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US: New “gainful employment” rule finalised

Following what the US Department of Education characterises as the most extensive public input in the Department’s history—and in the wake of months of highly contentious public debate—the Obama administration released its final regulations relating to “gainful employment” on 2 June 2011. Under the formal title Gainful Employment – Debt Measures, the rules provide the framework by which any programme preparing students for employment in a recognised profession can be considered eligible for financing through the federal student aid system. The rules affect most for-profit programmes but also have an impact on relevant certificate and degree programmes at non-profit and public institutions.

Under the new regulations, programmes may be considered to lead to gainful employment if they achieve at least one of three threshold criteria with respect to student debt:

  • at least 35% of former students are repaying their loans (defined as reducing the loan balance by at least USD 1);
  • the estimated annual loan payment of a typical graduate does not exceed 30% of his or her discretionary income or
  • the estimated annual loan payment of a typical graduate does not exceed 12% of her or her total earnings.

The regulations are due to take effect on 1 July 2012 and include new requirements for institutions to publicly disclose “critical consumer information” related to costs and student debt. The new rules also set up a scheme whereby institutions failing the debt measures are not made automatically ineligible for federal financing; instead, loss of federal student aid dollars only kicks in if an institution is found to fall short three times in a four-year period. Institutions ultimately found to be ineligible may not re-apply for eligibility for three years.  

The gainful employment fight was precipitated in the face of mounting data that for-profit higher education providers have been misusing federal funds. Official government statistics indicate that for-profit institutions (which are nearly exclusively vocationally-oriented) enrol 12% of all US tertiary students, but account for 26% of all student loans and 46% of all student loan dollars in default. In seeking to help “protect students from ineffective career college programmes”, the final rules have been welcomed in some quarters, but also criticised by stakeholders on all sides of the issue. Some student advocates argue the regulations are still too lenient, while the for-profit sector (despite winning significant concessions following interim rules published in July 2010) alleges a gross overstepping of bounds by the federal government. Moreover, a Republican Congress could significantly complicate the regulations’ implementation, while the Association of Private-Sector Colleges and Universities, the major body representing US for-profit institutions, is considering a move to sue the federal government, challenging at least three specific aspects of the new rules.

US Department of Education (2 June 2011 press release)

US Federal Register (full text of the new rules)