Gainful Employment

Financial aid expert Mark Kantrowitz released an excellent analysis of the potential negative impact that the Department of Education's proposed definition of gainful employment would have on the for-profit sector last week. He concluded that it is severely flawed, specifically:

The 8% debt-service-to-income threshold is so strict that it would preclude for-profit colleges from offering Bachelor’s degree programs. It would also eliminate many Associate’s degree programs at for-profit colleges. Even non-profit colleges would find it difficult to satisfy this standard if they were subjected to it.

The 90% loan repayment rate would be the equivalent of requiring colleges to have a two-year
cohort default rate of less than 2.3% for students who graduated. This loan repayment rate is
unattainable for most colleges (not just for-profit colleges) as it represents a much harsher
standard than the current cohort default rate requirements.

The thresholds are based on median debt at graduation, meaning that half the students will have
debt above the threshold. Affordability cutoffs should be based on excessive debt, such as
cumulative debt above the 90th percentile.

The proposed use of Bureau of Labor Statistics wage data is biased toward lower income data and
is biased against Bachelor degree programs because of an “averaging down” effect. The use of
this data will disproportionately harm minority and female students because a Bachelor’s degree
conveys a greater increase in earnings for these students even though the median income is lower than for White and male students. The lack of regional adjustments would discriminate against colleges located in states with lower average income and higher unemployment rates.

The proposed linking of programs with specific occupations precludes for-profit colleges from
offering programs in the liberal arts or fields of study that are not career-specific.

The loan repayment rate calculations count borrowers in income-contingent and income-based
repayment as though they are actively repaying their loans even though roughly half are making a
zero monthly payment.

The proposals would apply the requirements for affordable debt only on graduates from for-profit colleges. If it is Congress’s intent to limit debt by college graduates, similar standards should also be applied to non-profit and public colleges.

The debt-service-to-income threshold effectively establishes borrowing limits based on field of study and degree program, but does not give the colleges the controls needed to enforce these
limits. Current subregulatory guidance precludes colleges from establishing lower loan limits.