Department of Education Sends Proposed Gainful Employment Rule to the Office of Management and Budget

by DLA Piper
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As reported on the website for the Office of Management and Budget (OMB), on January 30, the Department of Education (Department) sent its version of the gainful employment (GE) rule to OMB (specifically, the Office of Information and Regulatory Affairs (OIRA)) for review.  Pursuant to Executive Order 12866, this review process typically lasts up to 90 days, with a possibility of a 30 day extension – although it is possible for this process to take longer.

For those that haven’t been following the ins and outs of the GE negotiated rulemaking, in late August/early September the Department proposed a “gainful employment” rule designed to impose a return on investment calculation for programs that are designed to lead to gainful employment in a recognized profession (namely, nearly all programs at proprietary schools, and certificate programs at nonprofit schools).  This proposal was very similar in form to the rule it published in 2011, containing debt-to-income and debt-to-discretionary income measures, but without the repayment rate that was invalidated by a judicial decision in June 2012.  In November, it greatly modified that proposal, including a programmatic cohort default rate — that is, applying the institutional cohort default rate regulations to each program — and added a repayment rate metric, which requires that the relevant cohort of borrowers (all students that left a program in their third and fourth years of repayment) have reduced the principal amount of the loans owed during the cohort period (the portfolio cannot be “negatively amortized”).  In December, however, the Department further revised the proposal, including eliminating the repayment rate metric.  For those interested, the Department maintains a website that has all the proposals from the Department and the negotiators, as well as additional data and analysis.

Given the fairly quick turnaround from the last session (December 16, 2013), my guess is the GE rule at OMB now is fairly consistent with the rule proposed prior to the December 16 negotiation session.  This would mean that a few of the December changes to the rule – (1) the lack of  a repayment rate; (2) a programmatic cohort default rate of 40% or more is no longer grounds for immediate loss of Title IV eligibility; (3) programs can avoid failing by providing students with institutional scholarship to reduce their debt burden; (4) programs are only charged with the debt incurred by students up to the level of tuition and fees charged – would likely be in this version.  It is unclear what the Department would do with other ideas expressed at the negotiation table, but for which there was a lack of data or time to evaluate.  One such proposal was exempting “exceptional performers” — schools with a three-year Cohort Default Rate below 10% — from having to comply with the rule.

Pursuant to Executive Order 12866 (as amednded by Executive Order 13563), OIRA must provide the public with “meaningful participation in the regulatory process.”  This typically means that persons or entities effected by a proposed rule may attempt to schedule time with OIRA to discuss the rule.  This can be a useful meeting, as OIRA typically reviews proposed regulations with a different perspective than the issuing agency.  However, a log of such meetings is publicly available (non-federal employee attendees are listed) and documents provided to OIRA can also be made available to the public.

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