Biden sets graduate earnings test for for-profit college sector

The Biden administration has established new rules designed to limit for-profit colleges by imposing earnings-based limits on their student aid eligibility – and that require the rest of US higher education to publicly report its own performance on the same measures.

The so-called gainful employment rule revives a system introduced during the Obama administration, which was then blocked by the Trump administration before it could have an effect on institutions.

It creates two measures that must be met by degree programmes at all for-profit career colleges and by all certificate programmes, including those offered by non-profit institutions: one is a calculation of whether their graduates earn enough to pay back their education loans; the other a comparison of whether those graduates earn more than a typical high-school graduate.

And in a provision that has generated anxiety more widely across US higher education, the Biden rule mandates that all colleges and universities publish the same measurements for their own programmes.

The US secretary of education, Miguel Cardona, called the long-expected rule a critical accompaniment to the administration’s heavily promoted efforts to broadly forgive federal student loan debt, especially for those borrowers who attended poorly performing for-profit institutions.

“We can’t keep throwing taxpayer-funded financial aid dollars at colleges that cost students an arm and a leg, then leave them in a ditch unable to climb the economic ladder,” Dr Cardona said of the rules, which are due to take effect in July 2024.

The for-profit industry and its Republican allies responded with statements attacking the Biden action as unfairly aimed at their sector. Virginia Foxx, chair of the education committee in the US House of Representatives, said the approach “means attacking proprietary institutions through flawed and arbitrary regulations while giving a pass to the thousands of low-value programmes at institutions serving the vast majority of students”.

Jason Altmire, the president of Career Education Colleges and Universities, which represents about 1,100 for-profit campuses and members in North America, said the Biden order represented “a partisan rule that fails to protect the vast majority of students”.

The main US higher education lobby group, the American Council on Education, did not offer an immediate response to the Biden order. It has, however, made clear in the past its hesitation over requiring all colleges and universities to publicly report their programme-specific performance on the same measures being applied to the for-profit sector for its aid eligibility.

The council said it was especially concerned about the comparison with salaries of high-school graduates, since many of them might have been in the workforce for many years by the time their pay is compared with that of students just getting out of college. “We agree with the concept that, generally, students with a college credential should have a higher income than students with only a high-school diploma, but it is not always an apples-to-apples comparison,” ACE told the Department of Education in its comments this summer on the proposed rule.

Overall, however, the idea of some kind of substantial new programme-specific performance disclosures has been eagerly sought by reform advocates. “We’ve got to get this information to people who need to make decisions about themselves and their institutions,” said Anthony Carnevale, a research professor of public policy at Georgetown University and director of Georgetown’s Centre on Education and the Workforce.

The Biden order is expected to produce legal challenges, as have past attempts at gainful employment rules. Yet the new order comes with the industry already worn down by years of government action aimed at confronting its oversized role in student debt problems. For-profit institutions, Dr Cardona noted, enrol only about 15 per cent of US students but produce “about half of all borrowers left with unaffordable debt each year”. Because of such problems, the number of for-profit four-year universities in the US has fallen by half from nearly 750 back in 2016, according to his department’s data.

In that narrowed environment, Biden officials don’t expect the new rule to shut down many institutions – especially because the aid disqualification applies only at the programme level. If a programme fails either of the two measures – concerning the income required to pay back a student loan, or the high-school earnings comparison – the programmes will need to warn students that it might lose access to federal student aid. The programme would then lose that eligibility if it fails to meet that same metric twice in a three-year period.

Only about 1,700 academic programmes across the US appear to be performing poorly enough to be threatened by the rule, according to an education department official. “So we don’t see a lot of possibility for this rule to actually threaten the existence of institutions, with the exception of some smaller institutions that are really specialised in particular programme areas,” the official said.

The Biden administration created the new rule through a formal months-long process known as negotiated rule-making, in which it is largely allowed to write rules defining the implementation of laws passed by Congress, as long as it takes the time to hear public comments on the idea.

The Department of Education said it received more than 7,500 public comments since it proposed the rules in May, and made fairly small revisions in response to them, largely involving individual cases where an institution argued that graduates of its particular programme might need a little more time to experience higher salaries due to additional expectations such as a medical speciality with residency requirements.

paul.basken@timeshighereducation.com