Department of Education regulations: Gainful employment pros and cons

In February 2011, the House of Representatives approved an amendment that would stop Department of Education regulations known as “gainful employment.” These regulations attempt to clarify the definition of “gainful employment,” a concept first outlined in the Higher Education Act of 1965. In a paper by Mark Kantrowitz entitled “Student Aid Policy Analysis – What Is Gainful Employment?,” he writes,  “The Higher Education Act of 1965 requires for-profit colleges to provide ‘an eligible program of training to prepare students for gainful employment in a recognized occupation’ but does not currently define gainful employment.” Thus, the need for clarification!

Measuring gainful employment
The Department of Education is trying to establish criteria for a debt-service-to-income threshold, a loan repayment rate, and a linking of programs offered to specific occupations. Under these regulations, proprietary institutions will be required to give prospective students information about the graduation and job placement rates of different programs. Schools must also inform you about the level of debt you may incur as well as the income you can expect to make based on jobs in your fields of study.

These regulations do not measure loan defaults for entire institutions but, instead, for each program.  Depending on how a particular program performs in relation to the criteria, the program would fall under the category of “eligible,” “restricted,” or “ineligible” for federal aid.

These proposed regulations are scheduled to go into effect in July 2012, but there is stiff opposition.

Pros and cons
Proponents of gainful employment argue that too many students graduate from career colleges without the ability to earn enough money to repay their student loans. According to Education Secretary Arne Duncan, “…some bad actors are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use.” During public hearings, the Department heard complaints from students who felt that they had been pressured to take on more debt than they could afford and enroll in programs without a clear understanding of their future prospects for earnings.

Representatives of for-profit schools maintain that gainful employment targets their institutions unfairly and argue that these regulations will ultimately limit education choices for students. The regulations would also slow a college’s ability to create new programs because federal approval would be required before a college could make any changes or additions to its programs. For-profit school advocates also assert that the criteria for debt-service-to-income and loan repayment rates are too onerous and could result in low-income students losing their access to financial aid.

Will it affect access to college?
In a blog post by Angela Peoples on Campus Progress entitled, “Questions and Answers on the Proposed Gainful Employment Rule,” the question “Will the proposed gainful employment rule affect student access to college?” was answered this way: “Defining gainful employment is one of the best ways to increase student access to quality, affordable education and training. That’s why more than 45 organizations, including the Leadership Conference on Civil and Human Rights, NAACP, National Council of La Raza and leading college access, student, consumer and veterans organizations have called on the Administration to issue a strong regulation.”

Loan default rates of for-profit students
While most community college students don’t borrow large sums of money to pay for their educations, those of you at for-profit institutions account for 26 percent of all student loans. Although they comprise only 11 percent of all higher education students, they account for 24 percent of all Pell Grant recipients and 43 percent of all loan defaulters. The 2008 “cohort default rate,” which reflects rates of defaults within two years of leaving college, is about 11.6 percent at for-profit institutions versus 6 percent at public colleges.

Supporters of gainful employment assert that the higher default rates at for-profit institutions are linked to their practices of enrolling students who are not academically prepared to succeed. These students are more likely to drop out of their programs and default on their loans.

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