On Wednesday, the US Department of Education released the much-awaited “gainful employment rules.” The new rules will determine program-specific eligibility for federal financial aid. First introduced in 2014 by the Obama administration, the rules attempt to restrict federal financial aid for programs whose graduates don’t earn enough to repay their student loans.
In this iteration, the gainful employment rules will take aim at certificate programs. Although the intention is to focus on private, for-profit programs, the new rules will also apply to public and private, non-profit institutions.
ED is right to focus on certificate programs. Eight out of ten certificate holders do not earn more than $40,000 four years after graduation. On the whole, that means certificate earners see the lowest short-term and long-term economic benefits from non-degree programs.
All certificate programs must pass two tests to remain eligible for federal financial aid. In the first test, graduates may not have educational debt payments that exceed 8% of their earnings and/or 20% of their discretionary income. If a program exceeds these guidelines, ED will consider it to be a “high-debt” program.
In the second test, ED will compare the earnings of a graduate three years after graduation to those of a typical high school graduate between the ages of 25 and 34. ED will flag programs whose graduates earn less than the median high school graduate as “low-earning.” Either a high-debt or low-earning designation can exclude a program from being able to offer federal financial aid. If a program fails either or both tests in a single year, it will be required to warn prospective and current students that the program is in danger of losing federal financial aid.
Gainful employment rules will impact certificate programs
If the program fails one or both tests in two of three consecutive years, ED will disqualify the program from eligibility to distribute federal financial aid to enrollees. According to ED, about one of five current certificate programs would fail the high-debt test, the low earnings test, or both.
While the new gainful employment rules aren’t designed to snag programs at public institutions, it is notable that 20% of those tested fail one or both tests. It’s also important to note that the new rules focus on certificate programs. It is plausible that the rules, which will take effect in July 2024, will lead institutions to drop floundering programs.
ED still needs to put the finishing touches on certain elements of the plan, including how it will evaluate the adequacy of a school’s career services. The department will publish the finalized rules in November 2023 and begin enforcement next summer.
Photo Credit: Duncan Cumming , via Flickr
