How Gainful Employment will Limit Career Colleges and their Students

Imagine living in a society where the government determines where you go to school and what you can study.  That imagined culture will become a reality in the United States when U.S. Secretary of Education, Arne Duncan, enacts a paralyzing regulation to begin July 1, 2011 called the “gainful employment rule.”

What is “gainful employment”?  The Higher Education Act of 1965, which was set up to establish federal education financial aid guidelines, used that term in defining a proprietary institution of higher education as one that “provides an eligible program of training to prepare students for gainful employment in a recognized occupation.”   While a “recognized occupation” is described as one that is listed in the Dictionary of Occupational titles published by the U.S. Department of Labor, “gainful employment” has never been specifically defined—until now.

The U.S. Department of Education (ED) is planning to quantify “gainful employment” in the private, for-profit career college sector in terms of the amount of loan repayment a graduate must make in relation to his or her annual income.  ED’s definition will tie the amount of financial aid funding a private career college program may receive with the first year earnings of a graduate in that field from that school or industry. 

In essence, if the annual amount of a graduate’s loan repayments is more than a certain percent of the graduate’s actual or projected income, ED will not grant financial aid to the institution for that program.  This is called the “debt-to-income ratio” and is demonstrated in the rule’s own example below:

 “… in a particular field the average debt for a student completing a certificate program is $9000.  That student would have annual loan repayments totaling $1250.  For a debt-to-income ratio of 5 percent, a minimum qualifying income of at least $25,000 would be required to satisfy a “gainful employment” standard.  For the qualifying income, we could use BLS data or wage data reliably obtained by institutions.”

The target above is 5%, but ED is zeroing in on the number 8%.  The rule also allows for-profit schools to qualify for federal loans using three alternate methods of proof that its programs offer “gainful employment.” They include proving the annual earnings are greater than the numbers projected by the Bureau of Labor statistics; documenting that at least 75% of the graduates are paying back the loans; and/or proving a 70% completion rate and a 70% placement rate in that program over a three-year period.

Regardless, if the numbers are not there, ED can withdraw federal funding from a for-profit school or program.  Since, according to the College Board, well more than 80% of private for-profit students need federal loans to attend school, they will have to choose another career field or college—or both. By default, the government will be restricting a person’s right to pursue his or her own life’s goal by removing the student’s ability to choose what he or she is willing to invest to achieve it.

In an op-ed piece for Secretary Duncan said “gainful employment” is being defined because “many former students of vocational programs have reported that they were enticed into programs that did not deliver…(resulting in) students who received a shoddy education at vocational schools, (who) are now unable to find jobs and are saddled with huge student debts.”  High debt and poor delivery can also lead a graduate to default on student loans, another complaint about for-profits. 

While it is true that some for-profit career colleges have been less than stellar in delivering the high-cost education promised, it is also true that traditional colleges have had similar bad actors in the form of low completion rates and graduation of functionally illiterate students, not to mention NCAA athletic sanctions for rules and ethics violations.  Both sectors use many of the same federal financial aid sources, yet traditional colleges and universities are exempt from the “gainful employment rule” with the exception of any certificate programs they may offer. 

Members of the private, for-profit postsecondary school industry say it is an attempt to regulate tuition and, thus, control what some consider exorbitant profits in the private school sector, which is showing an increase in student enrollment nationwide.   According to the Chronicle of Higher Education, “Enrollment in the nation’s nearly 3,000 for-profit colleges has grown faster than in the rest of higher education, by an average of 9 percent per year over the past 30 years. For-profit institutions now educate about 7 percent of the nation’s roughly 19 million students who enroll at degree-granting institutions each fall.” 

Not only will it affect the bottom line for many private career colleges, but also it will adversely affect the students and job fields for which they are training, which will in turn affect the business community with a potential shortage of an educated workforce. 

In April 2010, Career College Association (CCA) President and CEO, Harris N. Miller, contacted Secretary Duncan in a letter in support of the 1450 for-profit colleges and the students his organization represents.  Citing a study by Charles River Associates commissioned by CCA, Miller reports the potential damage as “over 300,000 students displaced; upwards of 2,000 programs eliminated; 40 percent of students in two and four year programs harmed; 14 percent of health professional and related clinical sciences programs, including nursing would fail; 19 percent of computer and information sciences and support services programs would fail; (and) by 2020, the proposed regulation would deny access to approximately 5.4 million students on track to attend programs at for-profit postsecondary institutions, based on projected enrollment rates.” 

And the students most affected:  minorities or at-risk due to economic circumstances. Per the study’s executive summary, it is estimated “that by 2020 approximately 1 million non-Hispanic black students and an additional 1 million Hispanic students are on track to attend programs that would be adversely affected, and would be denied access as a result.”

What will jobs look like in ten years?  According to England’s online newspaper, The Guardian, many of the projected job titles in 2020 have not even been created yet.  They speculate about the need for Traceability Managers, Hydrogen Fuel Station Managers, and Avatar Design-Security Consultants, to name a few.

Because of their flexibility and entrepreneurial spirit, private for-profit educational outlets generally lead the way in developing new programs of study as they emerge.  Traditional colleges and universities add the programs much later.  Using the debt-to-income ratio under “gainful employment” could have a huge setback to developing programs for workforce needs that are only now in the development stage.

ED is expected to render its final decision shortly. Because it is the enactment of a rule rather than establishing law, no public vote will take place.  However, ED’s direction seems quite contrary to Secretary Duncan’s own words during his confirmation hearings: “Education is also the civil rights issue of our generation…the only sure path out of poverty and the only way to achieve a more equal and just society.” 

The reality, though, is that implementing the “gainful employment rule” will do just the opposite by limiting a student’s choice of career fields and schools, adversely affecting minority students’ educational outlets, hampering the development of job fields yet to be created, and increasing government interference into the personal lives of U.S. citizens.