Published on 2014/05/21

Current Iteration of Gainful Employment Will Punish Community Colleges Most

AUDIO | Current Iteration of Gainful Employment Will Punish Community Colleges Most
In its current form, the gainful employment rule will have the most significant negative impact on community colleges rather than for-profit institutions.

The following interview is with Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities (AASCU). Nassirian and AASCU have been active throughout the discussion surrounding the gainful employment rule, which has dominated major higher education policy conversation over the past year. In this interview, Nassirian shares his thoughts on the recent changes to gainful employment and discusses what he thinks the ideal format for the federal approach to gainful employment should be.

1. How does the gainful employment rule impact non-traditional, adult students?

What [the gainful employment rule] basically attempts to do is ensure programs offered by for-profit institutions and … non-degree programs at all institutions — including public, two-year, four-year, private, non-profit — truly prepare their students for gainful employment.

If done right, the impact should better ensure students do not get saddled with unnecessary debt that is not serviceable based on post-graduation income.

2. Do you think there is any value to having loan repayment criteria included in a gainful employment rule?

The challenge with loan repayment statistics is that we now have a court decision that very specifically addressed what is and what is not allowable with regards to its use. There are perfectly legal ways in which loan repayment could be factored in, but from a policy perspective, in some ways that’s where the action is.

There would be a lot less policy concern and policy justification for attempting to implement a rule if it weren’t for the fact that we see fairly significant evidence of inability to service the debt that’s being accumulated in some of these programs.

Some measure of borrower ability to deal with this debt has to be in the rule. Whether it’s specifically a loan repayment rate or whether it’s … a metric revolving around program default rates or whether it’s debt-to-earnings [ratio]; certainly, the indebtedness and how that indebtedness is being handled strikes me as a fairly reasonable component of any gainful employment rule.

3. What do you think of the most recent draft of the gainful employment regulations?

I’m disappointed, mostly because the department has, I suspect, attempted to be Solomonic in dividing the difference to the point that I ponder about what the substantive value of the regulation will be if it were implemented.

They have weakened it on provision after provision and moved in the direction of the for-profit lobby’s preferred outcome. Frankly, I had hoped for better.

I certainly still believe there’s opportunity for reason to prevail and for arguments on the merits to be provided to the Department [of Education], but I’m rather disappointed with where they have ended up so far.

4. What would the ideal gainful employment regulation look like for you and for AASCU?

What you really want to do is make sure that only quality programs that leave the individuals that enroll in them — whether they finish or not — no worse off than they would have been otherwise. To me, that’s a reasonable outcome. You don’t want “failure factories.”

This doesn’t need to be a programmatic culpability. It could be an administrative culpability. It could be that you admit people you really should not be admitting because they’re not prepared to do the work they should be doing, or it could be that you don’t really add any value because your educational program is vacuous and insufficient. Whatever the causality and whatever the explanation that people offer post-facto, the ideal rule should be one that separates those programs that leave them better off and those that leave them worse off.

I don’t know that we can get to that level of nuanced perfection, so in terms of what I think is practical, at the very least I would have thought we could have come to some consensus around the notion that we ought to be able to eliminate outright fraud — … programs that obviously are saddling students with unrepayable debt, that are handing out worthless credentials in exchange for massive amounts of borrowing, or programs that … output five graduates for every 100 they take in. Those kinds of programs ought to be given very strong incentives to improve. I’m surprised there’s so much opposition to that substantive goal, because that’s the proper, substantive goal.

5. If the regulation goes into effect as it’s currently being written, what populations will be affected?

Ironically, not the population that everybody suspects is the intended beneficiary. Everybody assumes this regulation has tendentious focus on for-profits and the students they enroll. [However], because of their resources, because Title IV financial aid is their lifeblood and because the regulation is so meek, I think for-profits will end up manipulating administrative practices. This is a regulation that’s easily gamed and, with enough resources and enough attention, I suspect there will be really little impact felt by the for-profits.…

Where this program may actually have unintended consequences is for students who enroll in low-cost community colleges — and that’s the law of unintended consequences on full display. … This is the segment that provides the best alternative to heavy debt and high risk, but here’s a regulation that produces results exactly the opposite of what it’s presumably intended to do. Those are the programs that are at risk.

6. What do you think is the best way to measure education’s ROI for both the student and the taxpayer?

I think we could do away with a lot of this regulatory complexity by simply adopting a risk-retention rule where institutions that produce debt — that create borrowers who pay tuition — have to also absorb any losses downstream associated with those loans.

To me, that’s a very sensible approach, and it could do away with a whole lot of complicated regulatory mechanisms we have to put in place without it. But risk retention is not a notion that has a presence in higher ed finance and it hasn’t got enough traction yet. I suspect it will come sooner or later. That would be the best way: if the institutions have real skin in the game and share in the losses that some of them consistently produce for both taxpayers and the students they enroll, my suspicion is we’d see a lot more thoughtful packaging and a lot less unnecessary borrowing.

For an alternate perspective on the gainful employment rule, please read Exploring the Merits of the Gainful Employment Rule with APSCU President Steve Gunderson. 

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Key Takeaways

  • The gainful employment rule, in its current form, would have the most negative impact on community colleges rather than for-profit institutions.
  • Ideally, the gainful employment rule would target institutions that are seen as “failure factories,” which enroll a high number of students — shouldering large debt loads — but graduate very few.
  • If institutions are not financially tied to the success of their students and only have financial impetus to bring them in the doors, they will continue to operate without regard for outcomes.

Readers Comments

h estevez 2014/05/21 at 11:10 am

Interesting point that a good measure for the gainful employment rule should be whether a student leaves an institution (either having graduated or having left early) worse off or not. This seems to be a fair way to differentiate between unscrupulous institutions and legitimate providers.

    Ryan S 2014/05/22 at 8:55 am

    I disagree completely (though my boss would definitely agree). There are a million-and-one reasons for a student to drop out, and the institution can’t be held responsible for a student’s lack of drive.

    In terms of “worse off”, who is to say what “worse” is? Maybe they aren’t in a high-paying career, but their time in the educational program made them reason that career wasn’t for them?

Stephen Gotti 2014/05/21 at 6:46 pm

I agree with Nassirian that although the gainful employment rule is a well-intentioned attempt to address the loan repayment crisis, its execution thus far has been troubling. What’s needed is a thorough assessment of its implications, as well as more feedback opportunities for well-established institutions, not just for-profit providers, to weigh in.

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