While the rule successfully denies funding to many low-value programs, nonprofit colleges face zero accountability.
Austin, TX and Washington, DC – The Biden administration’s proposed Gainful Employment (GE) rule requires key changes, according to a new report by Preston Cooper, Senior Fellow at the Foundation for Research on Equal Opportunity. Cooper offers policy solutions to address significant oversights in the regulation.
The GE rule aims to hold postsecondary certificate programs and for-profit colleges accountable for student outcomes. It terminates eligibility for federal aid funding if students in these programs have a high debt-to-earnings ratio or fail to achieve earnings above the median high school level.
However, Cooper writes that GE does nothing to protect more than three-quarters of college students who graduate from programs at public and private nonprofit colleges, which face zero accountability under the rule.
The report compares programs’ performance on GE to FREOPP’s estimates of return on investment (ROI) to identify instances where GE effectively targets programs that fail to produce ROI for their students, as well as where its calculations fall short.
Cooper says, “GE has the potential to reshape American higher education. Without federal funding, many programs would not continue operating. The proposed rule is a welcome contribution to the higher education accountability conversation, but it needs serious fixes.”
Recommended policy changes include:
- Reduce the earnings threshold for the GE rule by 15 percent. This will reduce the number of programs incorrectly failing GE that have positive student outcomes.
- Eliminate the discretionary earnings test for graduate programs. Gross earnings is a better measure of student outcomes than discretionary earnings.
- Hold schools accountable for institution-level outcomes in addition to program-level outcomes. The proposed rule only uses data for students who complete their programs, but schools should also be held accountable for non-completers.
- Release GE outcomes data for public and private nonprofit institutions. Transparency alone can serve as a powerful accountability tool for nonprofit colleges.
- “GE for all” should introduce a graduated financial penalty. Accountability should apply to all institutions. In addition, Congress should allow failing programs the opportunity to improve before being shut down.
- Change the amortization period for calculating graduate degrees’ annual loan payments. Professional degrees provide lifetime benefits over long period, whereas master’s degrees are meant to generate an immediate rise in earnings. The rule should therefore adjust the timeframes used to calculate loan payments.
- End federal loans for graduate school, and use the private sector to hold these programs accountable. Private lenders provide lower interest rates and are better equipped than the government to provide targeted accountability for graduate programs.
“If the Biden administration is serious about solving the federal student loan crisis, it must hold all higher education programs accountable for their outcomes,” says Cooper. “But the administration must also make technical changes to improve GE’s targeting. The proposed rule as it stands is inadequate for the moment.”
Click here to read the report.
The Foundation for Research on Equal Opportunity is a nonpartisan, nonprofit think tank expanding economic opportunity to those who least have it.
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