How Overhauling the Gainful Employment Rule May Affect Student Loan Borrowers

The Trump administration is attempting to roll back an Obama-era rule that regulates career colleges and technical schools. The Department of Education announced in August its plans to rescind the g ainful employment rule.

Under the Obama-era rule, the Department of Education would require educational programs to prepare students for gainful employment in a recognized occupation in order to be eligible to disburse federal financial aid, like the Pell Grant or undergraduate federal direct loans.

The main purpose of the rule was to ensure that for-profit, nonprofit and public institutions that participate in the federal financial aid program are preparing their students adequately to succeed in the labor market. The rule was largely intended to regulate for-profit schools, which were heavily scrutinized by the Obama administration.

[Read: How Debt Collection May Change for Student Loan Borrowers.]

While a change to the rule has been expected, it may affect how prospective students choose a career college or technical school. Here is what prospective students need to know about institutional accountability when it comes to student loans.

The Department of Education will miss its deadline to overhaul the rule. The agency will miss a Nov. 1 deadline in its efforts to repeal the gainful employment rule, according to Bloomberg Government.

Currently, the rule applies to for-profit and nonprofit schools that offer career education programs and that disburse federally funded financial aid. These programs usually take the form of two-year vocational training certificates, as opposed to traditional four-year degrees.

[Read: What the Proposed Borrower Defense Rules Mean for Student Loans.]

The rule was intended to work by measuring the debt-to-earnings ratio of student loan borrowers from schools that participates in the federal financial aid program; the assumption being that if student borrowers are not repaying their loans, they must not be gainfully employed. If a particular school’s student loan borrowers have a high debt-to-earnings ratio after graduation, the school could be penalized or lose the ability to disburse federal financial aid.

Borrowers may have to use government data to make an informed decision. Instead of using the current gainful employment rule to penalize schools and programs with low borrower success rates, the Trump administration plans to prioritize information flow to prospective students.

The Department of Education will be releasing additional program-level information through its College Scorecard — another Obama administration creation — to help prospective students.

Currently, the College Scorecard does not break out graduate outcomes, like salary and debt, at the program level. According to an analysis published by the Brookings Institution, a nonprofit public policy organization, one weakness of the current College Scorecard is that it only pulls salary data from college graduates who received federal student aid. That means the data may be skewed, since those who receive federal aid are usually more economically disadvantaged than their peers.

[Read: When to Use Student Loans for a Career Program.]

The Department of Education also proposes to increase the College Scorecard’s data with other types of information, such as program completion rates, total program cost and whether the program is accredited or meets the specific licensing requirements in the state where the institution is located.

“The Department believes that this will improve transparency by providing comparable information for all programs and helping students understand what earnings they might expect based on those of prior graduates. This would also increase accountability of institutions by making it more difficult for institutions to misrepresent program outcomes,” according to a press release from the Department of Education.

Requiring institutions to disclose this information should give students a more accurate picture of what they may expect to earn and make it more difficult for institutions to misrepresent program outcomes, consumer advocates say.

Career and technical education programs can be very helpful to those who are looking to enter a particular trade. With this probable rule change, the Student Loan Ranger suggests prospective students do their homework on any program they are considering.

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How Overhauling the Gainful Employment Rule May Affect Student Loan Borrowers originally appeared on usnews.com