New rules aim to ensure that higher education institutions provide real financial value to students and taxpayers

POSTED ON May 22, 2023

The U.S. Department of Education has proposed a new Gainful Employment (GE) rule that aims to protect students from career training programs that result in high debt or low earnings. This rule will apply to nearly 1,800 low-performing programs and is expected to safeguard over 700,000 students annually. (Stock photo: Shutterstock Photo Contributor goodluz)

The new regulations also aim to increase transparency across all postsecondary programs, disclosing the expected out-of-pocket expenses for students and families. Students will need to acknowledge this information before receiving federal financial aid for programs that tend to result in high debt burdens.

The proposed rules aim to ensure that higher education institutions provide real financial value to students and taxpayers.

According to the Higher Education Act, educational programs must prepare students for employment in a recognized occupation. For institutions offering certificate programs and private for-profit colleges offering degree programs, performance standards must be met to continue receiving Federal financial aid.

Graduates must be able to afford their debt payments, with a “debt-to-earnings ratio” of 8 percent or less, or equal to or less than 20 percent of their discretionary earnings.

Additionally, at least half of graduates must earn more than a typical high school graduate in their State’s labor force who never pursued postsecondary education.

Programs will be evaluated separately for each metric, and those that do not meet at least one metric will need to inform students that the program may lose access to Federal aid. If the same metric is not met twice in a three-year period, the program will lose access to Federal aid.

The proposed regulations aim to provide transparency on financial value for students and families by giving them detailed and consistent information about the costs of postsecondary programs, potential earnings after completing a program, and whether a program may lead to unaffordable debt.

These regulations propose collecting new information on all colleges and programs regarding costs, grant aid, borrowing amounts, earnings, occupational and licensing requirements, and licensure exam passage rates. This information will be publicly available on a website run by the Department, and students must acknowledge viewing these disclosures before receiving loans for programs that may consistently lead to high debt burdens.

In addition, the Department will create a watch list of postsecondary education programs that are least financially valuable, focusing on programs that burden graduates with unaffordable debts. The proposed regulations also suggest changes to three other regulatory areas, which would strengthen the Department’s ability to protect students, borrowers, and taxpayers. These areas are Financial Responsibility, Administrative Capability, and Certification Procedures.

The regulations also include revised Ability to Benefit rules, agreed upon during negotiated rulemaking in Spring 2022, which provide a streamlined process for states to approve postsecondary opportunities for students without a high school diploma to access federal aid.

The Department plans to finalize the regulations later this year. Regulations that are finalized by November 1, 2023, will become effective on July 1, 2024, in accordance with the Higher Education Act’s master calendar requirements.