Over the past few months, the Department of Education鈥檚 attempts to overhaul the controversial gainful employment rule legislation on this blog. This week, the Department moved closer to releasing a final version of the law. Its new set of draft rules is very similar to , in that individual programs would be judged on a set of debt-to-earnings ratios and a program cohort default rate (CDR).听 Specifically:
- For debt-to-earnings ratios, a program would fail if its graduates鈥� loan payments equal more than 12 percent of their incomes or more than 30 percent of their discretionary incomes.听 If a program failed both the annual and the discretionary standards twice in three years, it would lose eligibility for federal financial aid.
- For the program CDR, a program would lose federal aid eligibility if 30 percent or more of its graduates who entered repayment defaulted on their loans within three years.
As with the previous draft, these two tests would operate independently from one another, meaning a program that passes one would not be safeguarded if it failed the other.
Although this is all consistent with the previous draft, there were a few noteworthy changes, including:
- In order for a program to be held annually accountable to the debt-to-earnings measures, it must have at least 30 graduates鈥攔ather than 10, which was in the previous draft. Smaller programs will still have data aggregated over four years, thus accountability isn鈥檛 removed for them, just delayed.
- Instead of assuming a 10 year repayment period for borrowers across the board, the new proposal extends it to 15 years for bachelor鈥檚 and master鈥檚 programs, and to 20 years for doctoral programs.
As a result of these two changes, the new proposal is very similar to the 2011 law; however, the inclusion of the cohort default rate remains an important difference. The 2011 law was struck down by a judge because the default calculation used in the original rules was deemed 鈥渁rbitrary and capricious.鈥� The Department believes the new policy will be more resilient to legal challenges because it holds programs to the same CDR standards to which institutions are held by the Higher Education Act.
provides a very thorough analysis of some of the more subtle changes, and is an excellent resource for additional information.
Secretary of Education Arne Duncan estimates that under these rules, roughly 20 percent of current vocational programs at for-profits and community colleges would fail and 10 percent would be in 鈥渢he zone鈥濃�攎eaning a program would have to warn its students that it could become ineligible for federal aid.
As can be expected, the for-profit sector was to the new rules, claiming they would limit access and opportunity for the neediest students. Community colleges, however, were happy to see the proposal would allow 鈥渋n the zone鈥� programs to appeal if less than half of its graduates take on debt.
Now that the rules have been released, there will be a 60 day public comment period on the draft legislation. The Department hopes to release its final proposal in a few months.