Student-loan borrowers have a new safeguard in place to ensure their debt doesn't pile up once they graduate

• The Education Department released its final version of the gainful employment rule.
• It would prevent borrowers from enrolling in program that leaves them with too much debt compared to earnings.

President Joe Biden's Education Department has released its final rule to keep student debt from spiraling after a borrower graduates.

On Wednesday, the Education Department announced its final version of the gainful employment rule. The rule, first established in 2014 under then-President Barack Obama, cut off federal aid for schools that offered programs that left students with too much debt when compared to their likely postgraduation income.

Former President Donald Trump repealed the rule in 2019, and now Biden's administration is reinstating it — and the new provisions will be implemented in July 2024.

According to the department's fact sheet, the rule will protect about 700,000 students a year from career training programs that leave graduates earnings with "no better than what someone with a high school diploma" would earn. It also includes financial transparency requirements so students who enroll at the program will have information at the outset on how much debt they might take on from the program.

"Students overwhelmingly say that they're going to college to find a good job and build financial security, but too often their programs leave them no better off financially than those with no postsecondary education at all," Under Secretary of Education James Kvaal said in a statement. "These rules will stop taxpayer dollars from going to schools that continually saddle students with unaffordable debt. Separately, we're ensuring all students have increased information to make good choices."

The Education Department will assess whether career programs meet the gainful employment requirements using two separate metrics:

• The debt-to-earnings rate, which ensures a graduate's student debt payments are no more than 8% of annual earnings or 20% of discretionary earnings
• An earnings premium test that measures whether a typical graduate from a program that received federal aid is earning as least as much as a typical high school graduate in their state between the ages of 25 and 34.

Programs that fail those metrics will be required to warn students that they risk losing federal student aid, and programs that fail the same metric in two of three consecutive years will lose federal aid.

The department projected that about 1,700 programs that enroll 700,000 students will fail at least one of the metrics, and nearly 90% of students in failing programs go to for-profit schools.

Along with the new metrics, the department also announced a new financial transparency framework that would provide students with information on what they are likely to pay out-of-pocket for certain programs, how much debt they can expect to take on, and how much they're likely to earn after graduating. It also ensures students are aware of risks of enrolling in a certain certificate or graduate programs that could leave them with unaffordable student debt.

The accountability metrics will go into effect July 2024, and the first official metrics will be published in early 2025.

Jason Altmire, president and CEO of Career Education Colleges and Universities — an organization that represents for-profit schools — said in a statement that the new rule unfairly targets for-profit institutions.

"The Department has rushed the process, overlooking critical issues, to hastily implement and weaponize a final Gainful Employment rule against for-profit institutions," Altmire said. "The Department continues to put its thumb on the scale to circumvent established procedures and advance a partisan rule that fails to protect the vast majority of students."

However, advocates and Democratic lawmakers have previously pushed for a strengthened gainful employment rule to protect borrowers. Aaron Ament, president of advocacy group Student Defense, said in a statement that the finalized rule "is a major step towards enacting more front-end protections to ensure students aren't being taken advantage of by predatory schools and programs."

Education Secretary Miguel Cardona emphasized that point to reporters on a Wednesday press call.

"These rules will raise the bar for accountability and transparency in higher education. This includes the most effective gainful employment rule in history," Cardona said. "We're going to protect students from programs that leave graduates with low wages for career prospects and debt they can't afford."