Department of Education Publishes Gainful Employment Proposal for Negotiated Rulemaking

by DLA Piper
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On August 30, the U.S. Department of Education published a new web page containing ”information about our rulemaking efforts to establish standards for programs that prepare students for gainful employment in a recognized occupation.”  This site includes a draft version of the Department’s gainful employment rule, a comparison between the 2013 draft gainful employment rule and the previously published gainful employment rule, and a number of other documents. In sum, (and this is a preliminary view) the proposed rule:

  • gets rid of the repayment rate metric
  • applies a 10-year amortization schedule for debt from all programs (previously, bachelors programs had 15 year schedule and graduate programs had a 20 year schedule)
  • eliminates the cap on debt (schools could cap median debt to tuition and fees)
  • reduces the debt to earnings threshold from 12% to 8% and debt to discretionary earnings threshold from 30% to 20%
  • revives an earlier concept of being “in the zone” if an institution has a debt to earnings ratio between 8%-12% and a debt to discretionary earnings threshold between 20%-30% in which sanctions are imposed
  • reduces the minimum size of a program to be reviewed from 30 students to 10 students
  • programs lose Title IV eligibility if they fail two out of three years (as opposed to three out of four years) or if a program fails to pass for one year out of four (essentially a cap on the time a program may remain “in the zone”

There are a number of issues we intend to explore about the proposal in the days leading up to the September 9, 2013 negotiated rulemaking session.  One in particular concerns how the Department will collect information on private loan data without violating the prohibition on creating a unit record system.  As you may recall, the subject that was covered explicitly in the March 19 2013 ruling on the Department’s motion to amend the judgment in the court action on the gainful employment rule.

One issue worth looking at now, however, is the effect of the rule.  Here is what the Department has published on what the effect of the new rule will be as opposed to the old. In short – more programs will be subject to the rule (the byproduct of reducing the size of the program (click on the chart to get a better view)  Essentially, while 90% of programs passed under the old debt to earnings ratios, only 79% will pass the rule this time around:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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