The Debate over Gainful Employment Rules
Dianne Piché and Scott Simpson
The rapid rise in enrollment at for-profit colleges in recent years set the stage for a new civil rights battle over inequality in higher education. The question for policymakers: Should career education programs be able to participate in federal student financial aid programs if they fail to prepare students for “gainful employment”?
Advocates contend that some for-profit schools have found the ultimate way to guarantee profits: Enroll as many students as possible using the promise of expanded job prospects. Bill the U.S. Department of Education for the highest available amount of federal loans and grants. Then pass the students off to an under-resourced education and job placement program. The formula has helped build a multibillion dollar industry that relies on the Department of Education for up to 90 percent of its profits with no accountability for the quality of education provided to students or their occupational outcomes once they leave school.
The result for students has been devastating. According to U.S. Department of Education data releasedin September 2011, the rate of federal student loan defaults has increased more sharply at for-profit institutions than at other institutions of higher learning. The default rate at for-profit schools (15 percent) is more than double the rate at public institutions (7.2 percent).
In addition, students taking out loans at for-profit schools were responsible for nearly half of all federal student loan defaults within the first three years of repayment, even though students enrolled at such institutions made up only about 12 percent of college students nationwide. The practices reminded many of the free-wheeling mortgage industry that helped bring down the economy just a few years ago.
“When banks misled African-American, Asian-American and Latino borrowers into taking on crushing home mortgage debt they could never hope to pay back, we called it what it was: predatory lending,” Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights, and Rep. Mike Honda, D. Calif., wrote in a June 13 op-ed in Roll Call. “Today, many for-profit colleges have picked up where the subprime lenders left off. They are using the same promise of the American dream as bait to trap vulnerable students—the vast majority of whom are women and minorities—into underperforming schools and saddling them with a lifetime of debt.”
Civil rights groups are concerned because some for-profits have made the lion’s share of their billions in annual profits from low-income, veteran, minority, women, and/or single parent students who fund their educations through the federal financial aid system of loans, grants, and veterans benefits. These communities are the industry’s most coveted markets because the federal aid system guarantees that schools will receive every dollar billed to the government—regardless of whether or not the student pays the loans back or even completes the course of study—resulting in a guaranteed income stream.
As a result, the for-profit college industry has exploded in recent years, with enrollment increasing by 46 percent between 2005 and 2009.
Several trends lead to high default rates at these universities, including:
- The high cost of attendance: Students enrolled at for-profits face an inflated cost per-credit hour—almost double that of public universities. In fact, a Government Accountability Office investigation found multiple instances of recruiters advising enrollees to falsify financial aid forms to maximize the pay out the school would receive from the government.
- Poor quality of education: Many of these schools invest far less on classroom and teaching expenses than they do on sales and marketing. As a result, these schools have lower-than-average completion rates and many have limited success in placing students in their career fields.
- False promises: Many of these schools market themselves as making students career-ready and employable in a new field with placement. This promise is hollow for students who, if they finish at all, are often left with unaccredited certifications or degrees considered subpar.
When students fail to complete a program or graduates without adequate skills, they’re still left on the hook to pay back student loans. When those students eventually default on their loans, taxpayers ultimately pay the bill.
A provision in Higher Education Act (HEA) stipulates that career education programs must prepare students for “gainful employment” to be eligible to receive financial aid dollars. While the “gainful employment” language has been in the law since it was first passed in 1965, it was never enforced by previous administrations or defined in regulation.
As the for-profit sector grew, evidence mounted that the sector was putting more and more students in financial jeopardy while draining federal aid dollars that could have supported more affordable and productive programs. These developments caught the attention of Education Department officials, civil rights groups, student groups, veterans’ organizations, consumer advocates, professors, and public and non-profit colleges.
By defining “gainful employment” with an objective measure of work placement or ability to pay back the student loans to the government, the Education Department would have a clear rationale for determining which career education programs were eligible to receive financial aid funding. This metric would be applied to all career education programs—public, non-profit, and for-profit alike. The department went through a lengthy process of public engagement on rulemaking, which included negotiating sessions with various stakeholders and a public comment period generating over 90,000 documents, to determine how to define “gainful employment.”
Civil rights groups across the board came out in support of a strong definition that would force schools to actually prepare students for jobs in their chosen field.
The resulting draft rules, first proposed in July 2010, faced furious opposition from the for-profit industry, which spent millions of dollars on lobbying, filed multiple lawsuits, and engaged in an all-out public relations blitz campaign. Additionally, these schools engaged in a sophisticated campaign designed to give the impression that minority-focused organizations opposed the rule—when in fact, civil rights groups almost unanimously supported greater industry accountability.
When the Department of Education released the final gainful employment regulations in June 2011, they were considerably weaker than the initial draft despite student and consumer advocacy organizations’ strongly urging them to be strengthened.
Under the department’s definition, programs must meet at least one of the following three measures in at least two years out of any four-year period to maintain eligibility to receive federal dollars:
- at least 35 percent of former students are repaying their loans;
- the estimated annual loan payment of a typical graduate does not exceed 30 percent of his or her discretionary income; or
- the estimated annual loan payment of a typical graduate does not exceed 12 percent of his or her total earnings.
The department also postponed the date at which underperforming programs would be cut off until 2015.
The response from the for-profit industry to the regulations was swift. It they declared an all-out war on the modest regulations. The industry lobbied Congress to introduce several pieces of legislation prohibiting the department from enforcing the law. It continued its public relations and lobbying offensive throughout the year to paint for-profits in a positive light. And instead of accepting the watered down rules that had been met with lukewarm response from civil rights groups, the industry continued to litigate and vociferously oppose the department’s efforts.
The tangled web of weak regulations, pending litigation, and relentless lobbying currently leaves the gainful employment debate alive, with the for-profit industry showing no signs of retreating from the fight.
Dianne Piché is senior counsel for The Leadership Conference on Civil and Human Rights and The Leadership Conference Education Fund and specializes in education issues. Scott Simpson is press secretary for The Leadership Conference and the Education Fund.
