Pushback on Gainful Employment

WASHINGTON – As the U.S. Department of Education prepares to finish revising regulations intended to weed out abuses of the federal financial aid system, for-profit higher education’s major advocacy group has chosen to push back.

In a letter sent Wednesday to Education Secretary Arne Duncan, the Career College Association calls on the department to scrap its proposed regulations on “gainful employment,” which would assess vocational programs based on the ratio of their graduates’ student loan debt to their incomes.

The letter coincides with the CCA’s public release today of a report it commissioned on the proposal’s implications that analyzes data representing more than 600,000 students in more than 10,000 programs at its member institutions, which finds that the proposal could make thousands of for-profit programs ineligible for federal financial aid.

“This is a policy with major widespread ramifications,” Harris N. Miller, the association’s president, said in an interview. “And the department’s hypotheses about the problems are wrong.”

In lieu of the department's proposed solution, the CCA has recommended that programs provide their prospective students with more robust information on job placement and loan burdens -- which it is calling “disclosure plus” -- to keep students from taking on untenable debt burdens. If the department insists on establishing new standards of gainful employment, the group suggests that it judge a program to be successful based on the collection of three independent employer affirmations or graduates’ success in taking licensure exams.

Under Title IV of the Higher Education Act of 1965, all for-profit offerings other than those designated as “liberal arts” must show that they prepare students for gainful employment -- a term the department has insisted is not well-defined but has proposed could be determined by considering the relationship between graduates’ debt obligations and income.

The department in January proposed regulatory language that would designate a program as preparing graduates for gainful employment if graduates’ debt-service-to-income ratio was 8 percent or less. A higher ratio suggests that a program is unsuccessful, the department asserts.

But the CCA’s analysis, conducted by the economic consulting firm Charles River Associates, has found that there is “an inverse relationship between high debt-to-income ratios and the likelihood of loan default,” Miller said. In other words, programs whose graduates have high debt-to-income ratios are less likely to have high default rates, the analysis concluded. “The whole premise of the department’s rule is upside down.”

The analysis, carried out by Jonathan Guryan, an associate professor of economics at the University of Chicago's Booth School of Business, and Matthew Thompson, a Charles River vice president, suggests that the effects on the for-profit sector could be sizable. They estimate that as many as 18 percent of current programs and 33 percent of member institutions’ students -- 2,000 programs and 300,000 students -- could be hurt by the regulations.

This, Miller said, is “contrary to the narrative that this would impact only a few bad actors.” The department has indicated that fewer than 10 percent of programs that qualify for Title IV because of gainful employment would be affected by the regulations.

It seems unlikely that the department will give up on its proposed ratio, or alternative means that look at debt load and job placement rates. In a written statement, a spokeswoman said the department is “pleased that many participants in the program community have expressed views and presented information in this important area, and we look forward to considering their comments as they react to what we will propose in our notice of proposed rulemaking.”

Mark Kantrowitz, publisher of Finaid.org and a close observer of the debate over the gainful employment regulations, said he doubts that the department “will be willing to accept improved disclosure as a substitute for the affordable debt restrictions.” It's possible that the department will opt to include "disclosure plus," or the proposal for greater disclosure submitted to the department a few weeks ago by Kaplan Higher Education, DeVry University and Education Management Corporation, in addition to the debt-to-income ratio, he said.

Kantrowitz, who has conducted his own analysis of public data, said the difference in perceived impact indicates “there’s clearly a mismatch in data and I don’t know who is right.” He added: “I’m concerned that both sides are trying to reach conclusions based on inadequate data.” The department has thus far declined to release the data it is using to support its proposals; Miller said that the CCA had filed a freedom of information request for the data underlying the department's proposal, but that it had been rebuffed.

In his letter to Duncan, Miller stresses that the analysis suggests that the department’s proposals would undercut the Obama administration’s goal of expanding access to higher education by shutting down programs that are serving students.

In an interview before the CCA sent its letter, Pauline Abernathy, vice president of the Institute for College Access and Success, called the reduced access claim a “red herring.” The regulations, she said, would ultimately lead to “increased access to meaningful education so that taxpayers aren’t subsidizing fraudulent program” as programs improve to meet the regulatory standards and students flock to successful programs.

Miller said he hopes his group's proposals will spur department officials to change their approach. If not, CCA and its members will try to be heard during the public comment period scheduled for this summer. And, "if they still go ahead," he said, "potentially the courts and potentially Congress."