A Bit More on 'Gainful Employment'

WASHINGTON –The U.S. Department of Education’s proposed rules defining “gainful employment” by examining students’ ability to repay their loans have spurred more questions than they’ve answered. But on Friday, James Kvaal, the new deputy under secretary of education, answered some of the most salient nuts-and-bolts questions that have emerged since the department released its notice of proposed rule making and regulatory impact analysis on July 23.

And, for the first time since starting work at the Education Department earlier this summer, Kvaal explained why he believes for-profit colleges -- the primary target of the rule making process – need greater regulation. “In the landscape of higher ed today, you see a lot of thriving for-profit colleges and that’s a good thing.” Even so, he said, “we should recognize that for-profit institutions do have a legal incentive or even an obligation to try and maximize their profitability for shareholders.”

Kvaal’s remarks came at a forum on the gainful employment proposal hosted by the New America Foundation.

While some programs “appear to be very good, there are also troubling signs that some for-profit programs are not delivering great value and you can see in the data that some programs have very low repayment rates, very high debt loads, high default rates,” he said. Those are the programs that the department is attempting to rein in with its gainful employment regulations (and an additional package of proposed regulations also related to the integrity of the Title IV federal financial aid program), which would use two debt service-to-income ratios and the loan repayment rate to determine a program’s eligibility to accept federal financial aid dollars from students.

Before getting into the details of the gainful employment proposal, Kvaal offered a legal disclaimer. “There are strict rules about what department officials can say about the rule in this period -- they’re designed to create a transparent process, to make sure everyone has an equal voice,” he said. “I just want to be clear that I can’t go beyond the content of the rule in what I say.”

Nonetheless, where the rule and the analysis accompanying its release appeared to need clarification, Kvaal did his best to clarify.

One point of confusion coming from the Education Department’s rollout of the proposal was precisely how many programs would fall into the three broad categories of “eligible,” “restricted” and “ineligible” programs. Based on department data, Kvaal said, 40 percent of programs would be fully eligible to receive federal financial aid and 48 percent would be eligible but required to make additional disclosures to students about debt levels. Another 7 percent would be able to receive federal financial aid but would have their enrollments restricted to the average of the previous three years. And 5 percent would be ineligible.

One way for programs to pass the gainful employment test and be eligible for Title IV federal financial aid will be by demonstrating a loan repayment rate above 45 percent. There had been some confusion about exactly how that number would be calculated, but Kvaal explained it. If a student entered repayment with a $10,000 loan, even $1 toward repayment of that principal over the course of a year would count as $10,000 in both the numerator and the denominator of a program’s overall repayment rate calculation.

Some observers believe that the department would need to get Congressional approval to be able to collect income data from another federal agency – likely the Social Security Administration -- to use in its calculations. Kvaal said that the department’s “lawyers have looked at it… we think there’s authority for us to get program-level data.” But, he added, the department was open to public comments questioning that authority.