Gainful Employment Redux

It does not take much effort to think of several iconic phrases to open this article, borrowing from the entertainment arena. How about, “I’m baaaack!”?  Or, maybe, “Second verse, same as the first!”?  (Well, pretty much….)  Yes, it is back.  And, yes, it is pretty much the same as before…in many ways.  Perhaps a better reference analogy would have been horror movies as this set of regulations was published on October 31, 2014.   But, in case electricity and mail have disappeared from your school in the last few months and years, let us review this new regulatory tome so that you do not miss any of the excitement.  Then, you can judge whether the sequel is better than the original.

Gainful Employment Background

The more recent rendition of the gainful employment (GE) moniker surfaced in 2010.  As those who have been involved with the financial aid industry since then or before will recall, the topic made the news.  New regulations presented a major shift in the accountability requirements of institutions.  It has been a requirement of the Higher Education Act of 1965 (HEA) for years that educational programs must lead to a degree or prepare students for GE in a recognized occupation in order to be approved as a Title IV-eligible program.  The GE requirement, historically, has predominantly impacted for-profit postsecondary education.  But, it was in what came to be known as the “Program Integrity” (PI) regulations of October 29, 2010, that GE took center stage.  The regulations were effective as of July 1, 2011.  However, they were met with legal challenges in law suits filed, primarily, by the Association of Private Sector Colleges and Universities (APSCU).  The initial GE component of these regulations required extensive reporting of information to ED, as well as a disclosure of information to the public regarding GE programs’ success.  Specifically, schools were to report the loan repayment rate of students who had been in the program, a debt-to-income ratio of the students who completed the program, and a debt-to-discretionary income ratio for those former students.  The reporting requirement was negated as a result of the legal action.

In 2013 and 2014, the US Department of Education (ED) convened a new negotiated rulemaking committee (commonly called the “Neg Reg” committee) to address the GE topic.  The result of this committee’s work resulted in ED producing a Notice of Proposed Rulemaking (NPRM) on March 25, 2014.  The public was allowed to provide official comments through May 27, 2014. The final regulations were published in the October 31, 2014 Federal Register.  (Subsequent technical and typographical corrections were made in the December 4, 2014 Federal Register.)

Gainful Employment – Take Two

There was a brief sigh of relief when the first edition of the GE regulations from 2010 had much of their punch vacated by the Court.  Schools were learning to adapt to the GE “disclosure” requirements and becoming accustomed to ensuring they completed ED’s template for GE information disclosures each January.  But, this brief respite has turned out to be short-lived.  We now have GE, take two (GE-Take 2)!  ED is hoping that they have more adequately composed this edition of the regulations so that it passes legal muster.  With the publishing of the new GE regulations, schools have additional areas with which to become familiar.

The GE-Take 2 does have several key points of similarity, and yet some that are different from the first take on GE regulations.  In a similar vein as the first round, ED does expect both reporting and disclosure of information.  And, in some ways, the reporting requirements are focused in the same direction, although the specifics have changed.  In this re-do, ED promulgated the desire for two specific accomplishments with the implementation of these rules:  greater accountability and greater transparency.  And, to cap off the perfomance, the regulations require certification of the reporting by the institution’s highest executive.  This will typically be the chief executive officer (CEO) or president.

As with the original edition of GE regulations, this new version does look at debt-to-earnings metrics.  These fall into three possible levels:  passing, in the “zone,” or failing.  And, there are consequences if a particular program fails the prescribed metric of an average loan payment amount of no more than 8% of the average annual income of program completers, or an average loan payment amount of no more than 20% of the average discretionary income of program completers.  The overall metrics may be portrayed as shown in the following chart.

Gainful Employment – Timeframes

Reporting:  The effective date of the October 31, 2014, GE regulations is July 1, 2015.  However, there are some key points related to implementation of these new directives.  First, the initial reporting under these regulations is to be accomplished by July 31, 2015.  The data that will be reported will be for the second through seventh award years prior to that reporting date.  (Note that if the program for which data is being reported is a medical or dental program that requires a residency or internship, the data will be reported for the second through eighth award years prior to the initial reporting date.)  Therefore, the data that will be first reported for most programs is for the award years of 2008-2009 (the seventh award year prior to the required reporting date) through 2013-2014 (the second award year prior to the required initial reporting date of July 31, 2015). In subsequent award years, schools must report its GE data by October 1 following the end of the award year, unless ED gives notice of a different date in the Federal Register.

Transition Period:  During implementation of the new GE regulations, a transitional period is provided in recognition of the fact that it may take some time for schools to make adjustments in programs that may otherwise be in jeopardy of failing the D/E ratios.  During the transition period, ED will calculate a transitional draft D/E rate.  The transition period is the first five years for a program of one year in length or less, the first six years for programs between one and two years in length, and the first seven years of reporting for a program that is two years in length or longer.  If a program is failing or in the zone based on its draft D/E rates during the transition period, ED will calculate a transitional draft D/E rate for that award year.  The rate that will be used and considered the final rate will be the lower of the standard draft D/E rate or the transitional draft rate.

Appeals:  Schools will have 14 days after the D/E rates have been released to let ED know that the school intends to appeal, if it does plan to do so.

Period of Ineligibility:  If a program becomes ineligible, the school may not try to have it reinstated as an eligible program for 3 calendar years from the date of notice of ineligibility.  Likewise, the school may not initiate eligibility for a substantially similar program during that 3-year period.  A substantially similar program is one that would share the same first four digits of the Classification of Instructional Program (CIP) code.  (See FAME’s June 30, 2014 Regulatory Bulletin, “Working with Code:  CIP Codes” for more information on CIP codes.)

Disclosures:  It is stipulated in the GE regulation that the disclosure requirements of this new set of rules is effective as of July 1, 2017.  This is to allow ED time to do consumer testing on the information that will be requested and disclosed.  Until the July 1, 2017, timeframe for the new disclosures, schools are required to continue disclosing information as has been stipulated in the prior regulation.  ED’s template is still to be utilized for disclosing the required information.  Schools are to have updated their disclosure information by January 31, 2015, utilizing ED’s current template and institutional data from the 2013-2014 award year.

Gaining from Gainful Employment

There is no question that the GE Redux creates some challenges.  And, it is yet to be seen whether it turns out to be the “trick or treat” (in recognition of the date the volume of regulations was released), or perhaps, a comedy or a tragedy.  But, one can hope that indeed the information reported to ED and disclosed to students will assist in ensuring students are more aware of the potential for their success upon graduation.  After all, schools offering programs that do not lead to a degree are in the business to educate and train students to succeed in the field of their academic endeavor, thereby becoming gainfully employed.

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This article is presented for informational and educational purposes only and should not be considered to be giving legal advice.