document and data codebook to determine whether any of their career programs may be implicated, and reviewing their policies affecting federal student aid participation and disbursement, particularly as related to career training programs.
McGuireWoods’ education industry team continues to track developments in this evolving area. Please contact any of the authors of this article if you have any questions about your policies.