[co-author: Cecilia De Armas]

The regulations would terminate access to federal financial aid for certain programs and increase transparency across all postsecondary programs.

TAKEAWAYS

• The proposed “gainful employment rule” would limit a postsecondary institution’s Title IV eligibility if its graduates’ earnings are below certain thresholds.
• The Education Department would begin publicly reporting information concerning student debt and career outcomes at postsecondary institutions.
• The regulations would enhance the Education Department’s ability to monitor postsecondary institutions it deems to be facing financial risk.

Amidst the focus on President Biden’s student loan forgiveness plan, many postsecondary institutions may have missed the Department of Education’s (ED) notice of proposed rulemaking aimed at increasing accountability for career training programs and transparency into the costs and financial outcomes of nearly all postsecondary programs. Specifically, the proposed regulations cover five topics: (i) financial value transparency and gainful employment, (ii) financial responsibility, (iii) administrative capability, (iv) certification procedures, and (v) the ability to benefit (rules for students without high school diplomas).

Financial Value Transparency and Gainful Employment
Most significantly, the ED’s proposed gainful employment rule would establish two independent metrics that a career training program must meet each year in order to retain its Title IV eligibility: (a) the median annual debt payments of its graduates must be less than 8 percent of the median graduate’s annual earnings or equal to or less than 20 percent of their discretionary earnings (annual earnings minus 150% of the federal poverty guideline for an individual), and (b) the median earnings of program graduates three years after graduation must be above the median earnings of high school graduates between the ages of 25 and 34 in the state where the institution is located. An institution that fails to satisfy either or both metrics in a given year would be required to warn students that its programs risk losing eligibility for federal aid in the future. An institution that fails the same metric twice within a three-year period would lose its Title IV eligibility for a minimum of three years.

Under the aegis of financial value transparency, the regulations also provide for the ED to establish a website that would publicize relevant financial information and career outcomes for postsecondary programs. Each postsecondary institution would be required to provide the ED with certain information that would be set forth in a notice in the Federal Register. The requested information might include, among other things: the primary occupation that the program prepares students to enter and relevant licensure information, the program’s completion and withdrawal rates, the total cost for completing the program (including tuition, fees, books and supplies), and the median debt and median earnings of program graduates. Each institution would also be required to provide prospective students with access to the ED’s website before the student registers or makes a financial commitment to the institution.

Financial Responsibility
The proposed regulations would increase the ED’s ability to monitor institutions it perceives to be at financial risk based on findings that institutional closures are highly disruptive for students and frequently result in the loss of taxpayer funds. The proposed regulations expand the list of triggering events that would allow the ED to respond to potential financial risks, such as requiring an institution to post financial protection or recalculating the institution’s financial responsibility score. These added triggering events would be applied to institutions that are, among other things: (a) required to pay a debt or have been sued by the federal or a state government or qui tam lawsuits where the potential liability, when added into the institution’s financial responsibility score, would result in failure; (b) at risk of losing access to federal aid due to high cohort default rates; (c) inflating their financial responsibility scores; (d) discouraging ED oversight actions; (e) declaring financial exigency or entering a receivership; (f) subject to adverse accreditor actions; (g) experiencing significant fluctuations in federal aid volume; (h) closing programs or locations that enroll significant shares of students; or (i) subject to adverse actions by states or other federal agencies.

Certification Procedures
In addition, the proposed regulations would create a more rigorous process for certifying institutions for participating in title IV and Higher Education Act (HEA) programs. Two of the more noteworthy changes are: (a) institutions would be prohibited from employing, affiliating with or contracting with any individual or entity that has been found to have committed fraud or misconduct involving government funds or was affiliated with another institution that owes a Title IV liability that is not being repaid; and (b) institutions would be precluded under certain circumstances from withholding transcripts from students with an unpaid balance.

It is worth noting that the latter requirement echoes legislation that has been enacted by a number of states in recent years to curtail the practice of transcript withholding, including banning the practice completely and, in the case of New York Education Law § 640, allowing for an award of attorneys’ fees to a student whose challenge prevails in court.

Administrative Capability
The proposed regulations also enhance the ED’s oversight of postsecondary institutions’ administration of financial and career services by, among other things, requiring institutions to advise students to accept the most beneficial types of financial aid available to them and by enabling the ED to scrutinize whether institutions are providing adequate career services to students receiving Title IV assistance. A determination by the ED that an institution’s services are inadequate could lead to the limitation, suspension or termination of its participation in financial aid programs.

Ability to Benefit
Finally, the proposed regulations seek to ensure that states have adequate processes in place to ensure students without a high school diploma have options to access federal financial aid for an eligible career pathway program.

Conclusion
The ED expects to finalize the regulations later this year so that they might go into effect on July 1, 2024. If approved in their current form, the regulations would impose considerable requirements on postsecondary institutions. In advance of that time, institutions should review their programs to determine which of the proposed regulations would apply and whether the program is currently meeting the benchmarks established. Institutions that fall short of the proposed standards should devise a strategy to ensure compliance or risk negative disclosures or losing eligibility for federal aid. In addition, schools should evaluate their current financial and career services to determine whether any additional training is necessary to satisfy those aspects of the new regulations.

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