Proposed rules that would create a new measure of financial value for each higher education program in the nation, by measuring both graduates’ earnings and the relationship between earnings and debt burden, have been announced by the Department of Education.  The proposal takes ideas from new gainful employment regulations that were previously negotiated and applies them to all programs.  

This proposal was not discussed in the extensive negotiated rulemaking sessions held last year, but was hinted at by President Biden’s announcement last August to forgive up to $20,000 in student loan debt and “ensure student borrowers get value for their college costs.”

The massive regulatory package was released on May 19 with only a 30-day comment period. NAICU is working with the rest of the higher education community to submit detailed comments that include the views of private, nonprofit institutions and also will be submitting separate views on behalf of the sector.  The Department plans to issue final regulations by November 1, allowing them to go into effect on July 1, 2024.  NAICU had a seat at the table for negotiated rulemaking on these topics and negotiated many details to better conclusion as highlighted in our issue summary.

Under the proposal, all programs at institutions of higher education would have a publicly available debt-to-earnings ratio and earnings premium as long as a program has a cohort size of at least 30 student completers over a maximum of four years.  If institutions have failing rates for either measure, institutions would be required to provide students with either an acknowledgement or warning. A student would not be allowed to use federal financial aid for a failing program until they indicate that they have reviewed the acknowledgement or warning from the institution through a new disclosure website created by the Department.

To pass the debt-to-earnings ratio, graduates’ loan payments must be no more than 20% of discretionary earnings (which is approximately the amount above $22,000).  According to the Department’s analysis, most undergraduate debt at private, nonprofit institutions will meet this test, but many graduate programs, particularly master’s degrees, will not pass. To pass the new earnings premium, the program’s typical graduate must earn more than the median high school graduate in their state between the ages of 25-34, which is approximately $25,000. Based on the data available to the Department that was part of the regulatory analysis, a small share (roughly 1 in 13) of students at private, nonprofit institutions will receive an acknowledgment of a failed metric prior to having aid disbursed, mostly in graduate programs.

While a debt-to-earnings ratio has applied in the past to gainful employment programs (which are non-degree programs at nonprofit and public colleges and all programs at for-profit institutions), the earnings premium is new.  Gainful employment programs can directly lose eligibility to Title IV aid by failing either test, but all institutions will have debt-to-earnings and earnings premiums in all degree programs considered when up for recertification of Title IV, which could affect their aid eligibility.  

Other Key Proposals

• The proposed rules also require institutions to provide adequate career services to students, which includes Departmental review of the number and distribution of staff, the services the institution has promised to its students, and the presence of partnerships with recruiters and employers who regularly hire graduates.
• Institutions are banned from withholding transcripts if they are at risk of closure or if they made an error in administering a Title IV program that resulted in a student owing the institution funds. This is an improvement from an original proposal in negotiated rulemaking that would ban all transcript withholding.  
• Institutions are required to meet state licensing requirements in the states where the institution is located and where each student is located upon initial enrollment. This is also an improvement from an original proposal to make institutions meet requirements in any state where a graduate seeks employment, which would have effectively meant all 50 states.  However, in a setback to NC-SARA, the new regulations would require institutions to meet all state consumer protection laws where distance education is offered. About six states have consumer protection laws that are considered stronger than those under NC-SARA, making participation in the reciprocity agreement less seamless for institutions.
• The proposed rules add a number of conditions that can trigger a failure of financial responsibility standards. Among the discretionary triggers the Secretary can consider are high annual drop out rates or the discontinuation of academic programs affecting at least 25 precent of enrolled students. And all institutions will have to include, on their audited financial statements, a footnote detailing the funds spent on recruiting activities, advertising, and other pre-enrollment expenditures. However, in a long-sought goal of NAICU’s, the requirement for an institution to submit a letter of credit can be removed if the institution’s audited financial statements for the two most recent fiscal years show that the financial situation at the institution has improved such that the institution would no longer meet the triggers. 
• In determining an institution’s program participation agreement (PPA), the Department is proposing to consider withdrawal rates, debt-to-earnings rates; earnings premium rates; educational spending; and licensure pass rates.