EAB Primer: What do the federal 'gainful employment' standards mean for higher education?

The two-pronged approach to regulating community college and for-profit programs

The Obama administration's "gainful employment" standards announced in October 2014 will apply tougher regulations to vocational and non-degree programs at community colleges and for-profit institutions.

The two-pronged regulations were developed to address concerns that programs are:

  • Not sufficiently preparing students for jobs;
  • Overcharging for low-paying job preparation;
  • Experiencing low completion rates; and
  • Misleading students via deceptive recruitment techniques.

Starting July 1, 2015, programs that fail to meet the new benchmarks could lose their portion of the $22 billion in federal student-aid given annually to gainful employment programs under Title IV. The Department of Education estimates that around 1,400 programs—99% run by for-profits—will fail the test initially.

The law assigns grades to programs based on comparing a typical graduate's annual loan payments compared to her annual salary:

Grade

Criteria

Pass

Loan payments below 8% of total (or 20% of discretionary) earnings.

Zone

Loan payments fall between 12% and 8% of total (or 20% and 30% of discretionary) earnings.

Fail

Loan payments above 12% of total and 30% of discretionary earnings.

Ineligible for Title IV funding

Programs that receive a failing grade two out of three consecutive years or stay in the warning zone for four consecutive years.

 

Additionally, a transparency framework requires programs to report and disclose student outcomes via a disclosure template. The Department of Education will track default and completion rates, debt levels, and wages of former students. Such information will be available to the public to better inform potential students of program value, but will not factor into the financial penalties.

Sources: (Fain, Inside Higher Ed, 10/30/14; Department of Education Fact Sheet, 10/30/14; AP/Washington Post, 10/30/14; Federal Register, 10/31/14; Farmer, Campus Technology, 11/4/14; U.S. Department of Education media release, 10/30/14).


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