The Department of Education issued final rules on a major new initiative to inform prospective students about the financial value of college programs. Under the new rules, institutions of higher education will have to steer all prospective students toward a new federal website that will have data about the earnings of past graduates in their selected majors and whether the debt payments for those students were within a new formula that identifies a manageable debt level.

Colleges and universities will also be responsible for providing the federal government with a significant amount of new data on their programs and students so the Department can calculate and publicize the new accountability metrics on a website dedicated to this purpose.

The new rules are called financial value transparency (FVT) and gainful employment (GE) and will go into effect on July 1, 2024, with the first reporting deadline 30 days later. NAICU has prepared a summary of the regulations and the Department released a fact sheet summarizing the major regulatory provisions.

The new regulations follow the basic pattern of the proposed regulations issued in May, but with several significant amendments:

• Undergraduate programs at public and private, nonprofit institutions are not subject to the acknowledgement requirement (see below and NAICU’s summary for more detail) but are still subject to the reporting requirements for such programs. In describing this change, the Department stated:
  • The Department chose to exclude undergraduate degree programs from this provision in the final rule to better target the acknowledgment requirements to programs to which students tend to directly apply. In addition, our empirical analysis shows that high debt burden programs are relatively rare among undergraduate degree programs outside the proprietary sector.
• The final rule provides a longer on-ramp for reporting requirements. While the first set of data is still required to be submitted to the Department by July 31, 2024, institutions are given more leniency in how far back they must go in collecting data for the first six years the rule is in effect.
• The required acknowledgements for degree students only apply to prospective students and not continuing students.
• The earnings period used for certain graduate programs is extended to 6 years instead of 3 in recognition of requirements for some post-graduate residencies and internships. The initial list of qualifying programs includes medicine, dentistry, clinical psychology, and more. This list will be updated every three years.
• Institutions that do not offer any programs that share a 4-digit CIP (Classification of Instructional Programs) code with 30 or more completers over the most recent four award years will be entirely exempt from these regulations. The Department estimates this to include about 700 institutions.

The General Framework.

In general, the rules establish an accountability framework for all higher education programs. This framework consists of two components: 1) financial value transparency, an accountability framework that applies to degree programs in the nonprofit and public sectors; and 2) gainful employment, an accountability and eligibility framework that applies to all programs at for-profits and certificate programs in the nonprofit and public sectors. Both frameworks rely upon two metrics: 1) a debt-to-earnings rate; and 2) an earnings premium test, though the consequences for failing these metrics differ under each.

• Debt-to-Earnings (D/E). The D/E rate is intended to measure loan affordability. It will compare the median annual payments on loan debt borrowed for the program to the median earnings of its federally aided graduates. To pass, a program’s graduates’ debt payments must be no more than 8% of annual earnings or 20% of discretionary earnings.
• Earnings Premium (EP). The EP test is intended to measure the extent to which a program enhances a graduate’s earning potential beyond a high school graduate. To pass, a program’s graduates must earn more than a typical high school graduate.

Consequences of Failure. The consequences for failing either one of these metrics differ depending on what kind of program is being reviewed.

• For degree programs: For graduate program that fail the D/E metric, prospective students must acknowledge via the program information website that they have seen the required disclosure through the Department’s program information website from the school before enrolling in the program.
• For GE programs: Programs that fail either metric in a single year must provide warnings to current and prospective students that the program is at risk of ineligibility for title IV student aid and students must acknowledge having seen this warning through the Department’s program information website before they may enroll or receive Title IV funds. Programs that fail in any two out of three consecutive years will be ineligible for Federal student aid programs.

Institutional Reporting Requirements. Institutions are required to report a large amount of data for eligible programs. This data includes statutorily required information about the program and students, and anything else the Secretary may require.

It is important to note that it is unlikely that institutions will be able to conduct their own analyses of these new metrics because they both rely on earnings data for graduates that colleges will not have access to. The Department itself is running those calculations and providing the information to schools.

Projected Impact. The Department estimates the impact of these rules to be heavily weighted toward the for-profit sector.

• For degree programs. The Department estimates that 842 public institution programs and 640 nonprofit programs (1.2% and 1.5% of programs, and 4.6% and 6.6% of enrollment, respectively) would fail at least one of these metrics.
• For GE programs. The Department estimates that 1,700 programs that enroll 700,000 students, or roughly 25% of all enrollment in GE programs, will fail at least one of these metrics in a single year. Ninety percent of failing programs will be in the for-profit sector.

The FVT/GE program accountability framework will go into effect on July 1, 2024, with July 31, 2024, as the first reporting deadline for institutions. The first official metrics will be published in early 2025. The first year that programs will be subject to consequences for failing a D/E or EP rate is 2026.