For-profit degrees in jeopardy from new gainful employment rule

With pressure mounting on U.S. lawmakers to finally do something about student debt, congress is seeking to penalize college programs that leave graduates financially worse off.

The for-profit education sector, which has long been criticized for its predatory practices towards low-income students, is a particular target.

In this article, we ascertain which for-profit college degrees could be penalized by the new government gainful employment regulation.

The new GE rule

The Department of Education’s new gainful employment (GE) rule creates a framework for holding schools whose graduates are floundering in debt accountable. The rule assesses individual degree programs based on 2 economic metrics:

1. the relationship between debt and earnings;
2. an earnings premium, which considers how much more a student is likely to earn after graduating from each program measured.

Failure to “pass” either of these 2 economic metrics could result in a school losing access to Title IV funds, effectively shuttering these poorly performing programs.

“Failure to pass the new GE rule could result in a school losing access to Title IV funds”

Incidentally, these 2 metrics feature prominently in Degreechoices’ own college and program ranking methodology.

This is part 2 in an ongoing series of articles analyzing how new GE regulations may affect the higher education market. Our first article looked at graduate programs. We found that close to 23.4% of programs disclosing enough data to measure would fail to pass the new GE thresholds.

In this article we focus on undergraduate for-profit programs.

Methodology

The gainful employment rule assesses for-profit programs using 2 separate debt metrics: a debt-to- earnings ratio and a discretionary earnings test.

The debt-to-earnings ratio requires that annual debt payments do not exceed 8% of annual earnings. Meanwhile, the discretionary earnings test requires a program to show that debt accounts for no more than 20% of a student’s discretionary income.

Discretionary income is the difference between the student’s earnings and 150% of the federal poverty guideline for a single individual – total earnings of $21,870.

Out of a total of 1,941 for-profit bachelor’s programs in our database, 1,130 have disclosed enough data for us to analyze their ability to fulfill debt-to-earning requirements. We consider all programs, regardless of enrollment size.

4-year median earnings and the median federal loans figures are used to determine program performance. Note that the official GE rules will also include private loan figures.

We also compared each program’s earnings against a national earnings high-school threshold of $25,000. When compared to this threshold, only 9 failed.

Findings

• 683 out of 1,130 total measured programs, or 60%, fail the annual debt-to-earnings test.
• 432 out of 1,130 total programs, or 38%, do not pass the discretionary earnings threshold.
• 424 out of 1,130 total programs, or 37.5%, fail both tests and would be in danger of losing access to federal funds under the new gainful employment rule.

We also compared each program’s earnings median against a national 25 to 34-year-old high school graduate earnings threshold of $25,000. Only 15 programs, 11 of which are in the fine arts, demonstrate median earnings of less than $25,000.

College performance comparison

We limit comparison to for-profit colleges with 5 or more programs with enough data to measure. This leaves us with a total of 38 bachelor-granting for-profits out of the 175 schools in our database.

The for-profits fight back

Not everyone is chuffed about these new regulations. Pushback comes from 3 general areas – the for-profit educational sector, their congressional representatives, and at-risk certification programs, represented notably by the Association of American Cosmetology Schools (AACS).

Career Education Colleges and Universities, a for-profit lobbyist group, released a statement slamming the committee for “weaponizing” gainful employment against the for-profit industry.

House Education Committee chairwoman Virginia Foxx (R-SC) had this to say on the regulations: “For an agency that purports to serve the needs of veterans, minorities and other disadvantaged students, the department’s announcement today is steeped in hypocrisy.”

She added: “It has proven time and again that it would rather march to the beat of its own bureaucratic drum than work to foster both accountability and transparency in postsecondary education.”

According to OpenSecrets, a non-profit that tracks campaign financing and lobbying, the for-profit education sector is Foxx’s second largest contributor by industry.

For their part, the AACS has claimed that the beauty industry is “under attack from the Department of Education,” as more than “two-third of the private cosmetology programs … would essentially [need to] close” because of GE.

Final thoughts

Some might argue that if 66% of these schools must close for leaving students worse off than they were before they entered university, it might be a good thing. And maybe we don’t really need so many cosmetology schools anyways. In any case, aspiring hairdressers may benefit if they’re allowed to practice their trade without needing to obtain a diploma.