NAICU Washington Update

Complicated and Contentious, Gainful Employment Negotiated Rulemaking Panel Seeks Continuance

November 22, 2013

Consensus eluded the Department of Education’s panel drafting regulations on gainful employment this week necessitating a proposal to schedule another one-day session in December.

The panel was convened to consider new proposals from the Education Department regarding regulations to determine the eligibility of college-based career-training programs to participate in the federal student aid programs. A gainful employment regulation was adopted in 2011 but overturned by a federal judge in a 2012 suit brought by APSCU: Association of Private Sector Colleges and Universities.

The Department has developed a new set of draft regulations reflecting the limitations imposed by the court decision. Neither reporting on non-Title IV students nor use of a student loan repayment rate as a measure of program success were included. Instead, the Department has proposed four metrics to determine Title IV eligibility of gainful employment programs. Student borrower debt to earnings and discretionary income would remain as indicators of acceptable programs, with the addition of program cohort default rates (pCDRs) and program loan portfolio performance. The Department would calculate pCDRs according to the rules and standards established for institutional cohort default rates (CDRs). A loan repayment portfolio for a cohort of students that did not decrease from the beginning to the most recently completed award year would be viewed as in negative amortization and unacceptable.

Schools would receive “grades” in each metric category, such as pass, fail, in the zone (in the case of debt to income measures), or ineligible. The Education Secretary would inform schools of the determination in each metric and any resulting consequences, such as providing student warnings, limiting enrollment, or providing financial payments for borrower relief. Loss of Title IV eligibility for the program would result from failure in any one metric over a time period unique to each metric. Schools may appeal their grades according to procedures specified by the Department.

It is unclear whether consensus can be reached by the panel. Even if it is, and the Department publishes the agreed upon regulations in a NPRM, there are certain to be many public comments, due to the complexity of the issues involved and the contending interests at stake. Consumer advocates on the panel urged increasing stringency and specificity to control fraud and abuse. For-profit institution representatives sought exceptions for unique circumstances, such as reducing the threshold requirements for programs with high percentages of Pell-eligible students, and extending the length of time used in assessing loan repayment performance.

A coalition, led by the nonprofit sector, asked the Department to free schools that are “exceptional performers” from the burden of the gainful employment reporting and disclosure requirements for their programs. The Department has agreed to review the proposal to exempt programs at schools with cohort default rates of 10 percent or less, and to provide feedback along with a rewrite of the draft regulations and data on the impact of some of the proposals prior to the next meeting.

The Department also accepted a proposal from consumer advocates to add Perkins Loan debt to the loan portfolio repayment calculation and a proposal by a for-profit sector representative to temporarily allow failing institutions to be deemed passing if they lower the potential debt burden for current students through cost reductions or grants.

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