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Policy Analysis

Federal Rulemaking: The Challenges of Gainful Employment

The newly released Gainful Employment regulations affect both public and private colleges and universities, in addition to for-profit vocational training institutions. It's estimated that implementation will cost institutions an average of $51.55 per student per year and will place a substantial burden on campus IT departments.

As the United States Department of Education's Gainful Employment Negotiated Rulemaking Committee K-Street Meeting drew to a close on Friday, December 13, 2013, committee members picked up their luggage and departed for the airport. Some 20 Department staff and 30 press representatives and association observers were leaving as well. There were looks of weariness and disappointment of the 28 negotiators and alternates.

No consensus was reached on any of the issues they were discussing. Without consensus of the committee the U.S. Department of Education is authorized to dictate the forthcoming rule rather than implement consensus-based rules.

But there was common agreement on one issue not on the agenda: The cost of administering the regulations would be expensive for colleges and universities.

The rules were published in the Federal Register Friday, Oct. 31, 2014 with 215 pages of discussion of the comments that had been received, thoughtful explanations of the department's choices and estimates of the costs colleges and universities should expect for reporting.

Gainful Employment, as defined by previous legislation, refers to postsecondary education programs that "prepare students for gainful employment in a recognized occupation." The Department commented Gainful Employment "is a job that pays enough to cover one's major expenses, including student loans" (page 64894).

Barmack Nassirian, American Association of State Universities and Colleges, from his experience at the AACRAO (American Association of Colleges Collegiate Registrars and Admissions Officers) knew the magnitude of the tasks to implement the GE rules. Detailed data from the Federal Register confirmed his fears. Though no totals were published, the individual cost components were included in the text. Aggregated, the department's cost estimate was $205 million per year; $51.55 per student (computed from data on pages 64993-65005).

Nassirian also expressed the fears of many of the negotiators: With minor changes the rules could be applied to all sectors and all programs. The department was clear its goal was to reduce the government's investment in student loans. Students receiving federal financial aid should only be in programs that provide sufficient income in their early work years to meet all federal student loan debt payments without default. Although most current GE programs are defined for a specific occupation (as identified by the Bureau of Labor Statistics), this is not true more broadly. Baccalaureate and graduate degree programs of for-profit schools — University of Phoenix and DeVry are examples — must meet the requirements of current GE rules.

For for-profit institutions Gainful Employment includes all education programs except for those leading to a bachelor's degree in liberal arts offered since 2009 and accredited since 2007. For public and non-profit institutions GE includes only non-degree programs for which an institution awards a certificate or diploma (GE Operations Manual, page 5). The justification for this division is based on the higher student loan default rates of the for-profit programs.

The definition of gainful employment is based on the idea that "gainful employment in a recognized occupation" is not just any job that pays a nominal amount "but a job that pays enough to cover one's major expenses, including student loans" (64895). The department's rules established (1) an accountability framework that defines what it means to prepare students for gainful employment in a recognized occupation and (2) a transparency framework that would increase information made available to prospective students. Or, more simply, from the department's perspective the quality of a GE program can be measured by a completer's ability to pay debts.

For context, the enrollments, institutions and number of GE programs and program enrollments are shown in Table 1. More than 85 percent of GE program enrollments are in the private for-profit sector.

  Table 1 - Characteristics of Sectors
with GE Programs and Enrollment

Private for-profit

Private non-profit



Enrollment 2015-2016

Included right




Institutions with GE Programs





GE Programs





Estimated GE Enrollment 2015-2016





Percent of GE enrollment





Enrollment per Program and Average





Percent compared to average





  Data from NCES "Projections of Education Statistics to 2022" Tables 27 and 28; the private sector is not divided into for-profit and non-profit.

Accountability begins by submitting a certification and getting approval by the department. The certification documents the GE program was included in the institution's accreditation. It also satisfied all "applicable State or Federal program-level accrediting requirements and State licensing and certification requirements for the occupations for which the program purposes to prepare students to enter" (64891). The rules establish the "debt-to earning" (D/E) rates measure that will be used to determine whether a GE program remains eligible for title IV HEA program funds. "The D/E rates measure evaluates the amount of debt students who completed a GE program incurred to attend that program in comparison to the same students' discretionary and earnings after completing the program." The rules describe the computation of each of these values and the criteria that place a program into failing, zone of caution, or continuing to be eligible. Current data suggests 1,400 GE programs (3.8 percent) will be ineligible for federal financial aid.

The college or university is required to make available the costs of tuition and fees, books, supplies and equipment data for the debt/earnings computation. The department "believes" institutions have "control over the costs of books, supplies, and equipment.... To account for instances where the student purchases, rents or otherwise obtains books, supplies and equipment from an entity other than the institution, [the regulations] require the institution to report the total amount of the allowances for those items that were used in the student's title IV Cost of Attendance" (COA) (64938).

Obtaining this data in digital form may require integration among data systems at the institution, such as the bookstore. The resulting data is similar to the data required for the IRS Form 1098-T that institutions are required by the Internal Revenue Service to prepare for students. A student accounts system that includes payment application as implemented for the IRS filings may be needed.

Colleges and universities are "encouraged" to ask students whether they obtained direct-to-consumer private loans (64937). The department expects this data will be obtained as part of "packaging" a student's financial aid.

The interest rate of Federal Direct Unsubsidized Loans will be used to calculate the annual debt payment for the D/E rates measure. This rate is currently 7.21 percent, now significantly higher than private loans, Their rates are Libor+20 percent (now 4.3 percent) and Prime-0.50 percent (now 2.75 percent) without fees (64941; from Bankrate as this is written). The amortization period for a student's median loan debt is based on the credential level of the program. It is fixed at 10 years for diploma, certificate and associate degree programs; 15 years for bachelor and master's degree programs; and 20 years for doctoral and first professional programs (64939).

Information Technology Priorities
Much of the data comes from the department's NSLDS (formerly National Student Loan Data Systems). Most of that data originated from the institutions as part of their financial aid data submissions and from lenders, including the department, and guaranty agencies. Under these regulations the department creates lists with the relevant data, provides those lists to the institution and processes corrections received back within a limited time period. This implies the student information system includes the GE data elements as well as those for financial aid and can produce files and lists that can be compared with the data provided by the department. Because NSLDS can be updated from several sources, especially if the student takes courses at another institution, synchronization of the data can be work intensive. The department's cost estimates assume full automation at the institution.

The department has identified 12 new business processes needed to implement the rules. These are listed in Table 2 with their estimated costs.

  Table 2 - Additional Business
Processes and Estimated Costs


Estimated Cost


Issuing and challenging D/E rates



D/E rates alternate earnings



Challenging D/E rates



Reporting requirements



Disclosure requirements



Calculating, issues rates



Certification reports



Program cohort default rates



Data adjustments



New data adjustments



Erroneous data appeals

data missing


Loan servicing appeals





The costs in Table 2 includes costs for students as well. The 2.1 percent cost for students assumes five minutes are required to read the disclosure information and provide written acknowledgement of receipt and two minutes to enroll.

Table 3 shows the costs to institutions by sector and lists the number of staff hours that are expected. This table uses reported institutional compensation that includes benefits.

  Table 3 - Additional Cost
of Reporting

Students Completing
GE Programs



Private For-profit




Private non-profit












The average cost per student for these additional administrative tasks is $51.55, a substantial amount for revenue-constrained institutions. The department argues that colleges can reduce tuition by reducing administrative costs.

Disclosure to Students
The transparency framework will establish reporting and disclosure requirements. Disclosure increases "transparency of student outcomes of GE programs so that students, prospective students, and their families have accurate and comparable information to help them make informed decisions about where to invest their time and money in pursuit of a postsecondary degree or credential" (64890). The department also comments: "The transparency framework will provide institutions with meaningful information that they can use to improve student outcomes."

The reports include information to facilitate the department's evaluation of the GE programs and provide data for distribution to prospective students and parents. The department will also develop a "disclosure template" so the public will have "comparable information about student outcomes and the overall performance of GE programs." The template will include data from the institution and from the department; the data must be available on the institution's website in a form and frequency described by the department. Students and prospective students will receive a written disclosure that must be signed and returned to the institution, often during a face-to-face meeting with institutional representatives. The department has similar requirements now for financial aid data using a similar disclosure template.

The disclosure may be less effective than expected. In 2012 NERA Economic Consulting and Young Invincibles surveyed high-debt borrowers about the problem. "The results were striking: over two-thirds of respondents expressed some misunderstanding or surprise about their student loans, particularly relating to repayment terms, monthly payments, and interest rates."

One explanation is the volume of information that students receive — more than they can carefully read. Another is the complexity of financial aid programs. Adding disclosures to the current disclosures may not be the most effective method to assure students have accurate information.

Young Invincibles Director Rory O'Sullivan was one of the negotiators. He expressed his concern the required disclosures would not be as effective as the department suggested.

Recent OECD assessments of 15 year-olds financial literacy shows they believe they have financial literacy when the assessments reveal they have little knowledge.

Gainful employment rules are a major challenge for colleges and universities that have GE programs. Likely there will be litigation, as there was earlier, but previous litigation suggests major delays or broad reduction in compliance is now unlikely.

Colleges and universities should now create specific plans for implementations, to begin the organization of data from 2010-2011 forward to respond to the July 15 effective date and begin the modification and extension of data systems as needed. Additional data for review of each of the GE programs may suggest curriculum changes and a review of the enrollment policies that will ensure future compliance with the accountability D/E based measures.

It may be a difficult spring for IT departments.

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