College programs with a pattern of leading graduates to low-paying jobs or leaving them with debt they can’t afford could lose access to federal financial aid money beginning in 2026 under a rule change announced by the Biden Administration in September 2023.
As the cost of attending college continues to rise and Americans’ confidence in higher education declines, the U.S. Department of Education contends the rule, known as gainful employment, will hold accountable certain postsecondary programs that don’t provide their graduates with an adequate return on their investment.
The most recent rule is a new iteration of one first implemented during the Obama Administration and rescinded by the Trump Administration. It will require for-profit institutions, certain nondegree programs at any institution and most graduate programs to show that graduates can afford their yearly debt payments and are making more money than an adult in their state with a high school diploma and no postsecondary degree.
Schools and programs that fail either test in two consecutive years could lose access to federal financial aid, which may force some programs to close their doors for good.
“As we fight for greater college affordability we must demand greater accountability,” Education Secretary Miguel Cardona said in a statement. “We can’t keep throwing taxpayer funded financial aid dollars at colleges that cost students an arm and a leg and then leave them in a ditch unable to climb the economic ladder.”
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The 775-page rule is mostly unchanged from the initial proposal presented in May, with the exception of some modifications in response to the thousands of comments the Education Department received. The issue has been heavily debated by politicians and higher education groups.
Advocates of the rule say it’s much-needed consumer protection for prospective students from certain programs with predatory practices that tend to overpromise and underdeliver.
“It’s setting a very baseline expectation that you should not be left worse off financially for pursuing extra training or education than if you haven’t gone at all,” says Kyle Southern, associate vice president for higher education quality at The Institute for College Access & Success, a Washington, D.C.-based nonprofit research and advocacy organization.
Critics of the rule say it lacks nuance over economic outcomes, unfairly singles out certain types of programs and penalizes for-profit and nondegree programs because of a few bad actors.
“What the government is trying to do is put as much information in front of consumers as possible,” says Alison Griffin, senior vice president at Whiteboard Advisors and former policy adviser to the House education committee. “Where I think this rule falls short is that it doesn’t actually give consumers information about all programs, regardless of the tax status of the institutions in which they’re a part.”
Some students pass on a traditional four-year degree and instead obtain postsecondary credentials through alternative routes like associate degree programs, trade schools, apprenticeships and certificate programs — some of which could be subject to gainful employment rules. Such students should be mindful of this rule as they explore programs, experts say.
Here’s what to know about the gainful employment rule.
Timeline and Logistics of the Gainful Employment Rule
The rule will take effect on July 1, 2024. It focuses on two main components that measure whether programs adequately prepare students for postsecondary success.
First is a debt-to-earnings test, for which programs must show that their graduates have annual loan payments averaging no more than 8% of their total income, or 20% of their discretionary income. Second is a look at whether at least half of a program’s graduates earn more than working adults in their state who possess only a high school diploma.
The Education Department used 2022 earnings data to calculate how programs would perform under the rule. The department projects that about 1,700 programs that enroll nearly 700,000 students would fail at least one of the two metrics in a single year.
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Nearly 90% of students in those would-be failing gainful employment programs attend for-profit institutions, according to the Education Department.
Among certificate programs, about 80% of the enrollment in would-be failing programs is in the for-profit sector, and about 55% of for-profit institutions would have at least one program that does not meet one of these standards, according to Education Department numbers.
The first set of metrics will be published in early 2025, and programs could become ineligible for financial aid beginning in 2026. Programs that fail the gainful employment metrics tests after just one year will be required to notify current and prospective students, warning them that the program is at risk of losing federal financial aid eligibility. Previous iterations of the rule didn’t require such notices until after the second failure.
Starting in 2026, students who enroll in a program that has failed one or both of the metrics for one or two years will have to sign a disclosure acknowledging that they’re aware of the situation into which they’re entering.
Financial Value Transparency Reporting
The Education Department will also begin gathering the same data for all postsecondary programs with more than 30 students on a new website that will launch between July 2024 and July 2026 as part of its Financial Value Transparency framework. Schools that aren’t subject to gainful employment rules will still have data reported on this website, and graduate programs that fail to meet the measures will be required to send disclosure notices to prospective students.
This website will provide current and prospective students with programmatic information about costs and outcomes that they’ve never had access to before, says Diane Cheng, vice president of research and policy for the Institute for Higher Education Policy.
It’s information that students “deserve to know in order to better understand which programs will give them the best return on their investment in time and money,” she says.
It’s another layer of accountability, says Emmanual Guillory, senior director of government relations at the American Council on Education. Guillory represented ACE as a negotiator for the new iteration of the rule.
One important piece, Guillory notes, is that there is no language in the rule indicating that schools that fail to meet Financial Value Transparency framework measures will be subject to losing financial aid eligibility.
Potential Legal Challenges to the Rule
Like previous iterations of the rule, this new one is likely to face lawsuits, says Peter Lake, a law professor and director of the Center for Excellence in Higher Education Law and Policy at Stetson University in Florida. Such lawsuits could make the rule either wholly or partially moot, he says.
The main arguments will come from for-profit programs that feel singled out and programs whose graduates enter careers where either part or much of their income is through tips or other supplementary measures not always reported on taxes. That would include professions like cosmetology and hospitality, he says.
The American Association of Cosmetology Schools sued the Education Department to block a previous gainful employment rule.
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“I think some of these schools might have a legitimate argument that the department might need to consider that the taxable income that’s reported isn’t necessarily commensurate with what people are actually receiving,” Lake says.
When the Trump administration dismantled the first version of the rule, some higher education advocacy groups suggested that the move was to protect for-profit colleges that had a reputation of taking advantage of students. Others contended that the original rule was inequitable because it didn’t account for nonprofit institutions that also left graduates with high debt and low earnings.
Any legal discussions around the rule need to consider the economic and racial context of graduates, says Ivory Toldson, a professor at Howard University in Washington, D.C., and the national director of education for the NAACP. Toldson served as the executive director of the White House Initiative on Historically Black Colleges and Universities for the Obama administration and was part of the cohort that drafted the initial gainful employment rule in 2009.
“We have to think about wage discrimination, and most of the students that go to these colleges and are affected by this are earning less money,” he says. “It’s not completely the fault of the college that they went to, but because of some systemic barriers in our society.”
With another presidential election coming in 2024, the fate of the rule could ultimately depend on who is elected, experts say.
How Students Can Prepare for the Rule
Schools and programs that fail the gainful employment measures will be required to directly notify students. Prospective students who receive a disclosure should do some digging on the school and investigate whether it’s worth the risk, says Jill Desjean, senior policy analyst for the National Association of Student Financial Aid Administrators.
“There’s just the risk that you can enroll in this program and get out and maybe not find a job, or not really see any income increase,” she says. “You may not be able to achieve your goal through that program.”
Student should also be aware that even if they feel good about a program in spite of the notification, the program could still lose access to federal financial aid money. That means students there would either need to pay out of pocket or get private loans, which can sometimes have higher interest fees and aren’t eligible for federal student loan forgiveness programs.
Experts say students should weigh their options before enrolling in or continuing at an at-risk program, especially when considering the financial implications.
“The research shows that the vast majority of students who are attending a failing program have a more affordable option in their same career path within a relatively close distance,” Southern says.
On the other hand, the first notice may not always be the damning indictment it appears to be on the surface, Guillory says. Some schools and programs that fail the debt-to-earnings test the first year might ultimately be OK.
Students should not be afraid to ask questions and gather specific details before making any decisions, he says, because the language of such notifications is standardized by the Education Department and programs don’t have the freedom to include any context in them.
“They should just make sure they don’t think it means their program is bad and closing down and they have to immediately seek refuge somehow, some way at another institution or something like that, disrupting their postsecondary journey,” he says.
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Gainful Employment Rule: What Students Should Know originally appeared on usnews.com
