Published on 2014/03/14

New Gainful Employment Rules Focus on Graduate Loan Repayment as a Percentage of Income

On Friday, the Obama administration proposed a new set of gainful employment rules that will tighten federal oversight of for-profit colleges and universities if passed into law.

The last set of regulations — which included loan-repayment expectations — were struck down by a federal judge in 2012. After that, the Department of Education went back to the drawing board to protect students from low-quality, high-debt programs while keeping access to career-focused programs open.

The new proposal does not include a loan repayment metric. Instead, it suggests defining the success of programs by defining an acceptable percentage of a graduate’s annual income to be taken up by loans.

If graduates pay more than 20 percent of their discretionary income — or 8 percent of annual income — in loans, the program from which they graduated will be placed into a warning zone. Furthermore, in cases where graduates’ loan payments exceed 30 percent of discretionary income or 12 percent of annual income, the program will be considered a failure.

This proposal will impact thousands of programs offered at for-profit colleges and non-degree programs offered by public and private, not-for-profit institutions. If programs are placed into warning or failure brackets, they risk losing qualification for federal financial aid.

“To be clear, we think the majority of gainful employment programs out there would pass these metrics,” Education Secretary Arne Duncan told reporters. “This rule is designed both to identify those programs that are doing a good job and target those that are failing both students and taxpayers.”

However, the association representing for-profit and private not-for-profit institutions disagreed, pointing out that such a program would limit access to higher education for students who need it most.

“The gainful employment regulation would deny millions of students the opportunity for higher earnings,” said Steve Gunderson, president and chief executive of the Association of Private Sector Colleges and Universities. “The government should be in the business of protecting opportunity not restricting it.”

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