- The problem is not that the gainful employment regulations overreach, but that they do not reach far enough
- Proposed "gainful employment" reforms represent something of a crescendo
- Current push to measure debt-to-income ratio could represent opportunity for accountability for all institutions downstream
This past Monday, the Department of Education proposed "gainful employment" rules that will regulate postsecondary vocational programs, primarily those offered by for-profit colleges, on the basis of their graduates' ability to pay back their federal student loans. Proponents of higher education reform should welcome this move, but not because it targets unscrupulous actors in the for-profit sector. More importantly, the initiative makes a rhetorically significant shift: it places postsecondary institutions and the economic value of the education that they provide at the center of discussions about student loans and college costs. It also adds a new and necessary dimension to the outcome data that the federal government can link directly to individual institutions of higher education.
"Expanding a proposed rule intended to cover a minority of postsecondary institutions to the entire sector might seem like a long shot."
The problem is not, as some critics would have it, that the gainful employment regulations overreach, but that they do not reach far enough. The current proposal singles out one set of postsecondary institutions for intense scrutiny and leaves the rest to operate as they have, feeding on federal loan dollars without having to show much in return, other than keeping their two or three-year default rate under a certain threshold. For these institutions, students who carry excessive debt and/or default after a three-year window are mainly the government's problem, not theirs. As a result, prospective students looking to choose a college do not have access to even the most basic facts about how their future income or debt burden may vary depending on the institution that they choose. To change that, federal and state governments should embark on a broader effort to link students' post-graduation success to the institutions that they attend, to make that information public and accessible, and to attach institution-level sanctions and rewards to performance on these indicators.
In short, policymakers should take the pro-accountability ideas underlying "gainful employment" and super-size them. Extending the effort to cover all colleges and universities that receive federal student loans would provide consumers with much-needed information about institutional quality and return on investment. The question is whether the latest foray into "gainful employment" regulations will remain a shortsighted attempt to bring greater accountability to one small sector of the postsecondary world. If the past is a guide, it could prove to be the proverbial camel's nose under the tent flap that accountability proponents have been looking for.
Assessing Gainful Employment... But Only For Some
The proposed "gainful employment" reforms represent something of a crescendo in a long-simmering debate about funneling student loan dollars to institutions of dubious quality that prepare students for a given occupation. The idea is relatively simple, though its implementation is more complicated: federal regulators will collect debt-to-income ratios (aggregate and discretionary income) and repayment rate information for graduates of programs designed to prepare people for a "recognized occupation." The debt-to-income ratio serves as a proxy for whether graduates were able to land a good job upon completing the program. Those programs that fail to reach federally-mandated thresholds on all three of these measures will be ineligible to receive federal loan dollars; those that meet the minimal standard on one metric will be forced to restrict their enrollments until their record improves. Importantly, the proposal calls on the Department of Education to work with an "unspecified government agency" to link student-level earnings data to information furnished by the institutions about completion dates and loan debt.
While the new rules would apply to a subset of programs offered at public and non-profit two-year colleges, almost all for-profit programs would fall under the regulation. Indeed, the proposed rule explicitly singles out for-profit colleges as the catalyst for the regulation, arguing that "there are reasons for concern that some students attending for-profit colleges have not been well-served" (see page 14). (For excellent coverage of the notice of proposed rulemaking, see Jennifer Epstein's piece in Inside Higher Education.)
Because for-profits are quite expensive, serve many low-income and minority students, and generate a profit, they may be a logical place to start in an effort to hold schools accountable for the success of their graduates. It is certainly a politically prudent place to begin. But this should not be the end of the line. The labor market success of graduates must be a central concern for all institutions of higher education, not just those with a profit motive and not only for vocational programs. Moreover, this information should be made available to prospective students, who can then shop around for the school that has a track record of producing a high percentage of employable graduates at an affordable cost.
At present, consumers know next to nothing about what kind of post-graduation outcomes they can expect if they attend a particular postsecondary institution versus another. Colleges simply do not collect or make such data public, and federal and state governments have not yet gotten into the business of linking employment and wage data to particular postsecondary institutions.
As a result, outside of the so-called cohort default rate that the Department of Education currently calculates for postsecondary institutions (which tracks the percentage of students that default on their federal loans two years after entering repayment), there is little incentive for colleges and universities to pay much attention to what happens to their students, and their loans, after they leave school. Those who represent colleges and universities--for-profit and non-profit alike--even resist any effort to suggest that high default rates may be a commentary on the poor quality of education provided at some institutions. In a recent report on default rates in the Chronicle of Higher Education, for example, the senior vice president for government relations of the American Association of Community Colleges argued that default rates are a "crude proxy" for quality, particularly because relatively few students at community colleges borrow to attend. When asked who was to blame for increasing default rates, if not colleges, the AACC official responded, "I don't know how to answer that question . . . But whoever is ultimately responsible, it seems like it's a really severe problem."
Unfortunately, the current regulatory regime that governs most postsecondary institutions enables this refusal to accept responsibility, and students and taxpayers are worse off because of it.
The move to measure gainful employment could change all that, but only if policymakers treat this recent proposal as the opening salvo in a broader battle to collect and link information on earnings and debt loads to particular postsecondary institutions. The new regulation places these elusive pieces of outcome data directly under the scrutiny of federal regulators and, potentially, the consumers they are trying to protect. In its current form, it will also set a precedent for linking individual-level income data from another federal agency to the postsecondary institution those individuals attended. Shouldn't this kind of data be available to prospective students of any college or university? How can we expect students to make such a consequential investment decision without it? And shouldn't we use these metrics to determine institutional eligibility for participation in Title IV loan programs?
The canard that only for-profit colleges and universities that offer vocational programs are "overpromising and under-delivering" is ultimately untenable. As Dominic Brewer and William Tierney, professors at the University of Southern California's Rossier School of Education, wrote recently:
Presumably philosophy majors who graduate from a public university might have similar, if not greater, issues with regard to debt load relative to earnings potential, but the traditional institutions are exempted from this proposed regulation.
Expanding a proposed rule intended to cover a minority of postsecondary institutions to the entire sector might seem like a long shot. Before we lose hope, however, it is worth recalling that the most commonly cited postsecondary outcome--the standard six-year graduation rate first required under the Student Right to Know Act of 1990--came into existence as a propitious side-effect of Senator Bill Bradley's desire to measure the rate at which scholarship athletes were graduating from college. As we know now, before long the graduation-rate measure covered all first-time, full-time students at Title IV institutions. The current push to measure debt-to-income ratio for a subsection of the postsecondary world could represent another opportunity to create more meaningful accountability for all institutions downstream. If policymakers have the foresight to collect and publicize "gainful employment" information for all postsecondary institutions, there is plenty of reason to believe that the benefits to students, graduates, and the government would be far-reaching indeed.
Andrew P. Kelly is a research fellow at AEI.