Beginning in July 2024, the Department of Education will hold colleges and universities on a tighter leash regarding their graduates’ employment outcomes. For-profit colleges, along with all institutions that offer non-degree certificate programs, will need to demonstrate that their graduates can afford their debt payments and earn more than adults who did not receive a postsecondary education.
“Higher education is supposed to be an invaluable investment in your future. There is nothing valuable about being ripped off or sold on a worthless degree,” Education Secretary Miguel Cardona said at a press briefing.
Colleges and universities that cannot prove their graduates’ debt load is less than or equal to 20% of their discretionary earnings and that at least half of them in the state’s labor force make more than the typical high school graduate will face a slew of stagnated penalties. The first year an institution fails either metric, it will need to warn students that the program is at risk of losing access to federal student aid programs. If it fails twice in three years, it will no longer be eligible for federal aid dollars.
The Department estimates its revelatory rule on gainful employment will protect approximately 700,000 students, and about 1,700 programs will fail at least one of these metrics.
“Today’s action… is the strongest action ever taken by an administration to hold low-quality programs accountable,” says Carolyn Fast, the director of higher education at The Century Foundation, according to NPR News.
The final regulations will be published on October 10, 2023. An unofficial transcript of the rules can be found here.
Why the Department’s gainful employment rule clamps down on for-profit colleges
For-profit institutions are particularly targeted due to the Department’s estimate of how many of these programs that fail graduates derive from this sector. Its fact sheet stated that nearly 90% of students in failing gainful employment programs attend for-profit institutions. And while the rule covers certificate programs across all sectors, about 80% of the enrollment in failing programs is in the for-profit sector.
This is the Department’s most significant development in enforcing gainful employment since the Obama era and its latest clampdown on for-profit institutions, whom they believe are the most liable for the nation’s student debt problem.
However, not everyone is in love with the new rule. The Career Education Colleges and Universities (CECU) believe the Department’s agenda against for-profit institutions is clouding their perspective on the rest of the sector, according to a statement.
“The Department continues to put its thumb on the scale to circumvent established procedures and advance a partisan rule that fails to protect the vast majority of students, the statement read. “CECU has continually advocated for a rule that ensures the protection of all students and maintains equal accountability for public, private nonprofit, and for-profit institutions—an objective this rule does not achieve.”
Financial value transparency
The second key part of the Department’s ruling is the financial value transparency framework, which aims to provide “the most detailed information ever available” about postsecondary program costs, program financial outcomes and how much families can expect to pay out-of-pocket. The FVT framework also includes provisions to ensure prospective students are aware, before they enroll, of the risks associated with selecting a certificate or graduate program that is likely to leave them with insurmountable debt.
The framework is focused explicitly on certificate and graduate programs since students tend to enroll in these programs with a more specific intention. In contrast, students seeking undergraduate degrees are more malleable when navigating into a specific program.
“We are fixing a broken system and making sure that students know before they take out loans when college programs have a history of leaving graduates with high debt, low earnings, and poor career prospects.”