At a Glance

• The final regulations are substantively consistent with earlier proposed regulations from ED, including definitions and thresholds for calculating debt-to-earnings (D/E) and earnings premium (EP) metrics.
• Unprecedented program-level data reporting, disclosures, and student acknowledgements will be required of nearly all higher education institutions.
• Absent intervening judicial action or other delay, the Final Rule is effective July 1, 2024.

On October 10, 2023, the U.S. Department of Education (ED) published a Final Rule in the Federal Register (88 FR 70004) adopting new “Financial Value Transparency” (FVT) reporting and disclosure requirements for nearly all programs at all higher education institutions — and also reinstating a “Gainful Employment” (GE) accountability framework for non-degree programs at public and nonprofit institutions and for nearly all programs at proprietary institutions.

In their final form, these regulations require that in order to maintain participation in federal student financial aid programs under Title IV of the Higher Education Act (Title IV), any GE program must meet both a debt-to-earnings (D/E) rate measure and also an earnings premium (EP) benchmark. The Final Rule represents ED’s third attempt in recent years to define the Title IV eligibility of GE programs based on specific debt and earnings metrics. Several aspects of the D/E rate calculations resemble the GE rule that was promulgated in 2014 (2014 Rule) that was subsequently rescinded. However, the Final Rule’s adoption of an EP benchmark, which purports to measure a program’s value by comparing median graduate earnings to those of working high school graduates in the same state, is a substantial addition to the previously effective GE regime and is unchanged from the Proposed Rule. Although these regulations do not directly affect the continued Title IV eligibility of non-GE programs, at its core the FVT framework does involve the unprecedented calculation and disclosure of D/E and EP metrics for non-GE programs.

On December 22, 2023, the American Association of Cosmetology Schools (AACS) sued ED in the Northern District of Texas, alleging that the Final Rule is an arbitrary or capricious agency action under the Administrative Procedures act; that its requirements exceed ED’s statutory authority to regulate Title IV participation; that it violates due process protections; and that it both unconstitutionally compels and restricts speech, among other allegations. (The AACS complaint is available online.) If the FVT/GE regulations are not enjoined, rescinded or otherwise delayed, the Final Rule will take effect on July 1, 2024, and institutions must report their initial tranches of pertinent data to ED by July 31, 2024.

Limited Changes from the Proposed Rule

Few aspects of the Final Rule on FVT/GE requirements differ from the earlier Proposed Rule, which we discussed in a prior alert. Those select revisions are: 

Limitations by geography and program size. The Final Rule exempts programs at institutions located in Puerto Rico and other U.S. territories from the GE rules, but such programs must still report data required for the FVT framework. Additionally, there is a general exemption from both the GE and FVT requirements for institutions that, over the most recently completed four Title IV award years, have offered no groups of substantially similar programs (defined as all programs in the same four-digit CIP code at an institution) with 30 or more completers. ED notes that this exemption will benefit approximately 700 institutions, including 85% of participating foreign schools. (Note that this institution-level exemption differs from the program-specific cohort size threshold. There, any given program with fewer than 30 completers over a four-year period will not have its D/E or EP values published. However, the institution’s reporting obligations are unchanged, and the institution’s other participating programs remain subject to GE as otherwise applicable.) 

Available “transitional” reporting option. Responding to comments expressing concern about the administrative burden associated with reporting voluminous current and historical data at both the program and student levels, ED has provided for a “transitional” reporting option in the Final Rule. Under that provision, institutions may instead report on July 31, 2024, only the two most recent years of cohort data in order to allow ED to generate the resulting program metrics. However, institutions must report the full completement of requested data, including any additional historical data, by July 1, 2026. 

Earliest program warning, acknowledgement and ineligibility dates. ED did not change, but did clarify, the earliest dates on which D/E and EP metrics will be made public and any resulting consequences will take effect. The Final Rule states that ED expects to publish metrics for the first measurement year in “early 2025,” and confirmed that the earliest loss of Title IV eligibility for GE programs would occur in 2026. Institutional warnings for GE programs that could become ineligible in the next award year must be provided to students as of July 1, 2026. The Final Rule delays, however, the requirement for student acknowledgements of non-GE programs having “high debt burden” and “low earnings” designations until 2026. In an additional change from the Proposed Rule, the Final Rule exempts undergraduate non-GE programs from the student acknowledgement requirements altogether.

Additional graduate programs may qualify for lengthier earnings measurement periods. Whereas the Proposed Rule provided that only medical and dental degree programs would be assessed through completer cohorts with longer post-graduation periods than other GE programs, the Final Rule expands the scope of that longer look-back measurement period to include other “qualifying graduate programs.” The Final Rule indicates that such additional graduate programs may potentially include osteopathy, clinical psychology, marriage and family therapy, clinical social work and clinical counseling.

“Debt-to-Earnings” Rates

The Final Rule revives “Debt-to-Earnings” (D/E) rates from the 2014 Rule, with some adjustments to the specific methodology. The D/E rates generally will be calculated using a multiyear cohort of graduates, in most cases reflecting completers from a two-year period, specifically the third and fourth Title IV award years prior to the year for which the most recent data is available at the time of calculation. If that two-year cohort includes fewer than 30 students, then ED will expand the cohort to a four-year period (specifically the third, fourth, fifth and sixth award years prior to the year for which the most recent earnings data is available at the time of calculation). For “qualifying graduate programs” that include but are not limited to medical and dental programs that require residencies following graduation (or which otherwise tend to include lower-earning apprenticeship or residency periods following graduation), the cohort will be completers from the sixth and seventh award years prior to the measurement year. In a change from the Proposed Rule, the Final Rule also permits institutions to avail themselves of a “transitional” reporting period and metrics for all eligible programs for the first six years in which FVT reporting occurs under the rule. (The Proposed Rule only permitted transitional reporting for non-GE programs.) Such transitional reporting would include only the two most recently completed award years, for which ED will calculate transitional D/E rates and earnings premium measures using the median debt for the reported period and the corresponding earnings for six years. As indicated above, because the D/E rates and EP figures are used to determine not only the continued eligibility of GE programs, but also the relative debt burden of all programs under the FVT transparency initiative, ED will calculate such rates for both GE and non-GE programs.

Student debt pertinent to D/E calculations is not limited to Title IV loans. Institutions must report — and ED also will include in its determination of a program’s “median annual loan payment” — private education loans incurred for enrollment in the program and any other amounts owed by program completers (including any institutional extensions of credit or unpaid institutional charges). Any institutional grants and scholarships not requiring repayment, however, are excluded. The amortization period applied to a student’s debt depends on the credential level of the program (as was true in the 2014 rule), and the interest rate applied to the calculation would be a specified three-year or six-year average also based on credential level.

After confirming with institutions the “completer list” for each educational program cohort (differentiated by using six-digit CIP codes), ED will obtain from a still-unspecified federal agency the “median annual earnings” of the completing cohort. Using the median annual loan payment and median annual earnings, ED will then calculate both an “Annual D/E Rate” by dividing the cohort’s median annual loan payment by its median annual earnings, and a “Discretionary D/E Rate” by dividing the cohort’s median annual loan payment by its median annual discretionary earnings (which subtracts from the median annual earnings 150% of the most recently published HHS Poverty Guideline for a single individual). If a program’s Annual D/E Rate exceeds 8% and its Discretionary D/E Rate exceeds 20%, it will be considered to fail the D/E metric and will be designated by ED as a “high debt burden” program. Note that a program “passes” the D/E rate metric if it passes the annual rate analysis but not the discretionary rate analysis, or vice versa; a program must fail both the annual and discretionary D/E rate analysis to “fail” the D/E rate test overall. Furthermore, even for non-GE programs whose Title IV eligibility is not conditioned on passing D/E rates, institutions must nonetheless report the pertinent program and student-level data to allow ED to calculate D/E rates for all programs.

Regulatory Consequences for “High Debt Burden” or “Low-Earning” Programs

ED will calculate and disseminate the above metrics for both GE and non-GE programs, meaning that nearly all programs offered by any Title IV participating institution will be potentially subject to the “high debt burden” and “low-earning” designations. (Approved prison education programs and comprehensive transition and postsecondary programs are excluded.) The consequences of those designations vary substantially, however, depending on whether a program is a GE program or non-GE program.

GE Programs. If a GE program fails either (1) both D/E rate calculations, or (2) the EP measure, in any “two out of three consecutive award years” for which such rates are calculated, it becomes ineligible for Title IV financial aid. If a GE program loses eligibility under these circumstances, the institution may not “seek to reestablish” its eligibility, nor that of a “substantially similar” program (as determined by CIP code and credential level) for three years. This three-year ineligibility period also applies if the institution voluntarily discontinues a program after it has failed the D/E rates or EP measure in a single year and is therefore at risk of losing eligibility. 

The Final Rule also requires institutions to warn current and prospective students of a GE program if the program could become ineligible for Title IV in the next award year for which D/E rates or the EP measure are calculated, meaning that failing a single metric in a single year will result in the application of the student warning. The specific warning language will be composed by ED, and further will be administered through an ED website. The institution would be prohibited from disbursing Title IV funds to students in pertinent GE programs until and unless the student acknowledges the program’s potential future loss of eligibility.

Non-GE Programs. Although subject to the same D/E and EP determinations as GE programs, the failure of a non-GE program — generally, a degree program at a public or private nonprofit institution — to satisfy those metrics will not result in loss of Title IV eligibility. Nor does the Final Rule require any acknowledgement of the metrics by students in undergraduate non-GE programs. However, prior to disbursing Title IV funds to students in a non-GE graduate program with failing D/E rates, students in the program must execute a required acknowledgment of the program’s “high debt burden” designation through an ED-hosted website. If a non-GE program has a passing D/E rate but fails the EP measure, no student acknowledgement would be required prior to Title IV disbursements, though the disclosure requirements remain.

Expanded Reporting Obligations and Disclosures for Nearly All Programs

For all institutions, the Final Rule necessitates new and broad data reporting to ED in order to effectuate the D/E rates and EP measures. Among other things, all institutions will need to provide ED with a “completer list” for each program (whether GE or non-GE), in order for ED to determine the applicable earnings for each cohort in connection with the FVT framework and analyses for all programs. For each student, ED will require extensive information including but not limited to: enrollment dates and attendance status; annual cost of attendance including allowances for room, board, books and supplies; residency tuition status based on the student’s location; and all grants, scholarships, and both Title IV and non-Title IV educational loans received by the student. These and other institutional reporting obligations take effect on July 31, 2024, even if institutions initially avail themselves of the more limited “transitional” reporting obligations. 

The Final Rule also provides that ED will establish a new disclosure website listing the following data on all Title IV participating programs, whether GE or non-GE:

• Primary occupations that the program prepares students to enter, along with links to occupational profiles on O*NET
• Completion rates and withdrawal rates for full-time and less-than-full-time students
• Published program length in calendar time
• Total number of individuals enrolled in the program during the most recently completed award year
• D/E rates as calculated by ED (including “High Debt Burden” designations, as applicable)
• EP measures as calculated by ED (including “Low-Earnings” designations, as applicable)
• Loan repayment rates
• Program costs
• Percentage of students who received a Title IV loan, a private loan, or both for enrollment in the program
• Median loan debt of students who completed the program during the most recently completed award year or for all students who completed or withdrew during that award year
• Median earnings of students who completed the program or of all students who completed or withdrew from the program, during a period determined by ED
• Programmatic accreditation information
• Supplemental performance measures under revised Title IV certification requirements
• Links to the College Navigator website, or its successor site, or other similar federal resources.

The regulations further require that institutions provide direct (and in some instances “prominent”) links to ED’s disclosure website, including on institutional web pages providing academic, admissions or financial aid program information about the school to the public or to any prospective or enrolled student.

Additional Considerations for GE Programs

Under the Final Rule, no later than December 31, 2024, an institution must submit a certification to ED from its most senior executive officer that each of its currently eligible GE programs (as indicated on its Title IV Eligibility and Certification Approval Report) is approved by a recognized accrediting agency or is otherwise included in the institution's accreditation by its recognized accrediting agency, or, if the institution is a public postsecondary vocational institution, the program is approved by a recognized state agency for the approval of public postsecondary vocational education in lieu of accreditation.

A separate set of final regulations issued by ED on October 31, 2023, include additional provisions related specifically to GE programs. Those regulatory changes pertain to, among other things: 

• Certification of a GE program to participate in Title IV based on the program’s length
• Administrative capability of an institution as related to the (1) adequacy of an institution’s career services relative to the percentage of students enrolled in GE programs and (2) percentage of Title IV funds disbursed to GE programs that fail the D/E or EP measures
• Financial responsibility triggers for letters of credit when at least 50 percent of an institution’s Title IV disbursements are to “failing” GE programs.