NAICU Washington Update

"Gainful Employment," Part 2

August 06, 2010

As part of its effort to tighten fraud and abuse rules, the Department of Education published the second part of proposed "gainful employment" regulations on July 26.  "Gainful employment" is one of the most closely watched of the issues in the proposed fraud and abuse rules.  Stock prices of publicly-traded proprietary schools have been fluctuating for several weeks in concert with varying analyses of the impact of proposed rules changes.

The regulations are intended to ensure that students don't take on large amounts of debt for training programs that lead to jobs with earnings too low for them to repay their loans.  The proposed regulations apply only to non-degree programs of at least one year in length that train individuals for "gainful employment in a recognized occupation."  The vast majority of such programs are offered by for-profits and community colleges.  Still, the department has estimated that 238 private, non-profit institutions also have such programs.

The Department is accepting public comments on the proposal until September 9.

The first portion of the regulations, published June 18, included institutional reporting and disclosure requirements regarding cost, occupations, completion and job placement rates, and debt levels.  This information provides the basis for the calculations required for gainful employment programs under the July 26 proposal.

The more recent publication provides a complex matrix for determining continued federal student aid eligibility. Briefly, eligibility will be based on the loan repayment rate of a program's former students (including both program completers and non-completers), and the ratio of debt to income or earnings of its program completers. (See accompanying box for greater detail.)

In addition, the July 26 proposal requires new programs to be approved by the Department, based on enrollment projections and a demonstration that the training is aligned with job opportunities.

Until more complete program-level data becomes available, it's not possible to determine the impact of the proposal on the private, non-profit sector.  However, it is worth noting that the private, non-profit sector has the highest institutional loan repayment rates of any higher education sector.

The requirements on reporting and disclosure, as well as those on approval of new programs, would take effect on July 1, 2011.  The eligibility requirements would go into effect on July 1, 2012.

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