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An Update on Gainful Employment

Last year I wrote about Gainful Employment and initial drafts of the "rule anticipated to go into effect by July 2012." What has happened since then?

Gainful Employment requires that institutions offering vocational programs (i.e., non-degree, certificates) show evidence that they prepare their students for entry into the workforce. According to a recent press release from the U.S. Department of Education (USDOE) Secretary of Education Arne Duncan states that "these new regulations will help ensure that students at these schools are getting what they pay for: solid preparation for a good job." The rule also addresses concerns related to taxpayers who ultimately foot the bill when students find themselves unable to repay their federally funded loans.

Controversial Standards

In June an initial report was published by the USDOE finding that of the 3,695 vocational programs offered at 1,336 schools, 5% did not meet any of the three established Gainful Employment standards related to student: 1) loan repayment rate, 2) debt-to-income ratio, and 3) debt-to-discretionary income ratio.

The calculations and types of data used by the USDOE to come up with the ratios have come under fire, and measures associated with Gainful Employment appear to put for-profit schools specifically in the spotlight. As a segment of postsecondary education, for-profit schools receive 26% of federal student aid and account for 46% of the total amount of student loan dollars in default. For-profits also offer a large number of vocation programs designed and marketed to help students succeed in specific occupations.

Discrimination against for-profit programs was the subject of a recent lawsuit initiated by the Association of Private Colleges and Universities. Earlier this month a district court judge ruled that the debt-to-income ratio measure was "arbitrary and capricious," and that the other two measures were problematic as well. The USDOE is now in the position to either appeal the recent ruling and/or write new regulations. In the meantime, there is continued discussion and debate about student debt and income measures, and whether they are effective ways to assess vocational programs and provide assurances to students.

Impact on Students

Gainful Employment regulations have addressed only vocational programs, those designed to prepare students for the workforce, with graduates that have high debt to income ratios, and low rates of repayment of their student loans. If the rules move forward, programs with graduates who are not able to secure gainful employment would eventually ne ineligible to receive federal financial aid.

According to The Chronicle of Higher Education, some programs are already making changes in response to concerns about rising costs and student placement. The Career Education Corporation, a group of schools that includes Le Cordon Bleu, is "shifting to shorter-term culinary programs, while lowering costs." And Corinthian Colleges, Inc., which includes Heald, "plans to slow enrollment in degree programs for criminal justice and medical insurance billing."

Disclosure of information about program costs and graduate employment are also already available online at some schools – take a look The Art Institutes and University of Phoenix as two examples of the type of information you can find. All of the larger discussions about higher education costs and increasing student debt are also leading to the development of more tools to help you make decisions about your education from a financial perspective. The recent financial aid "shopping sheet" project is one related initiative designed to help schools more clearly "communicate financial aid offers."

Doing Your Homework

The debate continues about the validity of Gainful Employment measures and it is likely to result in additional iterations of modification and legal challenge in the years to come. What can you do to find the information you need as you make decisions about education and future jobs?

  • Research graduation and placement rates of the programs you are considering, job market projections in the field you plan to study, and hiring trends in your local area. Not all of this information will be available or easy to find for every option you are considering, but start asking questions now.
  • Look for school-sponsored career services to include employer partnerships, individual counseling, and placement assistance that can assist you while you are a student.
  • Borrow carefully. Calculate your future monthly payments on the amount you plan to borrow and compare them to your anticipated monthly income after graduation or certificate completion.

Watch for updates on Gainful Employment from the U.S. Department of Education.