BIDEN-HARRIS ADMINISTRATION ANNOUNCES LANDMARK REGULATIONS ON ACCOUTABILITY
The Biden-Harris Administration is announcing final regulations on financial value accountability and transparency that will provide students with the most effective set of protections against programs that leave them with unaffordable debt or no improvement to their earnings. The rules include a revitalized and strengthened Gainful Employment (GE) rule, that will protect approximately 700,000 students a year from career training programs that leave graduates with unaffordable loan payments or earnings no better than what someone with a high school diploma (who never pursued a college credential) earns in their State. In addition, the rules contain a new Financial Value Transparency (FVT) framework will give all students the most detailed information ever available about the cost of postsecondary programs, and the financial outcomes they can expect. It will also help prospective students understand the potential risks involved in their program choices by requiring them to acknowledge viewing this information before enrolling in certificate or graduate programs whose graduates have been determined to face unaffordable debt levels.
GAINFUL EMPLOYMENT
The GE program accountability framework will improve the options available to students planning to enroll in certificate programs at all institutions as well as degree programs at private for-profit colleges. Collectively, there are 32,000 such programs that enroll about 2.9 million students who receive title IV, HEA aid (e.g., Direct Loans or Pell grants) each year. The GE programs represent about 20% of the more than 155,000 title IV eligible programs, and about 15% of approximately 19.3 million title IV, HEA supported students each year. They account for 45% of all title IV enrollment in programs with unaffordable debt or low earnings.
GAINFUL EMPLOYMENT – GE ACCOUNTABILITY METRIC
Under the GE program accountability framework, the Department assesses whether career programs meet the statutory requirement of preparing students for gainful employment in a recognized occupation using two separate and independent metrics:
A debt-to-earnings rate that compares the median annual payments on loan debt borrowed for the program to the median earnings of its Federally aided graduates. For a program to pass, its graduates’ debt payments must be no more than 8% of annual earnings or 20% of discretionary earnings, which is defined as annual earnings minus 150% of the Federal poverty guideline for a single individual (about $21,870 in 2023).
A new earnings premium test that measures whether the typical graduate from a program who received Federal aid is earning at least as much as a typical high school graduate in the labor force (i.e., either working or unemployed) in their State between the ages of 25 and 34. This is equal to roughly $25,000 nationally but varies across States.
DEBT-TO-EARNINGS RATES
The debt-to-earnings rates (D/E) measure loan affordability: the share of borrowers’ annual earnings that need to be devoted to making student loan payments. Past research has shown that when D/E rates exceed the thresholds described above, debt is unaffordable. The Department estimates that borrowers in programs with unaffordable debt are 25% more likely to default on their student loans compared to borrowers in programs with passing D/E rates.
The D/E rates also help identify programs where taxpayers are likely to bear the costs of Federal loans. Since borrowers can repay their loans as a fraction of their discretionary earnings for a fixed number of years under income driven repayment plans (IDR), when debt is high relative to earnings borrowers will be less likely to repay their full balances: borrowers in programs with failing D/E are predicted to repay less than half the share of their loans that borrowers in programs that pass D/E will repay under the new Saving on a Valuable Education (SAVE) IDR plan.
The D/E rates establish reasonable levels of earnings that a borrower must have to sustain a given debt level. The amount of debt at a given earnings level varies by credential level because of differences in the interest rates charged to undergraduate versus graduate borrowers and different periods used to calculate how long a borrower would take to pay down their loans.
EARNINGS PREMIMUM TEST
The earnings premium (EP) captures the extent to which postsecondary programs enhance a student’s earnings potential relative to not pursuing a college credential at all. The vast majority of students cite improved earnings or job prospects as among the most important reasons they choose whether and where to attend college, and the earnings premium measures whether programs are meeting that basic expectation. In the GE framework, it provides added protection to students, including those who take on small amounts of loans but who have earnings so low that even low levels of debt payments are unaffordable. Among individuals with at least some college experience, rates of material hardship (e.g., experiencing food insecurity or being behind on bills) are more than double for individuals with annual income below that of the median high school graduate in their State compared to those with income above that threshold. Given that these necessities are unaffordable at such low earnings levels, it is not surprising that even small amounts of debt are also unaffordable. The default rates among students in programs that pass the debt-to-earnings ratio thresholds but fail the earnings premium are very high: across all GE programs, default rates are higher among programs that only fail the earnings premium test than programs that only fail the debt-to-earnings ratio.
GAINFUL EMPLOYMENT – IMPACT
Programs that fail either metric in a single year will be required to provide warnings to current and prospective students that the programs could be at risk of ineligibility for the title IV, HEA Federal student aid programs in subsequent years. Programs that fail the same metric in two of three consecutive years will not be eligible to participate in Federal student aid programs.
The Department projects that about 1,700 programs that enroll nearly 700,000 students per year will fail at least one of the two metrics in a single year—about one-quarter of all enrollment in GE programs. These programs have a disproportionate share of their total enrollment in failing programs, accounting for nearly half of all enrollment in high-debt-burden or low-earning programs.
Nearly 90% of students in failing GE programs attend for-profit institutions. Among certificate programs, where all programs offered by all institutions are covered by the rule, about 80% of the enrollment in failing programs is in the for-profit sector. About 55% of for-profit institutions have at least one program that does not meet one of these standards. While more than two-thirds of public and private nonprofit colleges offer at least one GE program, the Department estimates that 92% of public institutions and 97% of private, non-profit institutions have no high-debt-burden or low-earning GE programs.
Of the students attending failing programs:
- about 274,000 attend GE programs that have high debt burdens but typical earnings above those of high school graduates;
- about 306,000 attend GE programs that lead to low earnings but do not produce high debt burdens; and
- about 115,000 are in GE programs that result in high debt burdens and low earnings.
Failing programs leave borrowers with poor financial outcomes. For instance, the median annual earnings for graduates is less than $15,000 at undergraduate certificate programs that fail the debt-to-earnings test. At least half of completers in failing undergraduate certificate programs have annual loan payments greater than (i.e., over 100% of) their discretionary earnings. Graduate GE programs that fail the D/E rates, meanwhile, have typical earnings of $42,000 compared to debt of over $79,000.
GAINFUL EMPLOYMENT – ADMINISTRATION’S PREDICTION
The Department projects that the rules will lead to program improvements that will benefit students and institutions. To improve the D/E rates of their programs, institutions can reduce prices and increase institutional aid offers to students, since loan debt for the debt-to-earnings rates calculations are capped at the net direct costs charged to a student.
Students do not need to settle for programs with sub-standard outcomes if their programs cannot improve. The Department projects that the vast majority of students in failing GE programs have better options available to them at passing programs in a similar field nearby or, in some cases, even at the same institution. We estimate the typical student at a failing GE program has at least five other programs available in a similar field in the students’ local area.
On average, these alternative options serve students better: their graduates have 43% higher earnings and 22% less debt. The Department also estimates that institutions with programs that have better outcomes, including Historically Black Colleges and Universities and community colleges, are likely to gain enrollment because of the rule, as they offer better performing programs that compete for students with institutions that will have more enrollment in failing programs.
GAINFUL EMPLOYMENT – ADMINISTRATION’S CONCLUSION
The GE program accountability framework will help protect students from entering programs that do not prepare students for gainful employment, which will ultimately improve the odds their educational investments pay off. Evidence from prior research and an analysis included in the final rule show that, while underserved students enroll in failing programs at high rates, program and institution quality play a critical role in determining student outcomes, more so than student demographics. Steering these students towards better performing programs will advance equity and economic mobility by improving their financial outcomes.
The GE program accountability framework will go into effect on July 1, 2024, with the first official metrics published in early 2025. The first year that programs may become ineligible is 2026.
SUBPART S – GAINFUL EMPLOYMENT
§ 668.601 Gainful Employment (GE) Scope and Purpose
(a) General
Except as provided under paragraph (b) of this section, this subpart applies to an educational program offered by an eligible institution that prepares students for gainful employment in a recognized occupation and establishes rules and procedures under which the Secretary determines that the program is eligible for title IV, HEA program funds.
(b) Applicability
(1) This subpart does not apply to programs offered by institutions located in U.S. Territories or freely associated states.
(2) For each award year that the Secretary calculates D/E rates or the earnings premium measure under § 668.402, this subpart does not apply to an institution if, over the most recently completed four award years, it offered no groups of substantially similar programs, defined as all programs in the same four-digit CIP code at an institution, with 30 or more completers in total.
§ 668.602 Gainful Employment Criteria
A GE program provides training that prepares students for gainful employment in a recognized occupation if the program—
- Satisfies the applicable certification requirements in § 668.604;
- Is not a failing program under the D/E rates measure in § 668.402 in two out of any three consecutive award years for which the program’s D/E rates are calculated; and
- Is not a failing program under the earnings premium measure in § 668.402 in two out of any three consecutive award years for which the program’s earnings premium measure is calculated.
§ 668.603 Ineligible GE Programs
(a) Ineligible Programs
If a GE program is a failing program under the D/E rates measure in § 668.402 in two out of any three consecutive award years for which the program’s D/E rates are calculated, or the earnings premium measure in § 668.402 in two out of any three consecutive award years for which the program’s earnings premium measure is calculated, the program is ineligible and its participation in the title IV, HEA programs ends upon the earliest of—
- The issuance of a new Eligibility and Certification Approval Report that does not include that program;
- The completion of a termination action of program eligibility, if an action is initiated under subpart G of this part; or
- A revocation of program eligibility if the institution is provisionally certified.
(b) Basis For Appeal
If the Secretary initiates an action under paragraph (a)(2) of this section, the institution may initiate an appeal under subpart G of this part if it believes the Secretary erred in the calculation of the program’s D/E rates under § 668.403 or the earnings premium measure under § 668.404. Institutions may not dispute a program’s ineligibility based upon its D/E rates or the earnings premium measure except as described in this paragraph (b).
§ 668.603 Ineligible GE Programs
(c) Restrictions
1) Ineligible program
Except as provided in § 668.26(d), an institution may not disburse title IV, HEA program funds to students enrolled in an ineligible program.
2) Period of Ineligibility
An institution may not seek to reestablish the eligibility of a failing GE program that it discontinued voluntarily either before or after D/E rates or the earnings premium measure are issued for that program, or reestablish the eligibility of a program that is ineligible under the D/E rates or the earnings premium measure, until three years following the earlier of the date the program loses eligibility under paragraph (a) of this section or the date the institution voluntarily discontinued the failing program.
3) Restoring Eligibility
An ineligible program, or a failing program that an institution voluntarily discontinues, remains ineligible until the institution
establishes the eligibility of that program under § 668.604(c).
§ 668.604 Certification Requirements for GE Programs
(a) Transitional certification for existing programs.
(1) Except as provided in paragraph (a)(2) of this section, an institution must provide to the Secretary no later than December 31, 2024, in accordance with procedures established by the Secretary, a certification signed by its most senior executive officer that each of its currently eligible GE programs included on its Eligibility and Certification Approval Report meets the requirements of paragraph (d) of this section. The Secretary accepts the certification as an addendum to the institution’s program participation agreement with the Secretary under § 668.14.
(2) If an institution makes the certification in its program participation agreement pursuant to paragraph (b) of this section between July 1 and December 31, 2024, it is not required to provide the transitional certification under this paragraph (a).
§ 668.604 Certification Requirements for GE Programs
(b) Program Participation Agreement Certification
As a condition of its continued participation in the title IV, HEA programs, an institution must certify in its program participation agreement with the Secretary under § 668.14 that each of its currently eligible GE programs included on its Eligibility and Certification Approval Report meets the requirements of paragraph (d) of this section. As provided under 34 CFR 600.21(a)(11)(vi), an institution must update the certification within 10 days if there are any changes in the approvals for a program, or other changes for a program that render an existing certification no longer accurate.
§ 668.604 Certification Requirements for GE Programs
(c) Establishing Eligibility and Disbursing Funds
(1) An institution establishes a GE program’s eligibility for title IV, HEA program funds by updating the list of the institution’s eligible programs maintained by the Department to include that program, as provided under 34 CFR 600.21(a)(11)(i). By updating the list of the institution’s eligible programs, the institution affirms that the program satisfies the certification requirements in paragraph (d) of this section. Except as provided in paragraph (c)(2) of this section, after the institution updates its list of eligible programs, the institution may disburse title IV, HEA program funds to students enrolled in that program.
(2) An institution may not update its list of eligible programs to include a GE program, or a GE program that is substantially similar to a failing program that the institution voluntarily discontinued or became ineligible as described in § 668.603(c), that was subject to the three year loss of eligibility under § 668.603(c), until that three-year period expires.
§ 668.604 Certification Requirements for GE Programs
(d) GE Program Eligibility Certifications
An institution certifies for each eligible GE program included on its Eligibility and Certification Approval Report, at the time and in the form specified in this section, that such program is approved by a recognized accrediting agency or is otherwise included in the institution’s accreditation by its recognized accrediting agency, or, if the institution is a public postsecondary vocational institution, the program is approved by a recognized State agency for the approval of public postsecondary vocational education in lieu of accreditation.
§ 668.605 Student Warnings
(a) Events Requiring a Warning to Students and Prospective Students
Beginning on July 1, 2026, the institution must provide a warning with respect to a GE program to students and prospective students for any year for which the Secretary notifies an institution that the GE program could become ineligible under this subpart based on its final D/E rates or earnings premium measure for the next award year for which D/E rates or the earnings premium measure are calculated for the GE program.
(b) Subsequent Warning
If a student or prospective student receives a warning under paragraph (a) of this section with respect to a GE program, but does not seek to enroll until more than 12 months after receiving the warning, the institution must again provide the warning to the student or prospective student, unless, since providing the initial warning, the program has passed both the D/E rates and earnings premium measures for the two most recent consecutive award years in which the metrics were calculated for the program.
(c) Content of Warning
The institution must provide in the warning—
(1) A warning, as specified by the Secretary in a notice published in the Federal Register, that—
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- The program has not passed standards established by the U.S. Department of Education based on the amounts students borrow for enrollment in the program and their reported earnings, as applicable; and
- The program could lose access to Federal grants and loans based on the next calculated program metrics;
(2) The relevant information to access the program information website maintained by the Secretary described in § 668.43(d);
(3) A statement that the student must acknowledge having viewed the warning through the program information website before the institution may disburse any title IV, HEA funds to the student;
(4) A description of the academic and financial options available to students to continue their education in another program at the institution, including whether the students could transfer credits earned in the program to another program at the institution and which course credits would transfer, in the event that the program loses eligibility for title IV, HEA program funds;
(5) An indication of whether, in the event that the program loses eligibility for title IV, HEA program funds, the institution will—
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- Continue to provide instruction in the program to allow students to complete the program; and
- Refund the tuition, fees, and other required charges paid to the institution by, or on behalf of, students for enrollment in the program; and
(6) An explanation of whether, if the program loses eligibility for title IV, HEA program funds, the students could transfer credits earned in the program to another institution in accordance with an established articulation agreement or teach-out plan or agreement.
(d) Alternative Languages
In addition to providing the English-language warning, the institution must also provide translations of the English-language student warning for those students and prospective students who have limited proficiency in English.
(e) Delivery to Enrolled Students
An institution must provide the warning required under this section in writing, by hand delivery, mail, or electronic means, to each student enrolled in the program no later than 30 days after the date of the Secretary’s notice of determination under § 668.406 and maintain documentation of its efforts to provide that warning. The warning must be the only substantive content contained in these written communications.
(f) Delivery to Prospective Students
(1) An institution must provide the warning as required under this section to each prospective student or to each third party acting on behalf of the prospective student at the first contact about the program between the institution and the student or the third party acting on behalf of the student by—
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- Hand-delivering the warning as a separate document to the prospective student or third party, individually or as part of a group presentation;
- Sending the warning to the primary email address used by the institution for communicating with the prospective student or third party about the program, provided that the warning is the only substantive content in the email and that the warning is sent by a different method of delivery if the institution receives a response that the email could not be delivered; or
- Providing the warning orally to the student or third party if the contact is by telephone.
(2) An institution may not enroll, register, or enter into a financial commitment with the prospective student with respect to the program earlier than three business days after the institution delivers the warning as described in this paragraph (f).
Acknowledgment Prior to Enrollment and Disbursement
An institution may not allow a prospective student seeking title IV, HEA assistance to sign an enrollment agreement, complete registration, or make a financial commitment to the institution, or disburse title IV, HEA funds to the student until the student or prospective student completes the acknowledgment described in paragraph (c)(3) of this section.
Discharge Claims
The provision of a student warning or the acknowledgment described in paragraph (c)(3) of this section does not mitigate the institution’s responsibility to provide accurate information to students concerning program status, nor will it be considered as dispositive evidence against a student’s claim if applying for a loan discharge.
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About the Authors:
Materials and content originate from the Department of Education posting, with insights and summaries provided by Tom Netting and Sally Samuels.
Sally Samuels, Director of Compliance, Fame
Sally is one of the country’s leading authorities on Federal financial aid administration with more than 43 years of “in the trenches” experience. As a respected Industry leader, she is frequently called upon to speak at School, Accrediting, Regional and State conferences as well as to act as school liaison during program reviews and compliance audits.
Having processed, reviewed and taught financial aid for over 40 years Sally brings real life experiences, observations and illustrations to her audience adding a touch of humor to regulatory compliance. Her style makes the sometime complex topics easy to understand and audiences always come away with practical knowledge that they can apply to their everyday situations. Sally has been published many times in various Higher Education periodicals providing her expertise and insight on administering Federal funding based on compliance with the Federal statutes.
Tom Netting, President/CEO, TEN Government Strategies, Co-Executive Director, CSPEN
Having spent all of his professional career devoted to higher education policy oversight and implementation, Tom Netting has an extensive knowledge of the laws and regulations governing all aspects of higher education. His considerable background and experience have afforded him the opportunity to view the development and implementation of federal higher education and workforce development policy in their entirety – including issues related to higher education and workforce development, health care, veteran affairs policies and the procurement of federal appropriations.
