Gainful Employment Rule and Student Loan Debt Counseling: A Perfect Match?

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New regulations that will impose severe requirements on for-profit colleges and career training programs may open the door to an increased need for independent third-party student loan debt counseling. On March 14, 2014, the Obama administration released its “gainful employment” rule that would establish student-loan default thresholds that, if exceeded, could lead to schools losing access to student financial assistance programs authorized under Title IV of the Higher Education Act of 1965, as amended (HEA).

The 841-page rule uses student-loan default rates to determine whether a program’s students are burdened with unpaid debt. Programs with a cohort default rate higher than 30% for three consecutive years may lose access to federal financial aid. Training programs could lose funding if the annual education-debt payments of typical graduates exceed 20% of their discretionary earnings or 8% of their total income. Schools that fail to comply for two out of three years would lose eligibility for funding. At the same time, the Department of Education predicts one million students will lose access to post-secondary education. The gainful employment rule would also require programs to meet applicable accreditation requirements, state or federal licensure standards, and publicly disclose information about the cost, debt, and student outcomes of those programs.

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Topics:  Default, Gainful Employment, Higher Education Act, Student Loans

Published In: Education Updates, Finance & Banking Updates

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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