- The Education Department released its new proposal for a strengthened gainful-employment rule.
- The rule would place safeguards to ensure borrowers don't take on more debt than they can afford.
President Joe Biden's Education Department has released long-awaited proposals to establish safeguards for student-loan borrowers.
On Wednesday, the department announced its proposal for a new, "strongest-ever" gainful-employment rule and other plans to ensure financial transparency for students before they enroll in a program, according to the press release.
The initial gainful-employment rule was established by President Barack Obama in 2014. It cut off federal student aid for schools that offered programs that left students with too much debt compared to their likely postgraduation earnings.
However, President Donald Trump repealed the rule in 2019, and Biden pushed back its reinstatement to July 2024 at the earliest. Now, borrowers finally have a glimpse into the new rule.
"President Biden has taken unprecedented steps to fix our broken student loan system and help millions of Americans struggling with student debt, creating new opportunities for borrowers, their families, and their communities. At the same time, we need to hold colleges accountable for unaffordable costs and better protect students from programs that fail to deliver real value and upward mobility," Education Secretary Miguel Cardona said in a statement. "The rules proposed today are about helping ensure that when students invest in a postsecondary education, they get a solid return on investment and a greater shot at the American dream."
Under Secretary of Education James Kvaal told reporters on a Wednesday press call that the "proposed rule would use two independent metrics to determine whether for-profit degrees and certificate programs across all institutions are delivering value to students." Specifically, those programs would be required to show that:
- Graduates could afford their student-loan payments by ensuring the share of their annual earnings needed to make those payments — known as their debt-to-earnings ratio — was equal to or less than 20% of their discretionary earnings
- And at least half of the program's graduates had higher earnings than a typical high-school graduate in the labor force who never pursued higher education.
Aaron Ament, the president of the borrower-advocacy group Student Defense, said in a statement that the announcement was a "strong proposal."
"Ever since the Trump Administration illegally repealed the 2014 Gainful Employment rule, students have been left unprotected from predatory higher ed profiteers," Ament said.
"While we applaud the Department's efforts and urge swift completion of the rulemaking process, this proposal will not take effect until July 2024 at the earliest," Ament added. "We also remain concerned that the finalization or implementation of this proposal could be stalled or completely sidelined by legal challenges. The Department should, once and for all, concede that the repeal of the 2014 Rule was illegal and consent to its immediate reinstatement as a bridge and a backstop to its new rule."
The gainful-employment rule has drawn criticism from for-profit schools in the past, who have argued that the strengthened regulations were targeting them. Insider has previously reported on the fraudulent behavior many for-profit schools had engaged in, including misleading borrowers about the true costs of a program and leading them into unaffordable debt. The new rule would crack down on that behavior.
Jason Altmire, the president and CEO of Career Education Colleges and Universities — which represents for-profit institutions — said in a statement that Biden's proposal "unfairly targets programs at proprietary institutions and fails to account for the unique challenges facing students and communities that career-oriented programs serve."
Along with a new gainful-employment proposal, the department also announced that it would increase transparency on college pricing by collecting information on all colleges and programs about their costs and typical borrowing amounts and making that information available publicly on the department's website. The department would also create a "watch list of the least financially valuable postsecondary education programs, focusing on the programs that play an outsized role in burdening graduates with unaffordable debts," per the press release.
Democratic lawmakers have previously pushed for a strengthened gainful-employment rule. The Congressional Progressive Caucus wrote in its executive-action agenda for Biden this year that the department "should protect students by expediting and strengthening a reinstated Gainful Employment rule," along with informing "applicants if they are applying to an institution on the low-value college list that risks leaving students with high debt and low earnings prior to administering financial aid."
The proposed regulations are set to be published in the Federal Register on May 19, and the public would then have 30 days to submit public comments on the proposal. Senior department officials told reporters on a press call that they were confident that the rules would be finalized by November 1 and implemented on July 1, 2024.