Department of Education Releases Proposed Rules on Accountability for Certificate and For-Profit Programs and Transparency into Unaffordable Student Debt

Today, the U.S. Department of Education (Department) released proposed regulations to establish the strongest set of safeguards ever to protect students from unaffordable debt or insufficient earnings from career training programs, along with new measures to increase transparency across all postsecondary programs. The proposal would create the strongest-ever Gainful Employment (GE) rule, which would terminate access to Federal financial aid for career training programs that routinely leave graduates with unaffordable debt burdens or with earnings that are no higher than workers without any education beyond high school. The proposed GE rule is estimated to protect more than 700,000 students annually who would otherwise enroll in one of nearly 1,800 low-performing programs, because access to postsecondary programs that produce poor outcomes is not really access at all. These accountability measures will not only better protect students enrolled in low-financial-value programs, but will also encourage improvements across all of higher education.

The proposed regulations would also bring increased transparency to the true costs and financial outcomes of nearly all undergraduate and graduate degree programs.  This includes disclosures of what students and families are likely to pay out-of-pocket for a given program and a requirement that students acknowledge this information before receiving federal financial aid to attend programs that consistently leave participants with high debt burdens.

“President Biden has taken unprecedented steps to fix our broken student loan system and help millions of Americans struggling with student debt, creating new opportunities for borrowers, their families, and their communities. At the same time, we need to hold colleges accountable for unaffordable costs and better protect students from programs that fail to deliver real value and upward mobility,” said U.S. Secretary of Education Miguel Cardona. “The rules proposed today are about helping ensure that when students invest in a postsecondary education, they get a solid return on investment and a greater shot at the American dream.”

Today’s announcement is part of the Biden-Harris Administration’s ambitious reimagining of college finance to ensure that all students can afford to get the education and skills they need after high school. President Biden has championed a $900 increase to the maximum Pell Grant and laid out a path to doubling the maximum award by 2029. He has also proposed tuition-free community college and tuition assistance at Historically Black Colleges and Universities, Tribal Colleges and Universities, and Minority-Serving Institutions. The Department has fixed targeted debt relief programs like Public Service Loan Forgiveness and relief for borrowers whose colleges took advantage of them, approving more than $66 billion in discharges for nearly 2.2 million borrowers so far. In the coming months we will finalize the most affordable repayment plan ever. Today’s proposed rules complement these efforts by ensuring that institutions of higher education (institutions) do their part to deliver real financial value to students and taxpayers.

“We cannot turn a blind eye to the college programs that are leaving students with mountains of unaffordable debts,” said Under Secretary James Kvaal. “The data show that the problem is concentrated at for-profit and career colleges. This package of accountability proposals would create the strongest-ever protections for students and taxpayers against low-value, debt-fueled colleges.”

More detail on the components of the proposed regulations is below.

Gainful Employment

The Higher Education Act requires that certificate programs at all institutions and degree programs at private for-profit colleges must provide training that prepares students for gainful employment in a recognized occupation. The regulations propose that programs covered by this requirement would have to meet certain performance standards on two measures to maintain access to Federal financial aid. Specifically, programs would have to show that:

• Graduates can afford their yearly debt payments. In particular, the share of their annual earnings needed to devote to paying their debt (i.e., their “debt-to-earnings ratio”) must be equal to or less than 8 percent, or equal to or less than 20 percent of their discretionary earnings (i.e., their annual earnings above 150 percent of the Federal poverty guideline).

• At least half of graduates have higher earnings than a typical high school graduate in their State’s labor force who never pursued a postsecondary education.

Programs would be assessed separately on each metric. Programs that fail at least one metric would need to warn students that the program is at risk of losing access to Federal aid. Those that fail to meet the standards on the same metric twice in a three-year period would lose access to Federal aid.

Transparency on Financial Value for All Students and Families

The proposed rules also give students and families detailed and consistent information across all sectors and levels of postsecondary education about what they are likely to pay for postsecondary programs, how much they are likely to earn after completing a credential, and whether they are selecting a program that is likely to leave them with unaffordable debt.

To that end, the regulation proposes to collect new information on all colleges and programs about costs (including tuition and fees, books, and supplies), non-Federal grant aid, typical borrowing amounts (both private and Federal loans), earnings, any applicable occupational and licensing requirements, and licensure exam passage rates (where relevant). This information would be made publicly available on a website run by the Department, and students would need to acknowledge viewing these disclosures before receiving loans to attend programs that consistently leave participants with high debt burdens.

In addition to these proposed regulations, the Department will be creating a separate watch list of the least financially valuable postsecondary education programs, focusing on the programs that play an outsized role in burdening graduates with unaffordable debts. The watch list will build on the data collected under the proposed rule and will be finalized through separate Department actions.

Other provisions

The rules also propose changes to three other regulatory areas that would strengthen the Department’s ability to engage in targeted and proactive accountability to protect students, borrowers, and taxpayers. This is particularly important in addressing the large number of colleges that have closed suddenly in recent years, leaving behind significant unpaid liabilities for discharged loans. These proposed rules also better align the Department’s tools for overseeing colleges with other Department regulations and the work of other Federal agencies, States, and accrediting agencies. These other regulatory areas are:

• Financial Responsibility, which includes proposals to make it easier for the Department to secure upfront financial protection when risky colleges start to exhibit signs of financial struggle, such as when an institution incurs significant debts or liabilities from a lawsuit or is at risk of losing access to Federal financial aid programs.
• Administrative Capability, which includes proposals to increase requirements for colleges to provide adequate career services and clearer financial aid information, and to limit the employment of individuals with a past history of risky behavior or misconduct related to the Federal financial aid programs.
• Certification Procedures, which includes proposals to make it easier for the Department to incorporate stronger safeguards into its written agreements with institutions for participating in Federal financial aid programs. These proposals also protect students by allowing the Department to require teach-out plans or agreements when a college is at risk of closure.

Finally, the regulations contain consensus language agreed to during negotiated rulemaking in Spring 2022 that will revise Ability to Benefit rules. These are provisions related to how students without a high school diploma may access Federal aid. In particular, the regulations would provide a more streamlined process for States to approve postsecondary opportunities for these students.