Comments on the Proposed Gainful Employment Regulations

The U.S. Department of Education is currently accepting public comments (through September 13) on their proposal to rescind the Obama administration’s gainful employment regulations, which had the goal of tying federal financial aid eligibility to whether graduates of certain vocationally-focused programs had an acceptable debt-to-earnings ratio. My comments are reprinted below.

September 4, 2018

Annmarie Weisman

U.S. Department of Education

400 Maryland Avenue SW, Room 6W245

Washington, DC 20202

Re: Comments on the proposed rescinding of the gainful employment regulations

Dear Annmarie,

My name is Robert Kelchen and I am an assistant professor of higher education at Seton Hall University.[1] As a researcher who studies financial aid, accountability policies, and higher education finance, I have been closely following the Department of Education (ED)’s 2017-18 negotiated rulemaking efforts regarding gainful employment. I write to offer my comments on certain aspects of the proposed rescinding of the regulations.

First, as an academic, I was pleasantly surprised to see ED immediately referring to a research paper in making its justification to change the debt-to-earnings (D/E) threshold. But that quickly turned into dismay as it became clear that ED had incorrectly interpreted what Sandy Baum and Saul Schwartz wrote a decade ago after Baum clarified the findings of the paper in a blog post.[2] I am not wedded to any particular threshold regarding D/E ratios, but I would recommend that ED reach out to researchers before using their findings in order to make sure they are being interpreted correctly.

Second, the point that D/E ratios can be affected by the share of adult students, who have higher loan limits than dependent students, is quite valid. But it can potentially be addressed in one of two ways if D/E ratios are reported in the future. One option is to report D/E ratios separately for independent and dependent students separately, but that runs the risk of creating more issues of small cell sizes by splitting the sample. Another option is to cap the amount of independent student borrowing credited toward D/E ratios at the same level as dependent students (also addressing the possibility that some dependent students have higher limits due to Parent PLUS loan applications being rejected). This is less useful from a consumer information perspective, but could solve issues regarding high-stakes accountability.

Third, ED’s point about gainful employment using a ten-year amortization period for certificate programs while also offering 20-year repayment plans under REPAYE is well-taken. Switching to a 20-year period would allow some lower-performing programs to pass the D/E test, but it is reasonable given that ED offers a loan repayment plan of that period. (I also approach the idea that programs would lose Title IV eligibility under the prior administration’s regulations as being highly unlikely based on experiences with very few colleges losing eligibility based on high cohort default rates.) In any case, aligning amortization periods to repayment plan periods makes sense.

Fourth, I am highly skeptical that requiring institutions to disclose various outcomes on their own websites would have much value. Net price calculators, which colleges are required to post under the Higher Education Act, are a prime example. Research has shown that many colleges place these calculators on obscure portions of their website and that information is often up to five years out of date.[3] Continuing to publish centralized data on outcomes is far preferable than letting colleges do their own thing, and highlights the importance of continuing to publish outcomes information without any pauses in the data.

Fifth, while providing median debt and median earnings data allows analysts to continue to calculate a D/E ratio, there is no harm in continuing to provide such a ratio in the future alongside the raw data. There is no institutional burden for doing so, and it is possible that some prospective students may find that ratio to be more useful than simply looking at median debt. At the very least, ED should conduct several focus groups to make sure that D/E ratios lack value before getting rid of them.

Sixth, while it is absolutely correct to note that people working in certain service industries receive a high portion of their overall compensation in tips, I find it dismaying as a taxpayer that there is no interest in creating incentives for individuals to report their income as required by law. A focus on D/E ratios created a possibility for colleges to encourage their students to follow the law and accurately report their incomes in order to increase earnings relative to debt payments. ED should instead work with IRS and colleges to help protect taxpayers by making sure that everyone pays income taxes as required.

In closing, I do not have a strong preference about whether ED ties Title IV eligibility to program-level D/E thresholds due to my skepticism that any sanctions would actually be enforced.[4] However, I strongly oppose efforts by ED to completely stop publishing program-level student outcomes data until the College Scorecard data are ready (which could be a few years). Continuing to publish data on certificate graduates’ outcomes in the interim is an essential step since all sectors of higher education already have to report certificate outcomes—meaning that keeping these data treat all sectors equally. Publishing outcomes of degree programs would be nice, but not as important since only some colleges would be included.

As I showed with my colleagues in the September/October issue of Washington Monthly magazine, certificate students’ outcomes vary tremendously both within and across CIP codes as well as within different types of higher education institutions.[5] Once the College Scorecard data are ready, this dataset can be phased out. But in the meantime, continuing to publish data meets a key policy goal of fostering market-based accountability in higher education.

[1] All opinions reflected in this commentary are solely my own and do not represent the views of my employer or funders.

[2] Baum, S. (2018, August 22). DeVos misinterprets the evidence in seeking gainful employment deregulation. Urban Wire. https://www.urban.org/urban-wire/devos-misrepresents-evidence-seeking-gainful-employment-deregulation.

[3] Anthony, A. M., Page, L. C., & Seldin, A. (2016). In the right ballpark? Assessing the accuracy of net price calculators. Journal of Student Financial Aid, 46(2), 25-50. Cheng, D. (2012). Adding it all up 2012: Are college net price calculators easy to find, use, and compare? Oakland, CA: The Institute for College Access and Success.

[4] For more reasons why I am skeptical that all-or-nothing accountability systems such as the prior administration’s gainful employment regulations would actually be effective, see my book Higher Education Accountability (Johns Hopkins University Press, 2018).

[5] Washington Monthly (2018, September/October). 2018 best colleges for vocational certificates. https://washingtonmonthly.com/2018-vocational-certificate-programs.