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Part of "Gainful Employment" Overturned - What It Could Mean for Students

Aug 31, 2012 Jennifer Williamson, Distance Columnist | 1 Comments

Recently, a federal judge overturned a major component of the Department of Education’s attempt to regulate the for-profit college sector through “gainful employment” rules applied to career training programs.

Gainful employment rules required career training programs to meet at least one of three criteria in order to stay eligible for federal student aid. At least 35% of graduates must be making payments on their loans; the estimated loan payments for average graduates must not be more than 12% of the graduates’ earnings; or loan payments must not exceed 30% of the average graduate’s discretionary income.

The rules are there to prevent for-profit colleges from turning out graduates with credentials that are essentially useless in the job market—and with large student debt loads. This problem is real; according to a 2012 Harvard study*, students at for-profit colleges made less than students attending nonprofit colleges by approximately $1,800-$2,000 as of 2004. They are also more likely to be unemployed six years after graduation, and to experience unemployment periods lasting longer than three months.

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The gainful employment rules will strengthen college performance—and increase the worth of for-profit degrees.



They also have higher default rates on student loans than students of nonprofit institutions. Approximately one in four students defaults on their student loans within three years—more than the graduation rate, of approximately one in five.

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For-profit colleges can get as much as 90% of their income from student financial aid delivered by the federal government. They aggressively recruit low-income students likely to qualify for this aid—and because tuition is subsidized, there is no market pressure on colleges to reduce tuition fees. Colleges can charge what they want—and the government foots the bill. And if students drop out before graduating, the colleges keep the tuition they’ve paid. The gainful employment rules are meant to institute quality standards in the for-profit industry—requiring them to prove that their credentials are valuable in the marketplace if they want to receive federal funds.

Not all of the gainful employment law was overturned. But the 35% debt-repayment standard was eliminated, under the perception that the 35% number was arbitrary and not tied to any statistics or data suggesting this is the optimal number.

At first, this new development might seem to weaken protections for students. However, this is not necessarily the case. The court did not strike down the government’s authority to implement gainful employment standards—it simply insisted that these standards be based on quantifiable data showing that they have not been arbitrarily set.

The ruling is most likely to lead to the Department of Education’s return with a different percentage requirement for debt repayment, based on more substantive data. Ultimately, this could lead to more fair and equitable standards for schools—without significantly diminishing protections for students.

In the meantime, the other gainful employment protections are still in place. Schools will still have to prove that estimated loan payments for the average graduate will not rise above 12% of those graduates’ earnings or eat up more than 30% of the graduates’ discretionary income. In addition, for-profit schools will be required to disclose information to prospective and current students regarding graduation and job placement rates, as well as the median debt loads for students.

Hopefully, the gainful employment rules will strengthen college performance—and increase the worth of for-profit degrees. Ultimately, this will be better not just for the students, but for the schools themselves.


Joseph C. Over a year ago

Suprise here is that the Government is not the most efficient. Shocker!

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