Education Department Releases Final Debt-to-Earnings Rates for Gainful Employment Programs

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The U.S. Department of Education today released the first debt-to-earnings (D/E) rates for career training programs as required by the landmark Gainful Employment (GE) regulations.

The release of these rates builds on the Department’s ongoing efforts to promote college completion and increase accountability in the postsecondary education marketplace by setting standards for career training programs, including programs offered by for-profit institutions, to ensure they are serving students well. The data show that, while many postsecondary programs offer value to students, there are a significant number of career training programs—specifically for-profit programs—that do not provide their graduates with a reasonable return on investment. A new disclosure template, that will be released later this month, presents this information in a simple format and aligns with information provided on the Department’s College Scorecard.

“When a student makes a personal and financial decision to attend college, the student must feel confident that it is a sound investment in his or her future, not a liability that will further defer his or her dreams,” said U.S. Secretary of Education John B. King Jr. “These rates shed a bright light on which career training programs are most likely to prepare students for repaying their student loan debt, and which programs might leave them worse off than when they started.”

To qualify for federal student aid, the law requires that most for-profit programs and certificate programs at private non-profit and public institutions prepare students for “gainful employment in a recognized occupation.” Under the regulations finalized in 2014, a program would be considered to lead to gainful employment—and passing—if the estimated annual loan payment of a typical graduate does not exceed 20 percent of his or her discretionary income or 8 percent of his or her total earnings. Programs that exceed these levels would be at risk of losing their ability to participate in taxpayer-funded federal student aid programs.

“In the career training program marketplace, accurate and straightforward information about costs and benefits helps students make well-informed decisions about where to invest their time and resources,” said U.S. Under Secretary of Education Ted Mitchell. “These data will also be important for institutions as they seek to improve their programs to better serve students and to deliver on the promises they make.”

The data indicate that over 800 programs serving hundreds of thousands students fail the Department’s accountability standards with an annual loan payment that is at least greater  than 30 percent of discretionary income and greater than 12 percent of total earnings. Ninety-eight percent of these failing GE programs are offered by for-profit institutions.

“Too many for-profit colleges have misled students, leaving them unable to find jobs that earn enough to pay off their crushing debt,” said U.S. Senator Sherrod Brown. “The Department of Education’s gainful employment rule is critical in holding for-profit schools accountable and we must continue fighting to make sure students come before profits.”

An additional 1,239 programs received a “zone” rate, with an annual loan payment that is between 20 and 30 percent of discretionary income or between 8 and 12 percent of total earnings. Programs that receive four consecutive years of zone or fail rates will become ineligible for federal student aid.

The data released today provide further evidence that community colleges offer a better deal than comparable programs at for-profit colleges with higher price tags. As these new data depict, when student debt is taken into account, community colleges—where  students borrow at lower rates and lower dollar amounts—perform particularly well when matched up against comparable for-profit programs.

The Department calculates debt-to-earnings rates using debt information from the Department’s records and as reported by institutions and earnings data obtained from the Social Security Administration. The debt amount used in the rate calculations uses the median total federal, private, and institutional debt that program graduates have accumulated for attendance in the program. The higher of the mean or median earnings are obtained at least two years after graduates have left a program in order to allow graduates to establish themselves in the workforce.  For most programs the rates released today include students who graduated between July 1, 2010 and June 30, 2012.

Since the regulation was published, programs have had the opportunity to make immediate changes to avoid sanctions. If recent graduates left with less debt than the graduates for which we obtained earnings, we recalculated a program’s debt-to-earnings rate to reflect these improvements. If a program does not improve, it will become ineligible for federal student aid. Programs that are at risk of losing eligibility within the next year must warn current and prospective students that they may be unable to obtain federal aid for enrollment in the program.

The rule also requires institutions to provide students with other key information about their programs, including the program’s graduation rate, average earnings of graduates, average federal student loan debt, and whether programs meet state licensure requirements. In the past, low performing programs attempting to lure unsuspecting students frequently obscured this information; a standard disclosure template will provide clear information and help students to compare programs across schools.

Protecting Students from Poor-Performing Career Colleges

Too often, students in career training programs are charged excessive costs, but don’t get the education they paid for. In many cases, students are drawn to these programs because of confusing or misleading information. Many receive poor quality training, often for low-wage jobs or in occupations where there are few job opportunities. And many are saddled with large amounts of debt at graduation and end up in default.

In response to these concerns, the Department began extensive conversations with the higher education community in 2009 about the role of career colleges, particularly on how they could be held accountable for the outcomes of their students. The final Gainful Employment regulations followed an extensive rulemaking process involving public hearings, negotiations and approximately 95,000 public comments. The regulations, which went into effect on July 1, 2015, reflect the feedback the Department received.

The Department faced unprecedented opposition from the for-profit industry throughout the process. The U.S. District Courts for the District of Columbia and the Southern District of New York and the U.S. Court of Appeals for the District of Columbia affirmed the Department’s regulations, rejecting the industry’s attempts to fight basic accountability measures – a clear sign that the courts continue to recognize both the Department’s legal authority and its reasonable approach in establishing these important consumer protections.

Even prior to today’s data release, these regulations have already influenced the field.  Some of the largest institutions have instituted trial periods for programs before students have to commit, so students can decide if the program is right for them. Many institutions have reduced costs for students, and others have closed locations and programs they judge to be performing poorly. The Department previously estimated there were over 37,000 distinct GE programs in 2014. Today, there are fewer than 29,000.

The Gainful Employment regulations complement efforts to protect students by addressing problems at poor performing institutions, particularly in the for-profit sector. These efforts include:

  • Borrower Defense to Repayment Regulations: The Department published final regulations that protect student borrowers from misleading and predatory practices by postsecondary institutions and clarify a process for loan relief in cases of institutional misconduct. The regulations also protect taxpayers by ensuring that financially troubled institutions provide the government with protection against the risks they create.
  • Keeping student debt affordable: The Department is helping more students manage their student debt through flexible repayment options like the Pay As You Earn plan, which caps student loan payments at 10 percent of a borrower’s discretionary income. In addition, the Administration continues targeted outreach to help borrowers who may be struggling to repay their loans, ensuring that they have the information they need to select the best repayment option for them and avoid future default.
  • Releasing the College Scorecard and Financial Aid Shopping Sheet: The Department has worked to create user-friendly tools that put information in the hands of students and families to help them make decisions about where to go to school. The Financial Aid Shopping Sheet allows institutions to provide standardized information about costs and financial aid so students can easily compare institutions and make informed decisions. The redesigned College Scorecard, launched in September 2015, is a consumer tool that provides clear, accessible, and reliable comprehensive national data on cost, graduation, debt, and post-college earnings.

GE program final D/E rates will be available to the public on theFederal Student Aid Data Center’s Gainful Employment Information page after 4:00 p.m. ET on January 9, 2017.

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