At a Glance

• ED has proposed an expansive regulatory regime that would publicly designate the “financial value” of all educational programs at all Title IV participating institutions of higher education.
• Although the proposal has Title IV eligibility consequences only for non-degree programs at public and private nonprofit institutions, and all programs at proprietary institutions, it also would require unprecedented reporting, disclosures and student acknowledges of all institutions.
• Public comments are due June 30, 2023, with final regulations expected to be effective July 1, 2024.

On May 19, 2023, the U.S. Department of Education (ED) published a Notice of Proposed Rulemaking (the Proposed Rule) in the Federal Register that would substantially amend and expand the regulatory requirements to which all postsecondary institutions participating in federal student financial aid programs under Title IV of the Higher Education Act (Title IV) are subject. This alert summarizes (1) the Proposed Rule’s reinstatement and expansion of specific earnings-based metrics and other requirements governing the Title IV eligibility of “gainful employment” (GE) programs, which are non-degree programs at public and private nonprofit institutions and all programs at proprietary institutions, and (2) ED’s proposal to further calculate the same earnings-based metrics for all non-GE programs, which are degree programs at public and private nonprofit institutions, and to require related disclosures and student acknowledgements associated with such metrics for non-GE programs. The provisions of the Proposed Rule relating to ED’s certification, financial responsibility, administrative capability and ability-to-benefit regulations are summarized in a separate alert available here.

As the Proposed Rule reflects ED’s third attempted iteration of a comprehensive regulatory regime for GE programs, since the most recent GE rule was rescinded in 2019 by the prior administration, many of its elements resemble the GE rule that was promulgated in 2014 (2014 Rule). The Proposed Rule differs from the 2014 Rule in certain fundamental respects, however, particularly by including an eligibility metric for GE programs tied to the earnings of high school graduates lacking any postsecondary education, and its use of the same GE program metrics to publicly designate the “financial value” of non-GE programs.

Public comments on the Proposed Rule (Docket ED-2023-OPE-0089) must be submitted to ED no later than June 20, 2023, via the Federal e-Rulemaking Portal. Following its review of comments, ED is expected to publish final regulations on these topics by November 1, 2023, and such final regulations would take effect on July 1, 2024. As further described below, if the final rule adopts the institutional reporting requirements set forth in the Proposed Rule, institutions will need to begin reporting extensive data to ED by July 31, 2024.

Reinstated “Debt-to-Earnings” Rates

The Proposed Rule revives the “Debt-to-Earnings” (D/E) rates from the 2014 Rule, with some adjustments to the specific methodology utilized to evaluate the debt burden incurred by program completers relevant to their subsequent earnings. As with the 2014 Rule, the D/E rates generally would be calculated using a multiyear cohort of graduates, in most cases reflecting completers from a two-year period (specifically the third and fourth 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 medical and dental programs that require residencies following graduation, the cohort will be completers from the sixth and seventh award years prior to the measurement year. Unlike the 2014 Rule, which was limited to GE programs, ED will calculate D/E rates for both GE and non-GE programs.

The debt to be utilized for the D/E calculations is not limited to Title IV loans. Institutions will be required to 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). Institutional grants and scholarships not requiring repayment, however, are excluded. As under the 2014 Rule, the annual loan payment methodology would apply different amortization periods depending on the credential level of the program, and the interest rate applied to the calculation would be a specified three-year or six-year average based on credential level.

After applying a process with institutions to confirm the students to be included when calculating the D/E rates for a particular cohort – the “completer list” for each educational program, to be differentiated by using six-digit CIP codes – ED will obtain from an unspecified federal agency the “median annual earnings” of completers in the cohort. Earnings data under the 2014 Rule was provided by the Social Security Administration, but the Proposed Rule suggests future earnings data could instead be sourced from the Internal Revenue Service, the Census Bureau or the Department of Health and Human Services (HHS).

Using the median annual loan payment and median annual earnings, ED will then calculate both (1) an “Annual D/E Rate” by dividing the cohort’s median annual loan payment by its median annual earnings, and (2) 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.

New “Earnings Premium” Test

The Proposed Rule also introduces a new “Earnings Premium” (EP) test applicable to both GE and non-GE programs. This test again uses the median annual earnings of the pertinent completer cohort and subtracts from it an “earnings threshold” that generally will be the median annual earnings for working or unemployed adults between the ages of 25-34, in the state where the institution is located, who have only a high school diploma or GED. (If fewer than 50% of the students in the program are located in the state where the institution is located while enrolled, the earnings threshold will be derived from national statistical data.) If the program’s resulting EP is zero or negative (i.e., it does not show a positive effect on earnings compared to only completing high school), ED will designate it as a “low-earning” program.

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

As noted above, ED proposes to calculate and disseminate the above metrics for both GE and non-GE programs, meaning that all programs offered by all Title IV participating institutions 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. Unlike the 2014 Rule, the Proposed Rule includes no “zone” category in which a program may continue to receive Title IV funds for a limited period while seeking to improve its metrics. And, 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 Proposed Rule also requires institutions to warn current and prospective students if its GE 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 under the Proposed Rule to the same D/E and EP determinations as GE programs, failure by a non-GE program to satisfy those metrics will not result in loss of Title eligibility. Rather, an institution would not be permitted to disburse Title IV funds to students in a non-GE program with failing D/E rates until students executed a required acknowledgment of the program’s “high debt burden” designation. Although pertinent disclosures would be required, as discussed below, no student acknowledgement would be required prior to Title IV disbursements if a non-GE program has a passing D/E rate but fails the EP measure.

Expanded Disclosures for All Programs

The Proposed Rule contemplates a new ED disclosure website that would list the following for all Title IV participating programs (both GE and non-GE programs):

• 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 (as described in our related alert)
• Links to the College Navigator website, or its successor site, or other similar federal resources

The regulations would 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, or to any prospective student, or to any enrolled student.

Reporting Obligations for All Institutions

For all institutions, the Proposed Rule will necessitate reporting of broad new data to ED 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. 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 could take effect as early as July 31, 2024.

Additional Considerations for GE Programs

As described in our related alert, the Proposed Rule includes new certification requirements for programs that are designed for occupational or professional licensure, including GE programs. It also would limit the length of GE programs and consider an institution not to be financially responsible (thereby requiring a letter of credit or other surety to ED) if at least 50% of the institution’s Title IV funds are for programs that fail the GE metrics for continued eligibility. The Proposed Rule also would deem an institution not administratively capable for Title IV participation if 50% of its revenue or 50% of its student enrollments are from programs that fail GE metrics. Each of these matters can have significant consequences on an institution’s continued Title IV participation, including provisional certification, placement on a heightened cash management status, and other limitations and conditions.