The Tortured Path of the Gainful Employment Rule
The Tortured Path of the Gainful Employment Rule
As the U.S. Department of Education prepares to publish its final gainful employment rule, learn more about the history of this key consumer safeguard meant to eliminate the worst actors before multitudes of students fall prey to poor practices.
The Biden administration is poised to issue its long-awaited proposed gainful employment (GE) rule. The concept behind gainful employment is to judge career training programs on how much debt their students take on compared to the income that they go on to earn. The goal is to protect students against unscrupulous and low-quality programs that don’t offer any benefit and indeed can leave students worse off, often on the taxpayer’s dime.
For such a commonsense idea, it has been a painful journey to realization. Since the Obama administration set out in 2009 to establish a rule requiring career education programs to meet a minimum standard of success for their graduates, attempts to impose this protection for students and taxpayers have been targeted by political opponents and for-profit college interests. This article reveals the nearly 15-year odyssey of the gainful employment rule, which has been implemented, repealed, and replaced—only to be rescinded and replaced again. During this time, numerous lawsuits have been filed related to the GE regulation, nine of which are detailed below.
Yet the Obama administration did not invent the concept of gainful employment. In fact, the idea that vocational and technical training should set graduates up for “useful employment” goes back to a program signed into law in 1965—just a few weeks before the Higher Education Act (HEA) made its way to President Lyndon B. Johnson’s desk.
In the midst of GE’s regulatory uncertainty over the past decade and a half, the consequences of the rule have effectively been nonexistent. As a result, predatory for-profit colleges and programs continue to slip through the cracks in oversight and receive federal funds, even while their students struggle to obtain life-sustaining wages and manage their student debt.
The GE rule is a key consumer safeguard meant to eliminate the worst actors before multitudes of students fall prey to poor practices.
The GE rule is a key consumer safeguard meant to eliminate the worst actors before multitudes of students fall prey to poor practices. However, it is only able to serve this function when it is left in place.
Evident from tracing gainful employment’s tortured path is that the rule has never been allowed to fully do its job. The concept of “useful,” or “gainful,” employment was born out of two needs: 1) the nation’s economy needed to provide access to career and technical training opportunities; and 2) students needed protection from fly-by-night trade schools that seemed to emerge any time new public funds were on the table. Critics of college accountability will deny the need for the gainful employment rule, but the cycle of scandals in the career and technical training sector since the post-war era suggests the need for such a rule. Students deserve high-quality programs that offer meaningful economic opportunity. And the United States is in a moment where quality education and training will be critical to maximizing the impact of major federal investments in a better American future, through the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the CHIPS and Science Act.
It is time to give GE a chance to do its work.
A brief history of gainful employment
- October 1965: Congress enacted the National Vocational Student Loan Insurance Act (NVSLIA) “to establish a system of loan insurance and a supplementary system of direct loans, to assist students who attended post-secondary business, trade, technical, and other vocational schools.” This was “the first general student aid program for proprietary school students.”
- November 1965: Congress enacted the Higher Education Act (HEA). This legislation included a reference to the goal of preparing students for “gainful employment.”
Under the NVSLIA and the HEA, the federal government created loan programs for students who were “accepted for enrollment at an eligible institution.” (see NVSLIA § 8(a)(1) and HEA § 427(a)(1))
Under the HEA, only students enrolled in “a public or other nonprofit institution” would be eligible to receive student loans. Additionally, that term included “any public or other nonprofit collegiate or associate degree school of nursing and any school which provides not less than a one-year program of training to prepare students for gainful employment in a recognized occupation,” if other conditions were met. Under the NVSLIA, eligibility was extended to students who attended postsecondary business, trade, technical, or other vocational schools that were designed “to fit individuals for useful employment in recognized occupations.”
- May 1968: The HEA Amendments of 1968 merged the National Vocation Student Loan Insurance program and the student loan insurance program of the HEA of 1965. This legislation also made it possible for proprietary schools to have access to: the National Defense Student Loan (NDSL) program and the College Work Study (CWS) program. Colleges that were eligible under the Higher Education Act became known as “institutions of higher education” (see HEA § 116(a)(3)) and those eligible under the National Vocational Student Loan Insurance Act became known as “vocational schools.” (see HEA § 116(a)(4)(B))
- June 1972: The second reauthorization of the HEA “enabled proprietary schools to participate in all of the title IV grant, loan, and work study programs but with different standards for participation in the GSL [Guaranteed Student Loan] program.”
- March 1992: Among many significant changes, in the 1992 reauthorization of the Higher Education Act, Congress repealed the definition of vocational schools and replaced it with definitions of “a proprietary institution of higher education” and “a postsecondary vocational institution.” Proprietary institutions remained eligible to participate in federal student aid programs so long as they prepared students for “gainful employment in a recognized occupation.”
Though the HEA and the then-vocational student loan program were eventually combined into one federal student aid system, the intent behind each program’s criteria was preserved: Today, public and nonprofit colleges are both eligible to participate in student financial aid programs, while for-profit colleges and other technical education programs must prepare graduates for gainful employment to maintain eligibility. These definitions have remained largely unchanged, but the requirement to prepare students for gainful employment was neither measured nor enforced until the Obama administration.
Gainful employment in the 21st century
Largely motivated by complaints that for-profit colleges frequently misled students and saddled them with debt they could not afford, the Obama administration set out to establish a gainful employment rule starting in 2009.
- September 2009: The U.S. Department of Education established negotiated rulemaking committees to, among other things, define the provision of the Higher Education Act that for-profit colleges and career education programs must lead to “gainful employment in a recognized occupation.” Notably, the requirement for negotiated rulemaking is a process unique to the Department of Education; the HEA requires that the department obtain “the advice of and recommendations from individuals and representatives of the groups involved in student financial assistance programs before issuing regulations on federal financial assistance programs.” The department then gathers a group of stakeholders to provide input on the proposed set of issues and regulatory language.
- November 2010: As the regulatory process was underway, for-profit colleges began to improve the value they offered students.
- June 2011: The Department of Education published the final gainful employment rule.
The final 2011 rule included two measures by which programs would be evaluated for continued participation in federal student aid: 1) a debt-to-earnings ratio, which measured the amount of debt a student incurred to attend a program compared with their annual earnings after completing the program; and 2) a repayment rate measure, which looked at the percentage of borrowers who did not default on their loans and had reduced the amount owed on their loan. A program would be deemed ineligible for federal student aid “only after failing both debt measures for three out of four fiscal years.”
The rule provided a great deal of time for schools to improve outcomes and lower costs passed on to students before losing eligibility. At the time of the rule’s release, the Education Department estimated that of “all programs covered by the rule, 5 percent of for-profit programs and 1 percent of public and nonprofit programs would lose eligibility.”
- July 2012: The trade association representing for-profit colleges, the Association of Private Sector Colleges and Universities (APSCU), challenged the GE rule.* In the end, the U.S. District Court for the District of Columbia struck down the 2011 rule, concluding that the Department of Education failed to “provide a reasoned explanation” for inclusion of the repayment rate measure and that there was no reasonable basis for the choice of eligibility threshold for the repayment rate. U.S. District Judge Rudolph Contreras wrote that a lack of “any expert studies or industry practices” meant that the department’s reasoning “could be used to justify any rate at all,” which “demonstrates its arbitrariness.” At the same time, he also ruled that the department had the authority to issue the rule and that there was a reasonable basis for the debt-to-earnings ratios. As a result, the department began a new regulatory process.
- October 2014: The secretary of education finalized regulations. The most significant change from the 2011 rule was the removal of the repayment rate measure: Under the regulations finalized in 2014, a program would be considered to lead to gainful employment—and pass the earnings test—if the “estimated annual loan payment of a typical graduate did not exceed 20 percent of their discretionary income or 8 percent of their total earnings.” A program would be deemed ineligible to participate in Title IV programs if “it fails the D/E [debt-to-earnings] rates measure for two out of three consecutive years, or has a combination of D/E rates that are in the zone or failing for four consecutive years.” In the end, the rule was implemented for one year—not long enough for any program to lose eligibility. Earnings data from the 2014 calendar year were made available to the public on the Federal Student Aid website.
- November 2014: Again, APSCU challenged the GE rule, arguing that the Department of Education exceeded its authority and that the use of the debt-to-income standard lacked a reasonable basis. Because the department removed the repayment rate—fixing the issue Judge Contreras previously identified—the rule was upheld. This decision was later affirmed by the U.S. Court of Appeals for the D.C. Circuit.
- May 2015: The Association of Proprietary Colleges, which represented 20 for-profit colleges in New York, sued in the U.S. District Court for the Southern District of New York.** U.S. District Judge Lewis A. Kaplan upheld the rule against claims it exceeded the Education Department’s authority, reflected procedural violations, lacked a reasonable basis, and violated colleges’ right to due process. In his decision, Kaplan said “for-profit colleges had shown high student loan default rates and low graduation rates while often spending disproportionate amounts of money on recruiting and marketing.”
- June 2017: Another lawsuit, brought by the American Association of Cosmetology Schools (AACS), raised a different claim, arguing that Social Security Administration (SSA) data “would be unfair to, among others, cosmetology programs, because their graduates disproportionately underreport their income due to high levels of cash-based and self-employment-based earnings, including tips.” Judge Contreras ruled in favor of the AACS on summary judgment and ordered the Department of Education not to enforce the alternate earnings appeal, a process that allowed programs to use alternate measures of income before the debt-to-earnings rates became final. Judge Contreras further reasoned that this removed the “arbitrary and capricious reasoning” behind the AACS’ argument against using SSA data without “upending the entire GE regulatory scheme.”
- February 2017: A group of acupuncture schools brought a lawsuit arguing that the “debt-to-earnings test is arbitrary and capricious because, among other things, it fails to consider or accommodate the fact that a large majority of [acupuncture school] graduates choose to establish their own practices, and given the cash-pay nature of such practices” that their earnings were understated by SSA data for a multitude of reasons. The lawsuit was stayed after the Trump administration radically changed course and began the process of repealing the rule by regulation.
- October 2017: The Trump administration refused to continue carrying out the regulation. A group of state attorneys general challenged the Trump administration’s refusal and argued that by “delaying and refusing to enforce the Rule, the Department failed” to take the steps needed to issue a new regulation and withholding agency action, “all in violation of the APA [Administrative Procedure Act].” The APA governs the process by which federal agencies develop and issue regulations and repeal rules.
- May 2018: The Trump administration introduced another complicating factor when it misused GE data for the unrelated purpose of limiting student loan relief under the borrower defense rule. A federal court ruled that this unauthorized use of GE data violated the Privacy Act, and “[t]he court ordered that the Education Department stop the practice and stop debt collection from these students” who had been cheated by the now-defunct schools.
- August 2018: The Trump administration proposed to rescind the gainful employment regulations. Although the GE rule remained on the books until July 2019, it was never carried out by the Trump administration. No programs lost eligibility.
- June 2019: The Trump administration formally rescinded the GE rule.
- July 2020: Eighteen states filed a lawsuit against the Department of Education claiming that the agency’s delay in implementing the GE rule under the Trump administration was “procedurally improper and substantively invalid under the Administrative Procedure Act.” They sought “a court order requiring the [department] to begin enforcing the 2014 regulations in earnest.” In her role as a district court judge in the District of Columbia, Ketanji Brown Jackson—prior to her appointment to the U.S. Supreme Court—dismissed the case for lack of standing.
- July 2020: The GE repeal went into effect.
- September 2020: The American Federation of Teachers (AFT), along with the California Federation of Teachers and individual members, filed claims in the U.S. District Court for the Northern District of California against Secretary of Education Betsy DeVos and her recission of the GE rule. AFT argued that “the repeal puts students at the mercy of for-profit schools with a documented history of leaving borrowers with worthless degrees and crippling debt.” U.S. District Judge Edward Davila ruled on the Department of Education’s motion to dismiss the lawsuit brought by the AFT and the state of California. Judge Davila issued a ruling that granted in part the defendants’ motion to dismiss. After its repeal, advocates encouraged the Biden administration to restore the rule.
- December 2021: In order to get GE back on the books, the rule had to go through another negotiated rulemaking session, and in 2021, as part of the Education Department’s negotiated rulemaking session, the GE safeguard was put back on the table.
- June 2022: The Education Department pushed back the timeline for publishing its proposal of a revised gainful employment rule to 2023.
- May 2023: The release of the Education Department’s proposed final gainful employment rule is expected. If all goes as planned, the final rule on gainful employment will go into effect on July 1, 2024, at the earliest.
3 Ways the Biden Administration Protected Students and Borrowers in 2022
An affordable, high-quality postsecondary education remains a powerful force for both economic mobility and security. Regulations such as the GE rule work to protect hundreds of thousands of students from enrolling in programs that leave them with heavy debt loads, a worthless degree, and little in the way of career prospects. But for the GE rule to carry out this work, it must first be unimpeded.
The author would like to thank Jared Bass, Marcella Bombardieri, and Stephanie Hall for their contributions to this article.
* Author’s note: In 2016, APSCU changed its name to Career Education Colleges and Universities (CECU).
** Author’s note: In 2023, the Association of Proprietary Colleges changed its name to the Association of Private Colleges.
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