On June 13, 2011, the Department of Education issued final regulations in the Federal Register requiring programs that prepare students for gainful employment in a recognized occupation to “better prepare students for ‘gainful employment’ or risk losing access to Federal student aid.”
“The new regulations will help ensure that students at these schools are getting what they pay for: solid preparation for a good job,” according to Secretary of Education Arne Duncan in a press release of June 2, 2011.
The final regulations apply to most non-degree and degree-granting programs at for-profit institutions (except for some liberal arts baccalaureate programs that meet the exception) and all nondegree programs at nonprofit and public institutions. A Dear Colleague letter of April 20, 2011 provided guidance on the new requirements for institutions offering programs that prepare students for gainful employment. (View a copy of the Dear Colleague Letter.)
The press release of June 2, 2011 summarized the final regulations by indicating that under the rules, a program would be considered to lead to gainful employment if it meets at least one of the following three metrics:
- Annual Loan Repayment: At least 35 percent of former students are repaying their loans (as demonstrated by a loan balance that declines by the end of the fiscal year);
- Discretionary Income Threshold: The estimated annual loan repayment of a typical graduate does not exceed 30 percent of his or her discretionary income; or
- Actual Earnings Threshold: The estimated annual loan repayment of a typical graduate does not exceed 12 percent of his or her total earnings.
The press release stated that based on “thoughtful consideration of public comments and concerns, the new regulations improve upon the Department’s previously released draft proposal.” According to the announcement, the rules “provide students and consumers with the information they need to make good educational choices and give failing programs ample opportunity to make needed improvements.” Poor performing programs must fail the debt measures three times in a four-year period before losing eligibility to participate in Title IV programs. The first time a program fails to meet the debt measure, it must, among other things, disclose to students why the measurement was missed and how the issue will be addressed. After a program fails to meet the debt measure a second time in three years, the school must, among other things, inform current and prospective students that their debts may be unaffordable if they enroll in the program, that the program is at risk of losing eligibility to participate in Title IV programs and cannot reapply for at least three years. The first year a program could become ineligible for Title IV would be under the debt measures for FY 2014, which the Department says it expects to issue in early 2015.
View a copy of the June 2, 2011 press release.
The Department of Education issued a notice of proposed rulemaking on gainful employment on July 26, 2010 and received over 90,000 comments. Based on the comments and concerns, the Department modified the final regulations that were published on June 13, 2011. The metrics included in the final regulations will be used to determine if a program meets the requirements of providing gainful employment in a recognized occupation.
Visit the Gainful Employment Information Website created by the Department of Education.
The following is a summary of the final regulations.
§668.7 Gainful Employment in a Recognized Occupation
The rules that state that a program is considered to provide training that leads to gainful employment in a recognized occupation if it meets one of the following three measures:
- The program has an annual loan repayment rate of at least 35 percent (Loan Repayment Rate assesses whether the FFEL and Direct Loan debt incurred by a particular cohort of borrowers to attend the program (graduates and withdrawals) is being repaid at a rate that implies gainful employment.);
- The program has an annual loan payment that is less than or equal to 30 percent of discretionary income (Discretionary Income Threshold determines whether the annual loan repayment required on loan debt attributable to the academic program by those who completed the program is reasonable compared to their discretionary income); or
- The program has an annual loan payment that is less than or equal to 12 percent of annual earnings (Actual Earnings Threshold establishes whether the annual loan repayment required on loan debt attributable to the academic program by those who completed the program is reasonable when compared to their actual annual earnings).
An academic program that passes any one standard is considered to be preparing students for gainful employment for the fiscal year. A program that fails all three standards for a given fiscal year is considered to have failed to demonstrate that it meets the gainful employment condition of program eligibility for that fiscal year. A program that fails all three standards in one fiscal year—or in two fiscal years out of three—must provide debt warnings to current and prospective students as discussed below. A program that fails all three standards for three out of four years loses Title IV eligibility. (NOTE: The Department’s position is that a good program could have a bad year, but it is far less likely that a good program could have three bad years out of four years. (See page 34405 of the Preamble.) Consequently, the first year that a program could lose eligibility under the final rules is in early 2015 when the Department issues the debt measures for FY 2014.)
A program is an educational program that is identified by a combination of the institution’s six-digit OPEID number, the program’s six-digit CIP code as assigned by the institution or determined by the Secretary, and the program’s credential level.
The credential levels are undergraduate certificate, associate’s degree, bachelor’s degree, post-baccalaureate certificate, master’s degree, doctoral degree, and first-professional degree.
Debt measures refer to the loan repayment rate and debt-to-earnings ratios.
A fiscal year (FY) is the 12-month period starting October 1 and ending September 30. For example, FY 2013 is from October 1, 2012 to September 30, 2013.
A two-year period is the period covering two consecutive FYs that occurs on:
- The third and fourth FYs (2YP) prior to the most recently completed FY for which the debt measures are calculated. For example, if the most recently completed FY is 2012, the 2YP is FYs 2008 and 2009; or
- For FYs 2012, 2013, and 2014, the first and second FYs (2YP-A) prior to the most recently completed FY for which the loan repayment rate is also calculated for a transition period. For example, if the most recently completed FY is 2012, the 2YP-A is FYs 2010 and 2011; or
- For a program whose students are required to complete a medical or dental internship or residency, the sixth and seventh FYs (2YP-R) prior to the most recently completed FY for which the debt measures are calculated. For example, if the most recently completed FY is 2012, the 2YP-R is FYs 2005 and 2006.
A four-year period is the period covering four consecutive FYs that occurs on:
- The third, fourth, fifth, and sixth FYs (4YP) prior to the most recently completed FY for which the debt measures are calculated. For example, if the most recently completed FY is 2017, the 4YP is FYs 2011, 2012, 2013, and 2014; or
- For a program whose students are required to complete a medical or dental internship or residency, the sixth, seventh, eighth, and ninth FYs (4YP-R) prior to the most recently completed FY for which the debt measures are calculated. For example, if the most recently completed FY is 2017, the 4YP-R is FYs 2008, 2009, 2010, or 2011.
- The four-year period will be used for programs with small numbers of borrowers, that is, where the number of borrowers in the two-year period are 30 or fewer borrowers.
Discretionary income is the difference between the mean or median annual earnings and 150 percent of the most current Poverty Guideline for a single person in the U.S., which are published by HHS and are available online.
B. Loan Repayment Rate:
- Loan Repayment Rate: The annual loan repayment rate for an academic program is the percentage of loans borrowed to attend that program that are in satisfactory payment three to four years after entering repayment.
- For example, the loan repayment rate for FY 2012 (October 1, 2011 through September 30, 2012) will be determined based on loans that entered repayment during either FY 2008 or FY 2009 (October 1, 2007 through September 30, 2009) and were in acceptable repayment status during the period October 1, 2011 through September 30, 2012.
- [NOTE: The FY 2012 period to determine the acceptable repayment status is four years after the loans entered repayment during FY 2008 and three years after the loans entered repayment during FY 2009.]
- For the most recently completed FY, the Secretary will calculate the loan repayment rate as follows:
OOPB of LPF plus OOPB of PML
- Original Outstanding Principal Balance (OOPB) is the amount of the outstanding balance, including capitalized interest, on FFEL or Direct Loans owed by students (graduates and withdrawals) for attendance in the program on the date those loans first entered repayment.
- The OOPB includes FFEL and Direct Loans that first entered repayment during the 2YP, the 2YP-A, the 2YP-R, the 4YP, or the 4YP-R. The OOPB does not include PLUS loans made to parent borrowers or TEACH Grant-related unsubsidized loans.
- For consolidation loans, the OOPB is the OOPB of the FFEL and Direct Loans attributable to a borrower’s attendance in the program;
- For FYs 2012, 2013, and 2014, the Secretary will calculate two loan repayment rates for a program, one with the 2YP and one with the 2YP-A (if more than 30 borrowers entered repayment). The Secretary will determine if the program meets minimum loan repayment rate under either rate.
- Loans Paid in Full (LPF) are loans that have never been in default, including a consolidation loan and its underlying loans. Consolidation loans must be paid in in full to be considered LPF.
- Payments Made Loans (PML) are loans that have never been in default, including a consolidation loan and its underlying loans, and:
- PML are payments made by a borrower during the most recently completed FY that reduce the outstanding balance of the loan, including the outstanding balance of a consolidation loan, to an amount that is less than the outstanding balance of the loan at the beginning of that FY. The outstanding balance includes unpaid accrued interest that has not been capitalized.
- If the program is a post-baccalaureate certificate, master’s degree, doctoral degree, or first-professional degree program, the total outstanding balance of a consolidation loan at the end of the most recently completed FY is less than or equal to the total outstanding balance of the consolidation loan at the beginning of the FY. The outstanding balance includes the unpaid accrued interest that has not been capitalized.
- A borrower is in the process of qualifying for Public Service Loan forgiveness and submits an employment certification to the Secretary.
- A borrower in the income-based repayment plan (IBR), income contingent repayment plan (ICR), or any other repayment plan makes scheduled payments during the most recently completed FY for an amount that is equal to or less than the interest that accrues on the loan during the FY.
- The Secretary limits the dollar amount of these interest-only or negative amortization loans in the numerator of the ratio to no more than 3% of the total amount of OOPB in the denominator of the ratio.
- (Because the objective of the gainful employment regulations is to determine whether borrowers can actually pay off their loans, ED is limiting the amount of loans that can be in an acceptable repayment status when the payments made over the fiscal year do not actually achieve a reduction in the principal balance (i.e., interest only or negative amortization loans)).
- The Secretary will include in the numerator 3% of the OOPB in the denominator until more data is available on which the program’s borrowers have scheduled payments that are equal to or less than accruing interest.)
- Exclusions from the numerator and denominator include:
- Loans that were made to parent borrowers;
- Loans that were in an in-school deferment status during any part of the FY;
- Loans that were in a military-related deferment status during any part of the FY;
- Loans that were discharged as a result of the death of the borrower; and
- Loans that were assigned or transferred to ED for total and permanent discharge.
- NOTE: Loans that are in deferment or forbearance are not excluded
Example for FY 2012:
LPF is $10,000 plus PLM is $40,000 in FY 2012
OOPB is $100,000 for loans entering repayment in FY 2008 and FY 2009
The Loan Repayment Rate measures whether former students (graduates and withdrawals) can repay their loans. The threshold is set at 35 percent.
C. Debt-to-Earnings Ratios:
- Discretionary Income rate:
Annual loan payment based on median loan debt
Higher of Mean or Median Annual Earnings – (1.5 X Poverty Guideline)
Annual loan payment based on median loan debt
Higher of Mean or Median Annual Earnings
- Mean is the average of all the values divided by the number of items added.
- Median is the middle value of a list arranged in order of value and the highest and lowest values cancel each other out. (See Q&A #5 of the Gainful Employment FAQs.)
- NOTE: The final regulations consider programs with a median loan debt of zero to be meeting the measures since there is no debt burden on the students in the program.
Page 33424 of the Preamble states that the use of the higher of the mean or median annual earnings is designed in part to address suggestions made in response to the NPRM to adjust the debt measures to account for unemployment or underemployment. “All things equal, the value of mean or median earnings is distribution dependent. In a prosperous economy where fewer people are unemployed and earnings are generally higher, average earnings are likely to be higher than median earnings. Conversely, during an economic downturn where more people are unemployed and earnings are depressed or stagnant, median earnings are likely to be higher than average earnings.”
The program’s Annual Loan Repayment must be less than or equal to:
- 30 percent of discretionary income; or
- 12 percent of annual earnin
- Cohort of Program Completers:
The debt-to-earnings ratio uses the income earned during the calendar year preceding the most recently completed fiscal year by former students who completed the program during an earlier period of time. Programs will be assessed based on two years of performance, unless a program has 30 or fewer program completers in a two-year period. If so, the program will be based on a four-year period.
NOTE: Programs with 30 or fewer program completers in the four-year period are considered to meet the debt measures due to the difficulty in assessing a small number of students.
In general, most programs will use a cohort of former students who completed the program in the two-year period (2YP) consisting of the third and fourth fiscal years prior to the fiscal year for which the debt measures are calculated. For example, for FY 2012, the cohort of graduates will be the 2YP (fiscal year 2008 and fiscal year 2009). The earnings from calendar year 2011 will be used for those students who completed the program from October 1, 2007 through September 30, 2009.
- Annual Loan Payment is based on the median loan debt for each student who completed the program during the 2YP, the 2YP-R, the 4YP, or the 4YP-R, using the lesser of:
- The amount of loan debt incurred by the student; or
- If tuition and fee information is provided by the institution, the tuition and fees the institution charged the student enrolled in all programs at the institution; and
- Using the median loan debt for the program and the current annual interest rate on Unsubsidized Direct Loans (6.8%) on a:
- 10-year repayment schedule for a program that leads to an undergraduate or post-baccalaureate certificate or to an associate’s degree;
- 15-year repayment schedule for a program that leads to a bachelor’s degree or master’s degree; or;
- 20-year repayment schedule for a program that leads to a doctoral or first-professional degree.
- Loan debt includes:
- FFEL and Direct Loans (except for parent PLUS or TEACH Grant-related loans), including capitalized interest owed by the student for attendance in the program; any private education loans; or debt obligations arising from institutional financial plans (reported to ED via NSLDS no later than October 1, 2011 – see 34 C.F.R. 668.6);
- Loan debt incurred by the student for attendance in programs at the institution is attributed to the highest credentialed program subsequently completed by the student at the institution (NOTE: If the student was enrolled in a lower credentialed program at the same school, any loan debt from that lower program is used in the debt-to-earnings ratios for the higher credentialed gainful employment program, instead of the lower program); and
- Does not include any loan debt incurred by the student for attendance in programs at other institutions, except when the institutions are under common ownership or control.
- Annual earnings will be obtained from the Social Security Administration (SSA) or another Federal agency and the Secretary will obtain the most currently available mean and median annual earnings of the students who completed the program during the 2YP, the 2YP-R, the 4YP, or the 4YP-R.
- Alternative Earnings can be used if a program fails all debt measures. An institution can demonstrate compliance with a debt-to-earnings ratio by using earnings from sources other than SSA, including a State-sponsored data system, an institutional survey conducted in accordance with NCES standards, or, for FYs 2012, 2013, and 2014 only, the Bureau of Labor Statistics (BLS). (See Section G below for limitations on a school’s ability to use BLS data.)
- Exclusions from the Debt-to-Earnings cohort:
- One or more of the student’s loans were in military-related deferment status at any time during the calendar year for which earnings are determined;
- The student died;
- One or more of the student’s loans were assigned or transferred to ED and are being discharged as a result of the total and permanent disability of the student, or were discharged on that basis; or
- The student was enrolled in any other eligible program at the institution or at another institution during the “calendar year” for which earnings are determined.
NOTE: The cohort includes all program completers not just students who received Title IV student assistance. The list of students in the cohort is derived from information provided by the school in response to reporting requirements in 34 C.F.R. 668.6.
D. Alternative Standards:
- In lieu of the minimum standards, the program satisfies the debt measures if:
- The 4YP or the 4YP-R represents 30 or fewer borrowers entered repayment or 30 or fewer students completed the program; or
- NOTE: The 4YP or the 4YP-R is used if the 2YP or the 2YP-R represents after exclusions, 30 or fewer borrowers whose loans entered repayment.
- SSA did not provide the mean and median earnings for the program; or
- The median loan debt is zero.
E. Draft Debt Measures Process for the Debt-to-Earnings Measures and Corrections Process:
- Beginning with the FY 2012 debt measures, the Secretary will issue draft results of the debt measures for each program offered by the institution, which may be corrected by the institution.
- Pre-draft corrections process for the Debt-to-Earnings Ratios:
- Before issuing draft results of the debt measures, the Secretary will provide a list of the students who will be included in the applicable two-year or four-year period;
- No later than 30 days after the date the Secretary provided the list, the institution must:
- Provide evidence that a student should be included or excluded from the list; or
- Correct or update the identity information, such as the name, SSN, or date of birth.
- After the 30 day correction period, the institution may no longer challenge the list or update the identity of the students.
- The updated list will be used to create a final list of students that ED submits to SSA.
- The Secretary will calculate the draft Debt-to-Earnings ratios based on the mean and median earnings provided by SSA (cannot be challenged by institution).
- Post-draft Corrections Process for Debt Measures:
- No later than 45 days after the Secretary issues the draft results of the Debt-to-Earnings ratios for a program and no later than 45 days after the Secretary issues the draft results of the Loan Repayment Rate for a program, an institution:
- May challenge the accuracy of the loan data for a borrower that was used to calculate the draft loan repayment rate or the median loan debt for the program that was used in the numerator of the draft debt-to-earnings ratios, by submitting evidence showing that the borrower loan data or the program median loan debt is inaccurate; and
- May challenge:
- The accuracy of the list of borrowers used to calculate the loan repayment rate by providing evidence that a borrower should be included or excluded from the list; or
- Correct or update the identity information provided for a borrower on the list, such as name, SSN, or date of birth.
- Recalculated Results: The information provided by the institution will be used, unless the SSA is unable to include in its calculation of the mean and median earnings for the program one or more students. Under these circumstances, the median will be adjusted by removing the highest loan debt associated with the number of students SSA is unable to include.
F. Final Debt Measures: The Secretary notifies the institution of the results of any corrections. These results become the school’s final debt measures for the program.
G. Alternative Earnings: If the program fails to meet any of the debt measure requirements for a fiscal year, the institution may demonstrate that it would meet one of the Debt-to-Earnings ratios based on alternative earnings using:
- State data: For FY 2012 and any subsequent year, institution may use earnings data obtained for more than 50% of the students in the applicable period from State-sponsored data systems;
- Survey data: For FY 2012 and any subsequent year, an institution may use data from an institutional survey conducted of the students in the applicable period and the data is for more than 30 students. The institution must submit a copy of the survey, a certification that the survey was conducted in accordance with NCES standards, and an examination-level attestation by an independent CPA;
- BLS data: For FY 2012, 2013, and 2014, an institution may use BLS earnings to recalculate the ratios but only it if provides documentation of the occupation by SOC code in which more than 50% of the students in the period were placed or found employment and that the number of students is more than 30.
- After the Secretary calculates the final debt measures:
- Institution must disclose the final debt measures for each program; and
- ED may disseminate the final debt measures.
I. Failing Program: Starting with the debt measures calculated for FY 2012, a program fails for a fiscal year if it does not meet any of the applicable debt measures or alternative standard.
J. Ineligible Program: A failing program becomes ineligible if, starting with the debt measures calculated for FY 2012, it does not meet any of the minimum standards for three out of the four most recent FYs. The Department notifies the institution that the program is ineligible and the institution may no longer disburse Title IV funds to students enrolled in that program except as permitted under 34 C.F.R. 668.26(d).
K. Debt Warnings: A failing program must warn in a timely manner currently enrolled and prospective students of the consequences of failure:
- First year failure: The institution must provide to each enrolled and prospective student a warning prepared in plain language and presented in an easy to understand format that:
- Explains the debt measures and show the amount by which the program did not meet the minimum standards; and
- Describes any actions the institution plans to take to improve the program’s performance under the debt measures.
- Is delivered orally in writing directly to the student. (If orally delivered, it must maintain documentation of the student’s presence and how the information was provided to the student).
- Debt Warning must be provided until the Secretary notifies the institution that the failing program satisfies one of the debt measures.
- Second year failure: The institution must provide to each enrolled and prospective student a warning prepared in plain language and presented in an easy to understand format that:
- Provides the first year Debt Warning;
- Provides an explanation of the actions the institution plans to take to respond to the second failure or to discontinue program, and the student options [If the institution plans to discontinue the program voluntarily, it must provide the timeline for doing so and the options available t the student.];
- Provides the risks associated with enrolling or continuing in the program including the potential consequences for, and options available to, the student if the program becomes ineligible for Title IV funds;
- Provides the resources available, including http://www.collegenavigator.gov, so that the student can research other educational options and compare program costs; and
- Provides a clear and conspicuous statement that a student who enrolls or continues in the program should expect to have difficulty repaying his/her student loans.
- Institution must continue to provide Debt Warnings until program has met minimum standards for two of the last three years.
- Timely Warnings: The institution must provide the warnings:
- No more than 30 days after ED notice to enrolled students that the program has failed; and
- To prospective students at the time they first contact the institution requesting information about the program. If the prospective students intends to use Title IV funds, the institution:
- May not enroll prospective students until 3 days after debt warnings are first provided; and
- If more than 30 days pass from the date the debt warning is first provided, the debt warning must be issued again and the prospective student may not be enrolled for 3 additional days.
- Web site and promotional materials: For the second year debt warning, the institution must prominently display the debt warning on the program home page of its Web site and include on all promotional materials made available to prospective students.
[NOTE: The preamble states that “promotional materials” are defined broadly and include course catalogues, brochures, television ads, and poster advertisements that mention or list the program. However, if a poster is an advertisement for the institution as a whole or for other institutional programs that have not failed the minimum standards for more than one of the three most recent fiscal years, the warning is not required.]
- Voluntarily discontinued failing program: An institution that voluntarily discontinues a failing program, it must promptly notify students at the same time ED is notified. [The date of written notification to the Secretary is the date the institution relinquishes eligibility.]
- The institution must provide alternatives for English-language warnings for those students for whom English is not their first language.
- Transition year: The earliest a program can become ineligible is in early 2015 after the Department has calculated the debt measures for FYs 2012, 2013, and 2014. However, the final regulations provide for a transition year during which the number of programs losing Title IV eligibility will be limited to no more than 5% of the total number of students who completed their programs during FY 2014. The regulations apply the cap to each of three institutional categories–public, private nonprofit, and proprietary – to ensure that no sector bears more than 5%. Within each institutional category, loan repayment rates will be sorted from lowest to highest. Starting with the lowest repayment rate, ED will identify ineligible programs until the 5% cap is reached, but not exceeded. [NOTE: Although no sanctions will be applied during the transition year to ineligible programs that have a rate over the cap, the program’s rate during the transition year will count as a failing year in subsequent years.]
- Restrictions: An ineligible program or a failing program that was voluntarily discontinued remains ineligible until the institution reestablishes eligibility.
- If the institution voluntarily discontinued the program after being notified that it must provide first-year warnings or within 90 days of being notified that it must provide second-year warnings, the wait-out period is two fiscal years following the fiscal year the program was voluntarily discontinued.
- If the institution voluntarily discontinued the program more than 90 days after notification that it must provide second-year warnings, the wait-out period is three fiscal years.
- The institution cannot reestablish eligibility of a program that is substantially similar to the ineligible program until the third fiscal year following the fiscal year the program became ineligible.
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