Gainful Employment Rule May Put Some School Programs at Risk of Losing Federal Funding
Last week, the Biden Administration released final regulations for its long-awaited gainful-employment rule, aimed to protect more than 700,000 students per year from unaffordable student debt and to increase transparency for students as to the true costs and financial outcomes of nearly all undergraduate and graduate degree programs.
10.02.23
The rule requires programs to show that graduates can afford their yearly debt payments and that the graduates are making more than an adult who did not go to college. The regulations apply to for-profit institutions and nondegree programs in any sector. It also applies to public and nonprofit colleges if they want to offer programs that are more narrowly job-focused than degree programs, such as certain certificate programs.
The Department of Education stated that the rule is aimed to avoid students from “getting ripped off” by their college degrees or career certificates. The rule will help ensure that the United States has a higher education system that is affordable and accountable to students.
To assess whether career programs meet the gainful-employment requirements, the Department of Education will utilize two separate metrics: (1) the debt-to-earnings rate, which ensures a graduate’s student debt payments are no more than 8% of annual earnings or 20% discretionary earnings; and (2) an earnings premium test that measures whether a typical graduate from a program that received federal aid is earning as least as much as a typical high school graduate in their state between the ages of 25 and 34. School programs that fail these metrics will be required to warn their students that they risk losing federal student aid, and programs that fail in the same metric two of three consecutive years will lose federal aid.
A new financial transparency framework was also announced, which will provide students with information on what they are likely to pay out of pocket for certain programs, how much debt they can expect to take on, and how much they are likely to earn after graduating. In addition, it will ensure students are aware of the risks of enrolling in a certain program that could leave them with unaffordable debt.
The gainful-employment rule is part of the Biden Administration’s plan to redefine college finance to ensure that all students can afford to get the education and skills necessary after high school. The final regulations will take effect on July 1, 2024. The first official metrics will be published in early 2025.
Co-authors Lisa Lori, co-chair and Stephanie Wolbransky, associate are members of the Education Practice Group at Klehr Harrison.