[Federal Register Volume 76, Number 113 (Monday, June 13, 2011)]
[Rules and Regulations]
[Pages 34385-34539]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13905]
[[Page 34385]]
Vol. 76
Monday,
No. 113
June 13, 2011
Part III
Department of Education
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34 CFR Part 668
Program Integrity: Gainful Employment--Debt Measures; Final Rule
Federal Register / Vol. 76 , No. 113 / Monday, June 13, 2011 / Rules
and Regulations
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DEPARTMENT OF EDUCATION
34 CFR Part 668
RIN 1840-AD06
[Docket ID ED-2010-OPE-0012]
Program Integrity: Gainful Employment--Debt Measures
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary amends the Student Assistance General Provisions
regulations to improve disclosure of relevant information and to
establish minimal measures for determining whether certain
postsecondary educational programs lead to gainful employment in
recognized occupations, and the conditions under which these
educational programs remain eligible for the student financial
assistance programs authorized under title IV of the Higher Education
Act of 1965, as amended (HEA).
DATES: These regulations are effective July 1, 2012.
FOR FURTHER INFORMATION CONTACT: John Kolotos or Fred Sellers for
general information only. Telephone: (202) 502-7805. Any other
questions or requests for information regarding these final regulations
must be submitted to: GE-Questions@ed.gov.
If you use a telecommunications device for the deaf (TDD), call the
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
Individuals with disabilities can obtain this document in an
accessible format (e.g., braille, large print, audiotape, or computer
diskette) on request to one of the contact persons listed under FOR
FURTHER INFORMATION CONTACT.
SUPPLEMENTARY INFORMATION:
Executive Summary
Institutions providing gainful employment programs offer important
opportunities to Americans seeking to expand their skills and earn
postsecondary degrees and certificates. For-profit institutions offer
many quality programs, but in some instances, these programs leave
large numbers of students with unaffordable debts and poor employment
prospects.
The Department of Education has a particularly strong interest in
ensuring that institutions that are heavily reliant on Federal funding
promote student academic and career opportunities. These final gainful
employment regulations are designed to (1) provide institutions with
better metrics and more time to assess their program outcomes and
thereby a greater opportunity to improve the performance of their
gainful employment programs before those programs lose eligibility for
Federal student aid funds, and (2) identify accurately the worst
performing gainful employment programs. At the same time, the final
regulations require that these federally funded programs meet minimal
standards because students and taxpayers have too much at stake to
allow otherwise.
The Higher Education Act of 1965, as amended (HEA), has long
provided for the extension of financial aid to students attending
postsecondary programs that ``lead to gainful employment in a
recognized occupation,'' including nearly all programs at for-profit
institutions and certificate programs at public and non-profit
institutions. For-profit institutions, in particular, are a diverse,
innovative, and fast-growing group of institutions. By pioneering
creative course schedules and online programs and serving
nontraditional students, many of these institutions have developed
impressive, beneficial practices that both public and non-profit
institutions might emulate. In recent months, a number of institutions
have taken promising steps to improve the value of the programs they
offer to students by offering free trial and orientation periods,
closing underperforming programs, and investing more in their faculty
and curricula. These reforms may serve students well and improve
performance as measured under these final regulations.
At the same time, for-profit institutions typically charge higher
tuitions for their programs than do their public and non-profit
counterparts. They also have higher net prices, a measure of how much
students pay after receiving grant aid, such as Federal Pell Grants. As
a result, students on average assume more debt to enroll in a program
than do their peers who attend public or private, nonprofit
institutions.
We also have concerns about recruitment practices and completion
rates for particular programs offered by for-profit institutions. The
Government Accountability Office (GAO) and other investigators have
found evidence of high-pressure and deceptive recruiting practices at
for-profit institutions. These recruiting practices may contribute to
low graduation rates. First-time students enrolling in four-year
institutions in 2004 were only about half as likely to earn any kind of
degree or certificate by 2009 if they began their postsecondary
education at a for-profit institution than if they began their
postsecondary education at a public institution. National Center for
Education Statistics, 2004/2009 Beginning Postsecondary Students
Longitudinal Study.
Proprietary institutions market their programs to students by
emphasizing the value of the program against the cost to the student.
This approach is often called the value proposition of the program and
is meant to portray to students the value of the specific program
offerings to that student's career goals. It is this posture that
distinguishes programs ``that lead to gainful employment in a
recognized occupation'' as set forth in the HEA.
These final regulations reflect the Department's policy
determination that students are not adequately protected by the
Department's current regulatory framework, which focuses on
institutional level information. By defining what it means to provide
training leading to gainful employment for each program that is
eligible to receive title IV, HEA funds, the Department believes that
students will be better served and the Department will have improved
how it carries out its obligation to ensure program integrity.
Some have argued that cohort default rates, measured at the
institutional level, already provide a measure of whether student debt
is at appropriate levels. The Department believes that those measures
are properly supplemented and complemented by those outlined here. The
Department's experience with the CDR is that it operates for particular
purposes and that, among other things, it does not identify the harm to
students that can come from enrolling in a specific program that leaves
them with high education debts and limited job opportunities. An
institution's average default rate does not measure the effect of any
individual program, and that information alone does not provide a
student with a measure of whether he or she will be able to achieve a
career goal and pay off loan debt. Moreover, the default rate does not
take account of the possibility that many students are struggling to
repay their loans, such as those receiving economic hardship deferments
or who are in income-based repayment. These are students who are seeing
their loans grow, rather than shrink, because their incomes are low and
their debts are high. As a result the default rate is a better
measurement of the potential loss to taxpayers than of the repayment
burden on borrowers.
The Department is adopting in these final regulations a definition
of programs that provide training leading
[[Page 34387]]
to gainful employment in a recognized occupation in order to provide
students with a measure of the particular program they are considering
taking. This program-level assessment is further reflected in the way
in which we have required disclosures of information and in the care we
have taken with regulating the development of new programs once a
program has failed to meet the measures in the regulation. The
regulations we are adopting will help to protect students by removing
eligibility from the worst performing programs that fail the minimum
requirements, while providing institutions with incentives to improve
the performance of their programs under the measures and create better
outcomes for the students enrolled in those programs.
Institutional measures of eligibility often fail to reveal the
effects of providing bad outcomes to students in the particular
programs that they offer. Most of the revenues of for-profit
institutions come from Pell Grants and Federal student loans. The
revenues of these institutions are dependent on the number of students
they enroll in their programs; they are not otherwise dependent on
whether their students graduate, find jobs, and ultimately repay their
loans. Thus, if one of these students defaults on her or his loan, the
institution's revenues are unlikely to be affected and the blended
cohort default rates calculated for an institution tend to mask the
harms to students that are coming from only a few bad programs offered
at an institution. For students, however, the consequences of an
unaffordable loan are severe. For the 2008 cohort year, 46 percent of
student loans (weighted by dollars) borrowed by students at two-year
for-profit institutions are expected to go into default over the life
of the loans, compared to 16 percent of loans borrowed by students
across all types of institutions.
Former students who are not gainfully employed and cannot afford to
repay their loans face very serious challenges. Discharging Federal
student loans in bankruptcy is very rare. The common consequences of
default include large fees--collection costs that can add 25 percent to
the outstanding loan balance--and interest charges; struggles to rent
or buy a home, buy a car, or get a job; collection agency actions,
including lawsuits and garnishment of wages; and the loss of tax
refunds and even Social Security benefits. Moreover, borrowers in
default are no longer entitled to any deferments or forbearances and
may be ineligible for any additional student aid until they have
reestablished a good repayment history.
Consistent with the HEA's requirements, to be eligible to
participate in the title IV, HEA programs, certain institutions must
provide an eligible program leading to gainful employment in a
recognized occupation. The Department's goals in promulgating these
regulations are to ensure that (1) students who enroll in these
programs do not have to face these difficult challenges, because they
are equipped to secure gainful employment rather than being left with
unaffordable debts and poor employment prospects, and (2) the Federal
investment of title IV, HEA student aid dollars is well spent.
The Department began its efforts in this area with regulations
designed to help students make informed choices about postsecondary
education programs in 2009 by conducting a series of public hearings
and negotiated rulemaking sessions. It published two notices of
proposed rulemaking (NPRMs) in 2010. The Department's proposed
regulations emphasized the use of disclosure mechanisms to provide
students and the public with critical information about the performance
of gainful employment programs. On October 29, 2010, the Department
published regulations (75 FR 66832) (Program Integrity Issues final
regulations) requiring institutions with programs that prepare students
for gainful employment in a recognized occupation to disclose key
performance information about each program on their Web site and in
promotional materials to prospective students. The required elements
include the program cost, on-time completion rate, placement rate,
median loan debt, and other information for programs that prepare
students for gainful employment in recognized occupations.
Since publishing the final regulations, the Department has
published in the Federal Register on April 13, 2011, a draft disclosure
template for public comment (76 FR 20635). The Department intends to
finalize this disclosure template by the fall of 2011 so that it is
available for use by institutions by July 1, 2012. The disclosure
template will automate the process by which institutions can prepare
the required disclosures and will include links to provide the
appropriate Web sites of other institutions offering the same program
that participate in the title IV, HEA student aid programs, thus
allowing students to compare similar programs. With this template, and
consistent with section 4 of Executive Order 13563, the Department is
thus attempting to foster informed decisions and to improve the
operation of the market through ``disclosure requirements as well as
provision of information to the public in a form that is clear and
intelligible.''
The Program Integrity Issues final regulations also included
significant new regulations that we designed to protect consumers from
misleading or overly aggressive recruiting practices, and to clarify
State oversight responsibilities. These regulations took significant
steps to curbing fraud and abuse in the Federal student aid programs by
strengthening existing requirements that are designed to protect
students and taxpayers. Among these changes were the strengthening of
our misrepresentation regulations to provide the Department greater
authority to take action against institutions engaging in deceptive
advertising, marketing, and sales practices. The regulations also
eliminate ``safe harbors'' that allowed questionable recruitment
practices that often included institutions paying incentive
compensation to recruiters. Too often this type of compensation leads
to overly aggressive recruiting practices that encouraged students to
take out loans they could not afford or enroll in programs for which
they were unqualified or in which it was unlikely they could succeed.
Additionally, the Program Integrity Issues final regulations took a
needed step toward ensuring that States are taking necessary steps to
ensure the appropriate oversight of the postsecondary education being
provided by institutions by establishing minimum steps that States must
take to meet their important responsibility under the HEA to protect
students, including for institutions that offer distance or
correspondence education.
These final regulations, Gainful Employment--Debt Measures, reflect
a number of significant changes and improvements from the July 26, 2010
NPRM in response to public comments. The changes and improvements are
designed to provide a better measure of whether a program provides
training that will lead to gainful employment in a recognized
occupation. They reflect alterations from the proposed regulations
designed to (1) Provide better program information to students, (2)
identify the worst performing programs, and (3) create appropriate
flexibility and provide institutions the opportunity to improve their
programs before losing title IV, HEA program eligibility. These changes
are also designed to minimize the costs for regulated institutions,
while providing
[[Page 34388]]
considerable benefits both to students at regulated institutions and to
taxpayers.
The regulations emphasize the importance of disclosing program
information and take several further steps to promote informed
decisions. Thus, under the final regulations, institutions must
disclose to the public, and the Secretary may also disseminate to the
public, information about how each of an institution's programs are
performing under the debt measures that we are establishing in these
final regulations. The Department is considering additional steps to
promote the comparison of programs and to facilitate access to this
information. In keeping with the emphasis on disclosure, the
regulations also provide that during the first two years that a program
fails the debt measures, the institution must provide warnings to
students. To promote informed student choice, these warnings must be
provided to students sufficiently in advance of enrolling to permit the
student time to consider whether to enroll in the program.
While increasing the level of disclosure is critical, the
Department recognizes that information alone is unlikely fully to
promote the goals of the HEA and to ensure that programs provide
training that leads to gainful employment in a recognized occupation.
Students enrolling in a postsecondary program often have limited
background information about a program and little or no experience
choosing among postsecondary programs. High-pressure sales tactics by
institutions may also make it difficult for individuals to choose
carefully among programs. Therefore, the Department is setting minimum
standards to measure whether programs are providing training that leads
to gainful employment in a recognized occupation.
To provide an additional layer of protection for students and
taxpayers, the Department is defining a set of measures that identifies
the lowest performing programs by focusing on the ability of students
to repay their student loans. Under these measures, a program is now
considered to lead to gainful employment if it has a repayment rate of
at least 35 percent or its annual loan payment under the debt-to-
earnings ratios is 12 percent or less of annual earnings or 30 percent
or less of discretionary income. Under the regulations, only after
failing both debt measures for three out of four fiscal years does a
program lose eligibility. These regulations set minimum standards and
are designed to provide flexibility, specifically allowing programs an
opportunity to improve their performance before losing title IV, HEA
program eligibility. The Department believes that these measures will
improve the operation of free markets by identifying the poorest
performing programs and strengthening institutions' incentive to
provide an affordable quality education.
Background of Rulemaking Proceedings
On September 9, 2009, the Secretary announced the Department's
intent to establish two negotiated rulemaking committees to develop
proposed regulations under title IV of the HEA through a notice in the
Federal Register (74 FR 46399). The Secretary established one committee
to develop proposed regulations governing foreign schools and another
committee to develop proposed regulations to improve integrity in the
title IV, HEA programs. Team I--Program Integrity Issues (Team I) met
to develop proposed regulations during the months of November 2009
through January 2010; however, no consensus on the proposed regulations
was reached during the negotiations. After Team I's negotiations
concluded, the Department published two NPRMs.
On June 18, 2010, the Secretary published the first NPRM in the
Federal Register (75 FR 34806) (June 18, 2010 NPRM) proposing to
strengthen and improve the administration of programs authorized under
title IV of the HEA. With regard to gainful employment, the June 18,
2010 NPRM included proposals covering several technical, reporting, and
disclosure issues. The June 18, 2010 NPRM reserved for a second NPRM
the remaining gainful employment issues, which addressed the extent to
which certain educational programs lead to gainful employment and the
conditions under which those programs remain eligible for title IV, HEA
program funds.
On July 26, 2010, the Secretary published a second NPRM for gainful
employment issues in the Federal Register (75 FR 43616) (July 26, 2010
NPRM). In the July 26, 2010 NPRM, the Secretary proposed to--
Establish debt thresholds based on debt-to-income and
repayment rate measures that a program at an institution would need to
meet in order to demonstrate that it provides training that leads to
gainful employment in a recognized occupation and consequently to
remain eligible for title IV, HEA funds;
Establish a tiered eligibility system under which a
program may have unrestricted eligibility, may have restricted
eligibility, or may become ineligible to participate in the title IV,
HEA programs;
Establish consequences for a program with a restricted
eligibility status, including requirements to provide debt warning
disclosures to current and prospective students that they may have
difficulty repaying loans obtained for attending the program; employer
affirmations that the program curriculum is appropriately aligned with
recognized occupations at the employers' businesses and that there is a
demand for those occupations; and limits on enrollment of title IV, HEA
program recipients in that program;
Provide that a program becomes ineligible if it does not
meet at least one of the debt thresholds for one award year;
Specify that the institution may not disburse any title
IV, HEA program funds to students who subsequently begin attending a
program determined to be ineligible, but may disburse title IV, HEA
program funds to students who began attending the program before it
became ineligible for the remainder of the award year and for the award
year following the date of the Secretary's notice that the program is
ineligible;
Establish a transition year in which the Secretary would
cap the number of programs that would be classified as ineligible for
the first year after the regulations take effect;
Add a definition of The Classification of Instructional
Programs (CIP);
Permit the Secretary to place on provisional certification
an institution that has one or more of its programs determined to be
subject to the eligibility limitations or determined ineligible under
the gainful employment provisions; and
Establish that in a termination action against a program
for not meeting the gainful employment standards, the hearing official
would accept, as accurate, earnings information for students that was
obtained by the Department from another Federal agency, but would
consider alternate earnings data as long as that data was reliable for
the same students.
The Department reviewed the comments from both the June 18, 2010
NPRM and the July 26, 2010 NPRM and divided the final regulations into
three separate documents. On October 29, 2010, the Secretary published
both the first and second sets of final regulations in the Federal
Register (75 FR 66832 and 75 FR 66665) (Program Integrity Issues and
Gainful Employment/New Programs final regulations, respectively) with
effective dates, generally, of July 1, 2011.
[[Page 34389]]
The Program Integrity Issues final regulations (75 FR 66832)--
Clarified that only certificate or credentialed nondegree
programs of at least one academic year that are offered by a public or
nonprofit institution of higher education are gainful employment
programs;
Updated the definition of the term recognized occupation
to reflect current usage;
Established requirements for institutions to submit
information on students who attend or complete programs that prepare
students for gainful employment in recognized occupations; and
Established requirements for institutions to submit
information on students who attend or complete programs that prepare
students for gainful employment in recognized occupations; and
Established requirements for institutions to disclose on
their Web site and in promotional materials to prospective students,
the on-time graduation rate for students completing a program,
placement rate, median loan debt, program costs, and any other
information the Secretary provided to the institution about the
program.
The Gainful Employment/New Programs final regulations (75 FR
66665)--
Established a process under which an institution applies
to the Secretary for approval to offer additional educational programs
that lead to gainful employment in a recognized occupation.
These final regulations, Gainful Employment--Debt Measures,
comprise the third set of regulations and reflect a number of
significant changes from the proposed regulations in response to public
comments. We received over 90,000 comments in response to the July 26,
2010 NPRM. These included tens of thousands of comments supporting our
proposals and tens of thousands opposing them. Subsequent to our
issuance of the Gainful Employment/New Programs final regulations, we
also met with more than 100 individuals and organizations to permit
these individuals and entities to clarify their comments in person. The
Department extended its work on the regulations by six additional
months to consider fully these comments. Consistent with Executive
Order 13563, the result of this unprecedented public engagement is
stronger regulations that (1) Are based on careful consideration of
both the costs and benefits (both quantitative and qualitative) of the
regulations; (2) incorporate many suggestions to allow flexible
approaches for the regulated entities; and (3) balance the concerns of
those on both sides of the ``gainful employment'' issue.
The final regulations will:
Give all programs three years to improve their
performance. The Department will begin by giving institutions data to
help them identify and improve their failing programs and to help
current and prospective students make informed choices. The first
programs could lose eligibility based upon their performance under the
debt measures calculated for fiscal year (FY) 2014 and released in
2015, rather than FY 2012 as proposed.
Target only the worst performing failing programs by:
(1) Permitting an institution to maintain a program's title IV, HEA
program eligibility until the program fails both the debt-to-earnings
ratios and repayment rate measures for three out of four FYs, similar
to the multi-year measures used to assess cohort default rates (CDRs)
at an institution;
(2) Limiting the number of programs that will lose eligibility
based on the debt measures calculated for only FY 2014 under Sec.
668.7(k) to the worst performing 5 percent of programs (weighted by
enrollment); and
(3) Eliminating enrollment restrictions that the Department had
proposed in the July 26, 2010 NPRM to apply to all programs with
repayment rates below 45 percent and an annual loan payment that is
more than 20 percent of discretionary income or 8 percent of annual
earnings.
Improve the repayment rate and debt-to-earnings ratios
measures based on extensive public comment by:
(1) Revising the measures such that a program is now considered to
lead to gainful employment if it has a repayment rate of at least 35
percent or its annual loan payment under the debt-to-earnings ratios is
12 percent or less of annual earnings or 30 percent or less of
discretionary income;
(2) Allowing institutions to demonstrate that their programs meet
the debt-to-earnings ratios with alternative reliable earnings
information, including use of State data, survey data, or Bureau of
Labor Statistics (BLS) data during a transitional period;
(3) Measuring performance in years three and four of repayment,
rather than years one through four, to examine more typical years in
the life cycle of a loan (with a provision to use years three through
six where necessary to ensure that more than 30 borrowers or completers
are included in the measurement and additional adjustments to address
the needs of programs that are improving their performance, graduate
programs, and medical and dental programs);
(4) Measuring debt burdens based on an assumption that loans are
repaid over 10 to 20 years depending on the level of degree, rather
than 10 years for all programs as was originally proposed. Loan debt
will be amortized over 10 years for undergraduate or post-baccalaureate
certificate and associate's degree programs, 15 years for bachelor's
and master's degree programs, and 20 years for programs that lead to a
doctoral or first-professional degree;
(5) Limiting debt in the debt-to-earnings ratio calculation to
tuition and fee charges for a specific educational program, if this
information is provided by the institution, thereby providing programs
relief for loans taken for indirect educational costs, including living
expenses;
(6) Providing that borrowers who meet their obligations under
income-sensitive repayment plans are considered to be successfully
repaying their loans even if their payments are smaller than accrued
interest, so long as the program at issue does not have unusually large
numbers of students in those categories; and
(7) Providing that a program is considered to satisfy the debt
measures if the number of students who completed the program or the
number of borrowers whose loans entered repayment during the relevant
four-year period is 30 or fewer.
Improve the disclosure of information about programs by:
(1) Providing in Sec. 668.7(g)(6) that the Secretary may
disseminate the final debt measures and information about, or related
to, the debt measures to the public in any time, manner, and form,
including publishing information that will allow the public to
ascertain how well programs perform under the debt measures and other
appropriate objective metrics. The Department is considering
appropriate ways to provide these metrics and other key indicators to
facilitate access to the information and the comparison of programs;
(2) Requiring that an institution with a failing program that does
not meet the minimum standards specified in the regulations must
provide warnings to enrolled and prospective students;
(3) Requiring that the debt warnings for prospective students must
be provided at the time the student first contacts the institution to
request information about the program. The institution may not enroll
the student until three days after the debt warnings are first provided
to the student. If more than 30 days pass from the date the debt
[[Page 34390]]
warnings are first provided to the student and the date the student
seeks to enroll in the program, the institution must provide the debt
warnings again and may not enroll the student until three days after
the debt warnings are most recently provided to the student; and
(4) Requiring an institution to disclose the repayment rate and the
debt-to-earnings ratio (based on total earnings) of its gainful
employment programs.
Establish restrictions on reestablishing eligibility of
ineligible programs, new programs that are substantially similar to an
ineligible program, and failing programs that are voluntarily
discontinued by the institution.
In sum, the Department has revised these regulations to promote
disclosure, to encourage institutions to improve their occupational
programs, and to provide more time for this improvement before revoking
eligibility. The Department believes that institutions will strengthen
their educational programs to meet these higher standards, and
relatively few programs will fail. Programs that offer a rewarding
education at an affordable price will prosper, and institutions will
continue to innovate to serve students and taxpayers.
Implementation Date of These Regulations
Section 482(c) of the HEA requires that regulations affecting
programs under title IV of the HEA be published in final form by
November 1 prior to the start of the award year (July 1) to which they
apply. However, that section also permits the Secretary to designate
any regulation as one that an entity subject to the regulation may
choose to implement earlier and to specify the conditions under which
the entity may implement the provisions early.
The Secretary has not designated any of the provisions in these
final regulations for early implementation. Therefore these final
regulations are effective July 1, 2012.
Commitment to Continuing Retrospective Review
As discussed further under the heading Executive Orders 12866 and
13563, consistent with Executive Order 13563's emphasis on measuring
``actual results'' and on retrospective review of regulations, the
Department intends to monitor the implementation of these regulations
carefully, consider new data as they become available to ensure against
unintended adverse consequences, and reconsider relevant issues if the
evidence warrants. We recognize that, despite the Department's diligent
efforts and extensive public input, there are limitations in the best
available data and there remains some uncertainty about the impact of
these final regulations, such as the number of programs that will be
identified as ineligible.
In early 2012, the Department will calculate and share with
institutions, for informational purposes only, performance data for
programs subject to these regulations. Thus, institutions and the
Department will have preliminary information about the performance of
particular programs a full year before any programs could be labeled
failing and three years before any programs could lose eligibility.
This implementation schedule will allow the Department ample time to
consider relevant evidence and data and to examine the performance of
programs under the regulations. This collection of data, in conjunction
with the agency's intention to evaluate the outcomes of these
regulations, is consistent both with Executive Order 13563 and the
Office of Information and Regulatory Affairs' February 2, 2011
memorandum (OMB M-11-19) on Executive Order 13563, which emphasizes the
importance of ``empirical testing of the effects of rules both in
advance and retrospectively,'' and which encourages future regulations
to be ``designed and written in ways that facilitate evaluation of
their consequences and thus promote retrospective analyses.'' The
Department will continue to explore the effects of the regulations.
Among other things, the Department will examine the type and number of
programs determined to be failing and ineligible, and it will consider
whether these final regulations should be reconsidered or amended in
furtherance of its goals of protecting students and taxpayers against
educational programs that leave students with unaffordable debts and
poor employment prospects.
Analysis of Comments and Changes
As indicated earlier, over 90,000 parties submitted comments on the
July 26, 2010 NPRM. Many of these comments were substantially similar.
We have reviewed all of the comments. Generally, we do not address
minor, nonsubstantive changes, recommended changes that the law does
not authorize the Secretary to make, or comments pertaining to
operational processes.
General
Comment Process
Comment: The Department received over 90,000 comments on the July
26, 2010 NPRM. Of those comments, approximately 25 percent were in
support of our proposed regulations and approximately 75 percent were
opposed. We received comments from numerous categories of individuals,
including students, families, employees of institutions of higher
education, school presidents, congressional and other governmental
leaders, advocacy groups, State and local associations, trade
associations, and businesses. The comments received varied in content
and length from extremely short responses to complex and lengthy
economic and legal analyses. The vast majority of the comments,
however, were similar, largely duplicative, and apparently generated
through petition drives and letter-writing campaigns. Generally, these
commenters did not provide any specific recommendations beyond general
support of or opposition to the proposed regulations. Many of the
commenters--both those in support of, and in opposition to, specific
provisions--indicated that they supported the goals and intent behind
the proposed regulations. Specifically, commenters across all sectors
of higher education as well as the student and consumer advocacy groups
believed that the goal of ensuring student loan debt is affordable is
an admirable one.
Some of the commenters did not express substantive comments on the
proposed regulations or their effects. For instance, a number of the
commenters, particularly those from students, simply said ``No,'' or
asked that the Department not ``take away my student loans.''
Supporters of the proposed regulations praised the Department's
transparency and commitment to improving the integrity of the title IV,
HEA student aid programs. Some commenters praised the amount of
information and data that the Department released with the NPRM and
subsequently on the Department's Web site. Other commenters believed
that the Department had taken appropriate steps to gather public input
and to craft regulations that protect students by regulating programs
that claim to prepare students for gainful employment, yet leave
students with large amounts of debt and unprepared for employment in
recognized occupations. These commenters suggested that the proposed
regulations would help to ensure that employers can hire well-qualified
employees and that taxpayer dollars are spent wisely and effectively.
Some of the commenters believed that the proposed regulations provide
for much-needed enforcement authority.
[[Page 34391]]
Commenters who opposed the proposed regulations believed that the
proposed regulations would have a number of unintended effects and
suggested that the regulations would produce results counter to the
President's economic and educational goals. These commenters also
stated that the proposed regulations would be overly burdensome and
discriminatory; represent an overreaching of the Department's
authority; unfairly punish institutions for students' choices after
graduating; disproportionately affect at-risk and underserved
populations of students; and limit the growth of, and innovation in,
new programs. The commenters recommended that the Department address
these concerns by delaying the implementation of the regulations,
considering alternatives to the debt-to-earnings and repayment rate
metrics, and exempting certain types of institutions or programs from
compliance with the regulations. While making a number of suggestions
and recommendations, the commenters generally expressed a desire to
work with the Department to provide additional information and insight
to craft metrics that they believed would achieve the intended result
of reducing student loan debt and helping students to obtain gainful
employment.
Discussion: The Department appreciates the numerous comments we
received in support of the proposed regulations as well as those we
received that expressed concerns about them. Specific issues raised by
the commenters are addressed in the relevant topical discussions. These
comments were instrumental in identifying ways the Department could
design final regulations that provide benefits to students, minimize
costs to regulated institutions, and provide institutions with greater
flexibility to achieve regulatory compliance.
Changes: Changes made in response to the commenters' specific
concerns are addressed in the relevant topical discussions.
Timing of Implementation
Comment: Some commenters urged the Department to implement these
regulations as early as possible, arguing that students, consumers, and
taxpayers need protection now and cannot afford to wait for these
regulations to go into effect a few years in the future. Some of these
commenters noted that putting provisions into effect, perhaps in a
transitional form, would spur institutions with poorly performing
programs to invest in program improvements and student services, such
as career counseling and job placement assistance, to improve student
outcomes.
Some commenters asked the Department to delay the implementation of
the regulations for a number of reasons. Some asked for the Department
to delay implementation until the results of a forthcoming GAO study on
proprietary schools are available. Other commenters requested a delay
to allow Congress time to debate and pass a law on the definition of
``gainful employment.'' These commenters argued that Congress, not the
Department, appropriately has this authority. Some of the commenters
also suggested a delay to allow time to see the effect of the
additional disclosures and reporting requirements under the final
regulations that will take effect July 1, 2011 (75 FR 66833-66975).
Some commenters requested a delay until Congress acts to provide
authority to institutions to limit loan funds to institutional charges.
Commenters requested that the Department apply the metrics only to
students who enroll after the final regulations are published. These
commenters argued that schools should not be held accountable for an
outcome that was not defined at the time the students attended the
program and that it would be unfair to judge schools on metrics that
they could have influenced at the time, when the quality of the
programs and the outcomes for the students may be improving. Commenters
noted that the Department should delay enforcing the regulations so
programs have an opportunity to improve, and that programs that are
improving may not be able to satisfy the metrics immediately given that
the metrics measure outcomes from students who graduated in past years.
A few commenters asked the Department to provide draft metrics to
institutions before their programs would be subject to sanctions. The
commenters encouraged the Department to use the new, three-year CDR as
a model for how any new metrics on gainful employment could be phased
in over time. They further stated that delayed implementation would
give schools time to improve their programs and debt counseling advice
to meet the metrics as well as time to discontinue programs that are
not meeting the metrics.
Some commenters requested further actions within the negotiated
rulemaking process. Commenters requested that the Department issue
these regulations as an interim final rule so that the public would
have an opportunity to submit additional comments and, perhaps, to
permit further modifications to the regulations based on those
comments. Other commenters recommended that the Department extend the
45-day public comment period to allow a full analysis of the breadth
and complexity of the proposed regulations. They further suggested that
the Department would benefit from further information from institutions
on the details involved with compliance before implementation. A few
commenters requested that the Department engage in another round of
negotiated rulemaking so that participants could focus solely on an
appropriate definition of gainful employment. These commenters believed
that more analysis and discussion of the proposed regulations are
needed before they become final.
Some commenters suggested that the gainful employment metrics
should apply no earlier than July 1, 2014, and sanctions for ineligible
programs should apply on or after July 1, 2016, arguing that these
timeframes would give institutions an adequate opportunity to comply
with the new requirements.
Discussion: We appreciate the concerns of the commenters who urged
the Department to implement these regulations as early as possible.
However, based on the concerns of other commenters, we believe it is
desirable to extend the implementation schedule of these final
regulations. In that regard, we agree that institutions should have the
opportunity to improve program performance against the metrics before
being subject to significant sanctions. The adjustments to the
regulations reflecting these changes are discussed more fully under the
relevant topical discussions.
We do not agree with commenters that we should delay implementing
the final regulations until a third party takes some action such as
waiting for a GAO study to be available. We have already undertaken
extensive efforts to analyze the impact of these regulations and gather
public comments. We also believe the need to remove poorly performing
programs is too great to wait for third-party actions.
We do not agree that further actions need to be taken within the
rulemaking process such as issuing interim final regulations, providing
an additional comment period, or renegotiating the proposed
regulations. Given the Department's extensive efforts to solicit and
respond to comments from the public, including public hearings, three
sessions of negotiations, additional meetings with interested parties,
and the over 90,000 comments received, we do not believe it is
necessary to reopen the rulemaking process and delay publishing these
final regulations.
[[Page 34392]]
Changes: Changes made in response to the commenters' specific
concerns are addressed in the relevant topical discussions.
Legal Authority
Comments: A number of commenters objected to the proposed
regulations in whole or in part, claiming that no changes to the HEA
require the Secretary to define the term ``gainful employment,'' and
that the term cannot now be defined since Congress left it undisturbed
during its periodic reauthorizations of the HEA. Some commenters
expressed the view that the framework of detailed requirements under
the HEA programs that includes institutional measures using cohort
default rates, disclosure requirements for institutions, restrictions
on student loan borrowing, and other financial aid requirements
prevents the Department from adopting debt measures to determine the
eligibility for these programs. Other commenters noted that it was
unfair for the Department to propose these requirements for some
programs and not others. Some commenters suggested that the phrase ``to
prepare students for gainful employment'' is unambiguous and therefore
not subject to further definition. Some commenters claimed that the
Department has previously defined the term ``gainful employment in a
recognized occupation'' in the context of conducting administrative
hearings and argued that the Department did not adequately explain in
the July 26, 2010 NPRM why it was departing from its prior use of that
term.
Discussion: The Department has broad authority to promulgate
regulations to implement programs established by statute. Under section
414 of the Department of Education Organization Act, 20 U.S.C. 3474,
``[t]he Secretary is authorized to prescribe such rules and regulations
as the Secretary determines necessary or appropriate to administer and
manage the functions of the Secretary or the Department.'' Similarly,
section 410 of the General Education Provisions Act, 20 U.S.C. 1221e-3,
provides that the Secretary may ``make, promulgate, issue, rescind, and
amend rules and regulations'' for Department programs, including the
Federal student aid programs.
The eligibility of programs leading to gainful employment in a
recognized occupation is addressed in sections 101, 102 and 481(b) of
the HEA. Section 481(b) of the HEA defines ``eligible program'' to
include a program that offers at least a defined minimum quantity of
instruction that ``provides a program of training to prepare students
for gainful employment in a recognized profession.'' The HEA in section
102(a) defines an ``institution of higher education for purposes of the
student assistance programs'' and provides further in section 102(b),
that proprietary institutions of higher education, with limited
exception, ``provide[] an eligible program of training to prepare
students for gainful employment in a recognized occupation.'' Similar
requirements exist in section 101(b)(1) for public and private non-
profit institutions of higher education providing programs at least one
year in length, and section 102(c) provides similar requirements for
public and private non-profit postsecondary vocational institutions.
Under section 102(b) of the HEA, programs offered at for-profit
institutions are only eligible for title IV, HEA funds if they offer
programs that ``prepare students for gainful employment in a recognized
occupation.'' Such an institution is required to offer at least one
eligible program leading to gainful employment in a recognized
occupation in order for the institution to be eligible.
This structure for eligibility at the program level and the
institutional level is longstanding and has been retained through many
amendments to the HEA. Indeed, as recently as the enactment of the
Higher Education Opportunity Act of 2008 (HEOA) (Pub. L. 110-315),
Congress retained this distinct treatment of programs by exempting
liberal arts baccalaureate programs offered at some for-profit
institutions from the requirement to provide gainful employment in a
recognized occupation.
The HEA establishes eligibility requirements for certain programs
based upon the program length and the type of institution offering the
program, including such programs that lead to gainful employment in a
recognized occupation. Other requirements apply to certain types of
institutions offering eligible programs, such as providing disclosures
about revenue, and limiting the percentage of revenue that can be
received from title IV, HEA programs. Other requirements apply to all
eligible institutions, such as submitting annual financial statements
and compliance audits, and meeting eligibility requirements based upon
the loan cohort default rate calculated for an institution. None of
these requirements, viewed alone or together, constitutes a framework
that prohibits the Department from establishing the debt measures in
these regulations to determine eligibility for programs required to
provide training leading to gainful employment in a recognized
occupation.
The legislative history of the gainful employment requirement bears
directly on the issues now emerging in the data. Congress was concerned
that the availability of Federal student aid, particularly in the form
of loans for some types of programs and institutions might lead to
students taking on more debt than is reasonable given the earnings that
could be expected. Congress extended loan eligibility beyond
traditional degrees at traditional institutions after considering
testimony regarding the connection between the expected earnings of the
graduates and the debt burden they would incur from this training. A
Senate Report quotes extensively from testimony provided by University
of Iowa professor Dr. Kenneth B. Hoyt, who testified on behalf of the
American Personnel and Guidance Association:
It seems evident that, in terms of this sample of students,
sufficient numbers were working for sufficient wages so as to make
the concept of student loans to be [repaid] following graduation a
reasonable approach to take. * * * I have found no reason to believe
that such funds are not needed, that their availability would be
unjustified in terms of benefits accruing to both these students and
to society in general, nor that they would represent a poor
financial risk. Sen. Rep. No. 758, 89th Cong., First Sess. (1965) at
3745, 3748.
Congress cited the same affirmation from an industry spokesman, Lattie
Upchurch, Jr., of Capitol Radio Engineering Institution, Washington,
DC, who testified that ``the purely material rewards of continued
education are such that the students receiving loans will, in almost
every case, be enabled to repay them out of the added income resulting
from their better educational status.'' Id. at 3752.
These final regulations address harms to students that have been
identified by the GAO, and were identified in the public hearings and
in comments submitted in response to the proposed regulations, namely
that program completers are unable to obtain jobs for which they
received training. The regulations are also designed to address
concerns about high levels of loan debt for students enrolled in
postsecondary educational programs that, to qualify for participation
in the title IV, HEA programs, must provide training that leads to
gainful employment in a recognized occupation. These regulations are of
particular importance because significant advances in electronic
reporting and analysis now allow the Department to collect accurate and
timely data that could not have
[[Page 34393]]
been utilized in the past. These analyses will provide the Department,
students, and the institutions offering these programs with information
about how well the programs are performing under the measures.
With respect to the general claims from some commenters that the
terms ``gainful employment'' and ``gainful employment in a recognized
occupation'' are unambiguous and cannot be defined in regulation, it is
clear from the thousands of comments we received that the terms
``gainful employment'' and ``gainful employment in a recognized
occupation'' are subject to many different views and interpretations.
Thus, these regulations represent a reasonable interpretation of those
terms and do so in a way that responds to many of the concerns raised
in the comments. Adopting a definition now gives meaning to an
undefined statutory term, thereby fulfilling the Department's duty to
enforce the provisions of the HEA in a clear and meaningful way. And,
although the term has been used to refer to applicable programs in the
context of administrative hearings at the Department, that use does not
limit the Department's use of its statutory authority to create a
regulatory definition through the negotiated rulemaking procedures
established under the HEA.
With respect to claims that the Department should wait for Congress
to legislate before regulating, it is important to note that the
original efforts by the Department to address concerns about defaults
in the Federal student loan programs were realized using the
Secretary's general authority to regulate under section 414 of the
Department of Education Organization Act. While Congress ultimately
enacted the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101-
508), which provides statutory authority for much of the cohort default
rate provisions in effect today, the Secretary's authority was
nonetheless appropriately used to issue regulations in this area to
require, for example, teach-out arrangements for private institutions.
Changes: None.
Comment: Some commenters suggested that the proposed definition of
gainful employment would be unlawful because it would constitute
placing price controls on offering gainful employment programs.
Discussion: We disagree that these regulations would constitute
price controls for gainful employment programs. The debt measures and
eligibility thresholds provide institutions with multiple ways to
manage their programs to improve performance.
Changes: None.
Thresholds for the Debt Measures (Sec. 668.7(a)(1))
General
Comment: Commenters expressed concerned that low-income and
minority students, many of whom are Federal Pell Grant recipients,
could be harmed by the proposed loan repayment rate and debt-to-income
thresholds. These commenters noted that Federal Pell Grant recipients
are likely to need to borrow the maximum amount of title IV, HEA loan
funds and may have more difficulty repaying their loans than students
who incur smaller levels of debt. As a result, according to the
commenters, the schools these students attend may not be able to meet
the debt measures and could be forced to close or limit their
enrollment to exclude these students.
Some of the commenters cited research by Mark Kantrowitz of
FinAid.org and FastWeb.com that they believed showed that institutions
with 50 percent or more Federal Pell Grant recipients are unlikely to
satisfy the proposed 35 percent loan repayment rate threshold, and
institutions with 40 percent or more of Federal Pell Grant recipients
are unlikely to satisfy the proposed 45 percent loan repayment rate
threshold. Similarly, other commenters cited studies indicating that
minority students earn less than their white counterparts. For low-
income students, the commenters concluded that student access to higher
education would be adversely affected because the proposed thresholds
would act as a disincentive to institutions to admit these students.
The commenters suggested that, given these concerns, the Department
should allow lower repayment rates and debt-to-earnings ratios for
institutions based on the demographics of the institution's student
body and its success rate in graduating minority students. Other
commenters recommended that the Department implement a sliding scale
repayment rate based on the number of Federal Pell Grant recipients at
an institution. Under this approach, institutions with a larger
percentage of Federal Pell Grant recipients would be subject to a lower
threshold for the loan repayment rate. Commenters suggested that,
alternatively, the loan repayment rates of Federal Pell Grant
recipients could be evaluated separately from the loan repayment rates
of non-Federal Pell Grant recipients, with a lower threshold
established for Federal Pell Grant recipients. Commenters also noted
that some of these same issues apply to institutions and programs
dominated by women, because careers dominated by women tend to be
lower-paying and many women take maternity leave or work part-time and
these circumstances would lead to lower repayment rates and earnings
for women.
One commenter noted that the Department's repayment rate data, when
viewed across all sectors of the education industry, show that
institutions with lower repayment rates serve high-risk students. The
commenter argued that if the data demonstrate anything, it is that
``at-risk'' students (working adults with family commitments and no
parental support, or students from lower socioeconomic backgrounds who
are more susceptible to forces that might cause them to leave or take a
break from school) have more difficulty repaying their student loans or
are more inclined to use alternative methods to repay their loans,
regardless of the type of school they attended.
Discussion: The Department does not agree that the thresholds
should be adjusted to reflect the demographics or economic status of
the students enrolled in gainful employment programs. Students are not
well served by enrolling in programs that leave them with debts they
cannot afford to repay, regardless of their background. Moreover, as
illustrated in the Student Demographics section of the RIA, there are
institutions and programs achieving strong results with students from
disadvantaged backgrounds, and many programs serving even the most
disadvantaged students are performing well under the debt measures.
Changes: None.
Comment: Some commenters stated that because the loan repayment
rate was established outside the negotiated rulemaking process, it
lacked transparency and the breadth of input from stakeholders and the
public that would have assured its quality and relevancy.
Discussion: The loan repayment rate was discussed during the
negotiated rulemaking sessions in the context of whether borrowers who
attended a program were repaying their loans. The issue summaries used
for the rulemaking sessions describing the repayment rate were
published at that time on the Department's Web site and are available
at http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity.html. The negotiating committee did not reach consensus on
proposed regulations (see 74 FR 43617). As a result the Department was
not bound to any of the draft regulations for
[[Page 34394]]
the issues in the manner those issues were discussed with the
committee. Consequently, the Department chose to propose a dollar-based
repayment rate instead of the borrower-based repayment rate discussed
by the committee. As opposed to a borrower-based calculation where all
borrowers have the same impact on the repayment rate regardless of
their debt loads, the proposed dollar-based calculation rewards, or
gives more weight to, borrowers with higher debt loads that repay their
loans. For example:
Borrowers A and B completed a program with $12,000 and $15,000,
respectively, in loan debt. Borrowers C, D, and E withdrew from the
program with loan debts of $3,000, $4,000, and $6,000, respectively.
Under the proposed repayment rate, all loan debt incurred by borrowers
who attended the program would be included in the denominator ($40,000)
of the ratio. Presuming that program graduates are more likely to repay
their loans, i.e., that Borrower A will repay the $12,000 debt and
Borrower B will repay the $15,000 debt, but Borrowers C, D, and E will
not repay their debts, the sum of Borrowers A and B's loans would be in
the numerator, resulting in a 67.5 percent repayment rate ($27,000/
$40,000). Under a borrower-based calculation, the repayment rate would
be 40 percent (two out of the five borrowers were repaying their
loans).
Changes: None.
Threshold for the Loan Repayment Rate and Debt-to-Earnings Ratios
Comment: Some commenters expressed concern that there was no
reasoned basis to support the Department's selection of 45 percent and
35 percent as the repayment rate thresholds for determining, in part,
if programs are fully eligible, restricted, or ineligible to
participate in the title IV, HEA programs. The commenters believed that
this approach was simply a way for the Department to try to close as
many private sector schools as possible by adjusting the thresholds
based on the market's ability to absorb displaced students from private
sector schools.
On the other hand, some commenters opined that the proposed loan
repayment rate needed to be strengthened, and recommended that the
Department increase the threshold for each tier by at least 10
percentage points. Consequently, a program would have to achieve a
repayment rate of at least 55 percent to remain fully eligible for
title IV, HEA funds. Other commenters recommended a threshold of 50
percent for the loan repayment rate. Some commenters suggested that
programs with repayment rates below 25 or 35 percent should lose
eligibility. The commenters believed that it is important to recognize
that the proposed thresholds are likely to overstate actual repayment
rates because the proposed repayment rate excludes both private loans
and parent PLUS loans and many students and families may have accrued
substantial amounts of these types of debt for which repayment is not
being measured. The commenters noted that in 2008-09, these two forms
of debt accounted for 20 percent of all postsecondary education loans.
The commenters believed that these circumstances demonstrated both the
need to increase the repayment rate thresholds and the importance of
including private loans in the debt-to-earnings measure.
Other commenters believed that no changes should be made in the
proposed thresholds. Others argued that if a program satisfied the
debt-to-earnings threshold, then it should be eligible for title IV,
HEA funds. These commenters believed the loan repayment rate metric
would not be a quality test of the program's results.
Another commenter argued that the proposed standards for the loan
repayment rate were not strict enough for ``low-value programs,'' which
the commenter identified as programs where the percentage increase of
post-graduate income is less than the program's debt-to-earnings ratio
as a percentage of annual earnings for the program's graduates. The
commenter recommended that the Department require a low-value program
to maintain a 65 percent loan repayment rate in order for the program
to maintain full eligibility.
A number of commenters noted that the mean repayment rate for all
institutions is 48 percent and that an overwhelming majority of
minority-serving institutions and community colleges, as well as many
urban public and independent colleges and universities, would fail to
meet the 45 percent repayment rate threshold if adopted by the
Department. The commenters questioned the use of this standard of
quality that almost one-half of all colleges would fail to meet. In
addition, the commenters believed that repayment rates are influenced
by a number of factors that have no relation to the quality of the
educational program.
Some commenters believed that the Department did not justify its
proposal that a program must have an annual loan payment of 8 percent
or less of average annual earnings in order to meet the debt
thresholds. The commenters suggested that the average annual earnings
threshold should be adjusted from eight to at least 12 percent, which
would be less than half of the expected upper level of spending on
housing and more accurately reflect the role of education in a person's
life.
Alternatively, commenters suggested the Department adopt a 10
percent threshold, pointing to the GAO study ``Monitoring Aid Greater
Than Federally Defined Need Could Help Address Student Loan
Indebtedness'' (GAO-03-508). The study indicated that 10 percent of
first-year income is the generally agreed-upon standard for student
loan repayment and that the Department itself established a performance
indicator of maintaining borrower indebtedness and average borrower
payments for Federal student loans at less than 10 percent of borrower
income in the first repayment year in the Department's ``FY 2002
Performance and Accountability Report'' (see page 165, http://www2.ed.gov/about/reports/annual/2002report/index.html).
Some commenters noted that Sandy Baum and Saul Schwartz, economists
upon whose 2006 study ``How Much Debt is Too Much? Defining Benchmarks
for Manageable Student Debt'' the Department relied for the
discretionary earnings threshold in proposed Sec. 668.7(a)(1)(ii) and
(iii) and (a)(2)(ii), have criticized the 8 percent metric as not
necessarily applicable to higher education loans because the 8 percent
threshold (1) Reflects a lender's standard of borrowing, (2) is
unrelated to individual borrowers' credit scores or their economic
situations, (3) reflects a standard for potential homeowners rather
than for recent college graduates who generally have a greater ability
and willingness to maintain higher debt loads, and (4) does not account
for borrowers' potential to earn a higher income in the future.
Commenters emphasized that Baum and Schwartz believe that using the
difference between the front-end and back-end ratios historically used
in the mortgage industry as a benchmark for manageable student loan
borrowing has no particular merit or justification.
Commenters also stated that the 8 percent debt-to-earnings
threshold is not supported by any standard economic analysis of
educational investment decisions. According to the commenters, such an
analysis does not imply a limit on annual debt payment related to
annual earnings, but uses a cost-benefit model that includes the gains
to earnings resulting from education. The commenters believed the
Department should recognize that
[[Page 34395]]
borrowing for education costs is different than borrowing for a home
mortgage because education tends to cause earnings to increase. As a
result, the commenters believed the Department should increase the
threshold. For example, a commenter suggested that a 12 percent
threshold would be more reasonable.
Some commenters did not agree with the Department's rationale for
proposing that a program's annual loan payment may be as high as 30
percent of discretionary income under Sec. 668.7(a)(1)(ii). The
commenters argued that the Department should simply adopt the
recommendations made by Sandy Baum and Saul Schwartz in the 2006
College Board study that annual student debt should not exceed 20
percent of discretionary income. The commenters believed that the
average annual earnings threshold needed to be strengthened noting that
allowing a threshold of up to 8 percent only for student loan debt
already fails to account for a student's other debts, but allowing up
to 12 percent is clearly without a sound rationale and should be
eliminated from the regulations after a phase-in period. The commenters
also noted that a student's debt is likely to be understated because
the same interest rate used for calculating the annual debt service for
Federal unsubsidized loans would also be used to calculate the debt
service of private education loans which are used more by students
attending for-profit institutions. For these reasons, the commenters
argued that the Department should avoid using any threshold higher than
8 percent of annual earnings or 20 percent of discretionary income.
Discussion: In view of these comments, the Department is replacing
the proposed two-tiered approach that would establish upper and lower
thresholds for the debt measures with a single set of minimum
standards. Under this simplified approach, the Department is
establishing a minimum standard of 35 percent for the loan repayment
rate, and a maximum standard of 30 percent of discretionary income and
12 percent of annual earnings for the debt-to-earnings ratios.
The Department set these thresholds with the goal of identifying
programs that are failing to prepare students for gainful employment in
a recognized occupation, as demonstrated by the prevalence of
unaffordable debts and poor employment prospects among their former
students. In recognition of the seriousness of steps to revoke
eligibility, the Department is defining standards that identify the
most clearly problematic programs.
The debt-to-earnings ratios were set after consideration of
industry practice and expert recommendations. The ratios identify only
programs where the majority of graduates have debt-to-earnings ratios
that exceed recommended levels by 50 percent. Consistent with the views
expressed in the literature, it allows programs to demonstrate that
their debt is affordable based upon either total earnings or
discretionary income. The combination of these measures also recognizes
that borrowers can afford to contribute a greater share of their income
to debt service as their incomes rise.
The repayment rate measure demonstrates that former students are,
in fact, struggling to repay their loans. It identifies the
approximately one-quarter of programs where 65 percent of former
students attempting to repay their loans are nonetheless seeing their
loan balances continue to grow.
As shown in Table A, approximately 26 percent of programs across
all sectors with more than 30 borrowers in a four-year period fall
below the 35 percent threshold based on one year of repayment rate
data. The public two-year sector has the highest concentration of
programs below the threshold, with 9.2 percent of programs falling
below the threshold. These numbers are higher than the actual number of
programs we expect to fall below the repayment rate threshold because
they may not fully account for the treatment of borrowers who are
eligible for Public Service Loan Forgiveness (PSLF) or in alternative
repayment plans that allow payments that are equal to or less than
accrued interest, or an institution's potential responses to the
regulations, such as investments in debt counseling, which could raise
programs' rates before the first official rates for FY 2012 are
calculated in 2013. Moreover, the repayment rate distribution presented
in Table A shows that two-fifths of programs with repayment rates below
the 35 percent threshold were within 5 percentage points of meeting the
threshold. Once the aforementioned factors are taken into account, the
loan repayment rate for numerous programs would likely increase to over
the 35 percent threshold, thereby meeting the repayment rate measure.
[[Page 34396]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.010
Chart 1 shows the distribution of repayment rates across all types
of institutions. The mean repayment rate for all of these programs,
using the loan repayment rate specified in these final regulations, is
51 percent. The mean repayment rate for these programs at public
institutions is 49 percent, 60 percent at private, non-profit
institutions, and 43 percent at private, for-profit institutions.
[[Page 34397]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.011
In developing the lower limit of the repayment rate in the July 26,
2010 NPRM, we attempted to define a relatively small subset of programs
that could potentially lose eligibility. At the same time, we balanced
that concern against the need to make the measure a meaningful
performance standard. The programs within the lower boundary are, by
definition, the worst performing when measured against both the
repayment rate and debt-to-earnings ratios. Setting the threshold for
eligibility at 35 percent identified approximately the lowest-
performing quarter of programs.
A similar approach was taken in developing the repayment rate
threshold for these final regulations. Although we have revised the
methodology for calculating the repayment rate, the 35 percent
threshold remains close to the 25th percentile among gainful employment
programs. Table B shows frequency statistics associated with the new
repayment rate measure across all institutional types.
[GRAPHIC] [TIFF OMITTED] TR13JN11.012
With regard to the study by the College Board, economists Sandy
Baum and Saul Schwartz preferred a debt-service approach based on
discretionary income rather than total income. The authors argued that
a percentage based on total income does not answer the question of how
much students can borrow without having difficulties repaying their
loans because the percentage of income that borrowers can reasonably be
expected to devote to repaying their loans increases with income.
However, the authors did not suggest that 20 percent is a reasonable
debt-service ratio for typical borrowers. The authors suggested that
the maximum affordable debt-service ratio is approximately 20 percent.
In the July 26, 2010 NPRM, we adopted this suggestion as the primary
measurement of affordable debt at most income levels.
However, because a gainful employment program would fail the
discretionary income ratio whenever the
[[Page 34398]]
income of the students who completed the program was less than 150
percent of the poverty guideline, we proposed a second debt-to-earnings
ratio where the annual loan payment would not exceed 8 percent of total
income. As noted in the July 26, 2010 NPRM (see 75 FR 43620) and the
Baum and Schwartz study, 8 percent is a commonly used standard for
evaluating manageable debt levels. Under this ``best of both worlds''
approach, programs could satisfy the proposed debt-to-earnings ratios
in one of two ways. Programs whose graduates have low earnings relative
to debt would benefit from the calculation based on total income, and
programs whose graduates have higher debt loads that are offset by
higher earnings would benefit from the calculation based on
discretionary income.
Chart 2 represents the interaction between the two debt measures
and how programs could retain eligibility under either measure. Table C
provides the data underlying Chart 2 and indicates the maximum median
loan debt a program may have so that the monthly payment falls under
the final debt threshold.
[[Page 34399]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.013
For the loan repayment rate, the Department proposed a threshold of
45 percent for full, unrestricted eligibility.
This represented the mean repayment rate among institutions from
all sectors (the actual repayment mean was 48 percent which was rounded
down to 45 percent to establish the threshold).
The 20 percent discretionary income threshold, 8 percent total
income threshold, and 45 percent repayment rate threshold in the
proposed regulations established reasonable debt levels. Raising the
baseline thresholds for the debt-to-earnings ratios by 50 percent set
the boundary above which it could become increasingly more difficult
for a borrower to make loan payments. In reducing the loan repayment
rate threshold to 35 percent, which approximated the 25th percentile of
the distribution of repayment rates, we set the boundary below which
programs could potentially become ineligible for title IV, HEA funds.
So, under the July 26, 2010 NPRM, programs that scored in between the
baseline and lower thresholds would continue to qualify for title IV,
HEA funds, but would be subject to restrictions.
[[Page 34400]]
Under the framework established in these final regulations, the
Department shifts from focusing on programs that have problematic debt
levels (programs subject to restrictions) to targeting the lowest-
performing programs (programs where the annual loan payment exceeds 30
percent of discretionary income and 12 percent of annual earnings and
repayment rates less than 35 percent). By adopting the more lenient
thresholds for the debt-to-earnings ratios, we provide a tolerance of
50 percent over the baseline amounts to identify the lowest performing
programs, as well as account for former students who completed a
program but who may have left the workforce voluntarily or are working
part-time. For the loan repayment rate, the 35 percent threshold
continues to represent the 25th percentile of repayment rates rounded
down to the nearest 5 percent, which in our view, allows for a
minimally acceptable outcome where nearly two-thirds of borrowers would
not be making payments sufficient to reduce by at least one dollar the
outstanding balance of the loans they incurred for enrolling in a
program. In addition, because a program now either passes or fails the
minimum standards, unlike the approach in the July 26, 2010 NPRM we are
not placing any restrictions on passing programs.
As discussed in more detail elsewhere in this preamble, under these
final regulations, there will be some programs for which the Department
will not have the data necessary to calculate the debt measures.
Accordingly, we are clarifying that a program is considered to provide
training that leads to gainful employment in a recognized occupation if
the data needed to determine whether the program meets the minimum
standards are not available to the Secretary.
With regard to the comment on ``low-value programs,'' although we
find the commenter's suggestion intriguing, the relationship between
the variables (post-graduate income compared to the results of the
debt-to-earnings ratio) do not provide a clear basis for setting the
repayment rate at 65 percent. In any case, the suggested approach would
add significant complexity and uncertainty, as institutions would not
know what threshold their programs are expected to meet until they have
determined their performance on the other threshold. More
significantly, we are not convinced this approach would be better at
identifying the poorest performing programs.
Changes: Section 668.7(a)(1) has been revised to establish minimum
standards for a gainful employment program. The program satisfies the
standards if its loan repayment rate is at least 35 percent, or the
program's annual loan payment is less than or equal to 30 percent of
discretionary income or 12 percent of annual earnings. Section
668.7(a)(1) also has been revised to state that a program is considered
to meet the minimum standards if the data needed to determine whether a
program satisfies those standards are not available to the Secretary.
Definitions
Definitions of ``Program'' (Proposed Sec. 668.7(a)(3)(i)); Final Sec.
668.7(a)(2)(i))
Comments: Commenters considered the definition of the term program
to be too vague and requested additional guidance. For example,
commenters questioned whether, under the proposed regulations, a
program would contain multiple degree levels, whether the Department
would evaluate a program at the institutional or branch level, and
whether a program could include multiple areas or concentrations of
study. Similarly, other commenters noted that because program
performance varies greatly by campus location, the measures should be
made at the campus level, and successful campuses would thus not be
negatively affected by the regulations.
Discussion: We agree that the definition of the term program should
be clarified. To properly track programs or associate the program with
its debt measures, we identify a program by a unique combination of the
institution's six-digit OPEID number, the program's six-digit CIP code,
and credential level. For this purpose, the credential levels are
undergraduate certificate, associate's degree, bachelor's degree, post-
baccalaureate certificate, master's degree, doctoral degree, and first-
professional degree.
Under this definition, a program with a unique identifier that is
offered by an institution at its main campus or at any of its locations
is considered the same program for the purposes of the reporting and
disclosure requirements in Sec. 668.6 and the gainful employment
program requirements in Sec. 668.7. In addition, with regard to
whether a program could include multiple areas or concentrations of
study, we believe the definition's use of CIP codes alleviates this
concern as the CIP code evaluation would take into account those
issues. We remind institutions that they are responsible for accurately
assigning CIP codes to programs in their reporting to the National
Center for Educational Statistics (NCES) under section 487(a)(17) of
the HEA. The inaccurate assignment of CIP codes may adversely affect
the institution's participation in the title IV, HEA programs. The
Secretary would consider a CIP code inaccurately assigned if the
Secretary determines that the program best conforms to the description
of another CIP code.
The Department does not agree that the debt measures should apply
at a campus level when a single institution has multiple locations. In
these circumstances, a student may attend courses for his or her
program at more than one location or take additional courses online.
Even if a program may be attended, in its entirety, at individual
locations of an institution, the program is essentially the same
program at all of the locations of the institution. We believe that it
would be difficult and arbitrary to attempt to distinguish among the
various gradations in patterns of student attendance. Additionally,
even though there may be some variation between locations, such as
those resulting from locations in different States subject to different
State licensure requirements for a particular career, we do not believe
such variation justifies attempting to distinguish a program's
performance based on being offered at multiple locations. Moreover, in
many cases, dividing programs by location would make it more difficult
to reliably assess performance due to the fact that many institutions
may have a small number of students in a particular location.
Changes: In Sec. 668.7(a)(2), we have revised the definition of
program as described in this discussion.
Comments: Commenters did not believe the CIP code format is
sufficiently granular to adequately distinguish among programs. The
commenters noted that currently there are a number of gainful
employment programs that share the same CIP code. For example, in the
context of new and emerging health care fields, multiple programs may
be designated in the ``general'' or ``other'' subcategories. The
commenters believed that, because the CIP codes are not scheduled to be
updated until 2020, they will rapidly become obsolete but will still be
used to assess program performance.
Discussion: We believe that using the CIP codes is sufficient to
identify a program, particularly when used in combination with the
institution's OPEID and credential level as provided under the
definition of program. We believe this coding convention greatly
mitigates any concern related to the available codes under the CIP. We
do not view the decennial updating of the CIP to be an impediment to
the use of
[[Page 34401]]
these codes because new fields of study may also use more generic CIP
codes until the next update of the CIP codes. However, if the CIP codes
prove inadequate to reflect the diversity of offerings at the
postsecondary level, the coding can be revised to reflect the greater
depth required before 2020. In addition, through our oversight of
institutional reporting under the Integrated Postsecondary Education
Data System (IPEDS) completions survey, we can make adjustments to the
CIP code categories more frequently to ensure that they appropriately
reflect the programs being offered by institutions.
Changes: None.
Comment: One commenter stated that 59 percent of cosmetology
schools, many of which offer only one program, were at risk of losing
eligibility based on the data contained in the document on cumulative
four-year institutional repayment rates that the Department released
after issuing the July 26, 2010 NPRM. According to the commenter, these
schools could lose eligibility because of the limited number of
borrowers who make up the school's cohort and the impact that a single
or relatively small number of borrowers can have on the school's
repayment rate. The commenter noted that for schools with one or a
limited number of program offerings, the loss of one program would
result in the loss of the institution. The commenter recommended that
the Department provide for very limited exemptions from the annual loan
repayment rates for institutions with a small number of borrowers in
repayment and consider instead basing the threshold on four-year
cohorts of 120 students or less, consistent with the low-volume
treatment for CDRs.
Discussion: The HEA identifies those programs that must provide
training that leads to gainful employment in a recognized occupation in
order to receive title IV, HEA funds. The statute makes no exception
for an institution with only one program; accordingly, we cannot exempt
institutions offering only one program from the debt measures. However,
we are providing in these final regulations an exemption for a program
with a small number of borrowers or completers because debt measures
based on a few students completing the program or repaying their loans
may not accurately reflect the program's performance.
In general, under these regulations, and as described in further
detail under the heading, Definitions of ``Three-Year Period (3YP)''
and ``Prior Three-Year Period (P3YP)'' (Proposed Sec. 668.7(a)(3)(iii)
and (iv)), we will assess programs based on two years of performance
against both debt measures. When a program has fewer than 30 borrowers
or program completers in the two-year period, however, we will assess
the program's performance across a four-year period. We also are
revising the regulations to provide that programs that have fewer than
30 borrowers or program completers in the four-year period are
considered to meet the debt measures due to the difficulty in reliably
assessing the performance of programs with small numbers of students.
In addition, because the Social Security Administration (SSA) will
attempt to match the identity data of the students included in a two-
or four-year period to the identity data that it maintains, any
mismatches may result in SSA not including students in its calculation
of the mean and median earnings for a program. Consequently, there may
be cases where more than 30 students completed a program, but SSA
calculates the mean and median earnings for the program based on 30 or
fewer students. For these cases, as discussed more fully under the
heading, Draft debt measures and data corrections (Sec. 668.7(e)),
Final debt measures (Sec. 668.7(f)), and Alternative earnings (Sec.
668.7(g)), the Department will use the mean and median earnings
provided by SSA to calculate the debt-to-earnings ratios for the
program, but where SSA is unable to provide earnings data for one or
more students, the Department may adjust the median loan debt for the
program based on the number of students that SSA excluded in
calculating the mean and median earnings. SSA may not calculate the
mean and median earnings for a program if the number of students
excluded falls below a threshold established by SSA. In these cases,
the Department will consider the program to have satisfied the debt
measures.
Finally, we are revising the regulations to provide that programs
with a median loan debt of zero are meeting the measures. This
clarification is a logical extension of the debt measures since
programs with a median loan debt of zero are not placing any debt
burden on the majority of their students.
Changes: We have revised Sec. 668.7(a)(2) to establish the term
four-year period (4YP), which is defined as the period covering four
consecutive FYs that occur on the third, fourth, fifth, and sixth FYs
(4YP) prior to the most recently completed FY for which the debt
measures are calculated. For a program whose students are required to
complete a medical or dental internship or residency, as identified by
an institution, the four-year period (4YP-R) covers the sixth, seventh,
eighth, and ninth FYs (4YP-R) prior to the most recently completed FY
for which the debt measures are calculated. We note that debt measures
for programs using the 4YP-R will not be calculated until data covering
those years are available. The definition of four-year period also
provides that a required medical or dental internship or residency is a
supervised training program that requires the student to hold a degree
as a doctor of medicine or osteopathy, or a doctor of dental science;
leads to a degree or certificate awarded by an institution of higher
education, a hospital, or a health-care facility that offers post-
graduate training; and must be completed before the borrower may be
licensed by the State and board certified for professional practice or
service.
In addition, we have revised Sec. 668.7(d) to provide that the
debt-to-earnings ratios for a small program are calculated using the
4YP or the 4YP-R if 30 or fewer students completed a program during the
2YP or the 2YP-R, respectively. Similarly, the 4YP or the 4YP-R is used
for the loan repayment rate, if the corresponding 2YP or 2YP-R
represents 30 or fewer borrowers whose loans entered repayment during
the 2YP or the 2YP-R, respectively.
The revised regulations in Sec. 668.7(d) provide that, in
determining whether the 2YP or the 2YP-R represents 30 or fewer
students or borrowers, we remove from the applicable two-year period
any student or loan for a borrower that meets the exclusion criteria
under Sec. 668.7(b)(4) or (c)(5). Under those sections, we do not
include a student or loan for a borrower in the two- or four-year
periods used to calculate the debt measures if the Department has
information that (1) for the loan repayment rate, one or more of the
borrower's loans were in an in-school or a military-related deferment
status or, for the debt-to-earnings ratios, the student's loans were in
a military-related deferment status at any time during the calendar
year for which the Department obtains earnings data from SSA, (2) for
both measures, the student died, (3) for both measures, one or more of
the borrower's loans were assigned or transferred to the Department
that are being considered for discharge as a result of the total and
permanent disability of the borrower, or were discharged on that basis
under 34 CFR 682.402(c) or 34 CFR 685.212(b), or (4) for the debt-to-
earnings ratios, the student was enrolled in any other
[[Page 34402]]
eligible program at the institution or at another institution during
the calendar year for which the Secretary obtains earnings information
under Sec. 668.7(c)(3).
We also have revised Sec. 668.7(d)(2)(i) to provide that a program
satisfies the debt measures if SSA does not provide the mean and median
earnings for the program. In addition, the final regulations provide
that if the median student loan debt of a program is equal to zero, the
program would meet the debt measures.
Graduate Programs
Comment: Some commenters recommended that the Department exempt
graduate programs from the gainful employment requirements because
graduate students are sufficiently sophisticated to determine whether
they can afford the education they seek and how much debt to incur. The
commenters also noted that many graduate students are already employed
and pose little risk of nonpayment, but have extremely high loan limits
available to them, making them more likely to consolidate their loans,
repay their loans under income-sensitive repayment plans, and incur
what may be significant unpaid accrued interest that is subject to
capitalization. Other commenters expressed concern that graduate
students in a program would be likely to consolidate loans from the
graduate program with loans from their undergraduate programs, and as a
result the graduate program could find it harder to meet the repayment
rate threshold if it enrolls students who enter with significant
amounts of student loan debt. Alternatively, some commenters
recommended that the Department limit the amount of debt counted in
calculating the repayment rate to the amount used to pay tuition and
fees for the program if the Department chooses not to exempt graduate
programs. The commenters believe this approach would ensure that
institutions are not improperly penalized for decisions made by
students to borrow excessively, including incurring private loan debt,
which may result in the institution being unable to continue to offer
the graduate program of study.
Discussion: The HEA identifies those programs that must provide
training that leads to gainful employment in a recognized occupation in
order to receive title IV, HEA funds. These include graduate programs;
therefore, we do not have a legal basis to categorically exempt these
programs from the statutory requirements. However, some distinctions
are recognized based upon the characteristics of those programs, such
as the use of an extended repayment period in the calculation of the
debt to earnings ratio. Based on the comments noting that students
attending graduate programs may have different expectations about how
long it will take to repay their loans due to the increased costs
associated with those programs, we have extended the repayment period
for certain of those programs to up to 20 years for the purposes of
calculating the annual loan payment for the debt-to-earnings ratios. In
addition, we recognize that many graduate students have outstanding
student loans from prior postsecondary programs. When calculating the
repayment rate for post-baccalaureate programs, we will consider a
borrower with a consolidation loan to be successfully repaying his or
her loans if the outstanding balance does not increase over the course
of the most recently completed FY.
Changes: See changes discussed under the heading, Loan
Amortization, and under the heading, Loan Repayment Rate Calculation.
Definitions of ``Three-Year Period (3YP)'' and ``Prior Three-Year
Period (P3YP)'' (Proposed Sec. 668.7(a)(3)(iii) and (iv))
Comments: Commenters disagreed with the Department's proposed
regulations to use starting salary data for the ``earnings'' portion of
the debt-to-earnings ratio calculation. They were concerned that 3YP
data do not take into account the lifelong benefit of higher education
and the fact that graduates will earn more money as they gain
experience and responsibility. Commenters recommended that the
Department eliminate the 3YP and P3YP distinctions and replace these
two independent benchmarks with a single benchmark based upon income
data for a six-year period.
A number of commenters indicated that it is impossible for medical
and dental residents to satisfy the proposed gainful employment
standards, under the proposed P3YP. According to the commenters, the
proposed P3YP fails to account for the fact that most, but not all,
medical and dental residents will undertake employment during years 4,
5, and 6 following graduation at entry level salaries. For example, it
takes a minimum of three years of a residency before a medical doctor
can become eligible for full licensure and able to practice medicine
without supervision in all fifty States. Residencies in categorical
subspecialties, such as neurology, anesthesia, or cardiology, can take
up to eight years.
Along the same lines, commenters representing several medical and
dental schools, and related residency programs that award postgraduate
certificates, noted that the proposed repayment rate regulations failed
to consider the nature of medical and dental training and required
residency periods. Because the residency periods may be for three to
eight years following medical and dental school graduation, the
proposed repayment rate for these programs would be lower than it
should be. The commenters stated that the compensation of medical
residents is so small that it is not a recognized occupation according
to the BLS and that medical school graduates are not gainfully employed
until after they complete their medical residencies. Consequently, it
could take several years for a physician or surgeon to achieve a median
salary level. As a result, many medical school graduates opt for
income-contingent, income-based, or extended repayment plans and
consolidate their loans, leading to significant amounts of capitalized
interest. The commenters stated that under the proposed repayment rate
formula, the majority of U.S. medical schools would fail to meet the 45
percent repayment rate standard. Therefore, the commenters urged the
Department to exempt from the regulations medical school programs and
postdoctoral dental residency certificate programs.
Another commenter recommended that the Department allow
institutions to base the loan repayment rate on either the four most
recent Federal FYs or the prior set of four FYs (i.e., years 5 through
8) in order to better reflect earnings after graduation. The commenter
offered that institutions choosing the prior four-year period should be
required to comply with the stricter 45 percent repayment rate
threshold. The commenter also noted that this approach could provide an
option for schools during economic recessions when external factors can
result in artificially reduced loan repayment rates.
Discussion: The Department proposed in Sec. 668.7(a)(1)(ii) and
(iii) to use the most current earnings available of the students who
completed the program in a 3YP to calculate debt-to-earnings ratios. If
an institution could show that the earnings of students in a particular
program increase substantially after an initial employment period, the
Department would use the P3YP. As discussed more fully under the
heading, Earnings of program completers, those calculations have been
modified to use two-year periods. This change to a two-
[[Page 34403]]
year period will allow an institution to show improvement in a
program's performance in a shorter cycle. Under the proposed framework,
approximately one-third of the students who are included in the 3YP
would have completed a program or entered repayment during a particular
year, whereas under these final regulations approximately one-half of
the students in the 2YP will represent a single year. Accordingly, the
current debt measures for a program will not be affected by former
students in the program for more than a two-year period.
The Department agrees that the performance of programs whose
graduates are required to complete medical or dental internships and
residencies before they can begin professional practice should be
measured at a later point in repayment than borrowers who would be
expected to obtain gainful employment immediately after leaving a
program. Although borrowers earn money and enter repayment, in a sense,
the internships and residencies are a continuation of the educational
program. As long as an institution identifies these programs, we will
calculate the repayment rate based on the two-year cohort of borrowers
who first entered repayment on their loans in the sixth and seventh
years prior to the year the repayment rate is calculated rather than
the third and fourth years used for all other borrowers. The debt-to-
earnings ratios for these programs will be calculated based on the two-
year cohort of borrowers who completed the program in the sixth and
seventh years prior to the year the debt-to-earnings ratios are
calculated. In order to be clear about those medical or dental
internship or residency programs for which the 2YP-R (as well as the
4YP-R) would apply, we are providing in the definitions of two-year
period and four-year period that a required medical or dental
internship or residence is a supervised training program that contains
three elements. First, the program must require the student to hold a
degree as a doctor of medicine or osteopathy, or a doctor of dental
science. Second, the program must lead to a degree or certificate
awarded by an institution of higher education, a hospital, or a health-
care facility that offers post-graduate training. Third, the program
must be completed before the borrower may be licensed by the State and
board certified for professional practice or service.
To provide an alternative for institutions that take immediate
steps to improve a program's loan repayment rate during the initial
three-year evaluation period, we will calculate the repayment rate
based on the most recent two-year period, the two-year period alternate
(2YP-A), which includes loans for borrowers who entered repayment
during the first and second FYs prior to the most recently completed
FY. We believe this provision parallels the alternative earnings
approach described elsewhere in this preamble under which an
institution may use alternative earnings data to recalculate the debt-
to-earnings ratios for a failing program. Unlike that approach,
however, the Department will automatically calculate the loan repayment
rate for a program based on the 2YP and the 2YP-A (provided that the
2YP-A represents more than 30 borrowers whose loans entered repayment)
for the covered two-year period and use the higher of those rates to
determine whether the program satisfies the 35 percent repayment rate
standard. Because it is intended to recognize rapidly improving
programs during a transition period, the 2YP-A is available for
repayment rates calculated for FYs 2012, 2013, and 2014 only.
Changes: Proposed Sec. 668.7(a)(3)(iii) and (iv) defining a 3YP
and P3YP have been removed. In their place, we have added a definition
of two-year period in Sec. 668.7(a)(2)(iv). Under this definition, for
most programs, a two-year period is the period covering two consecutive
FYs that occur on the third and fourth FYs (2YP) prior to the most
recently completed FY for which the debt measures are calculated. For
example, if the most recently completed FY is 2012, the 2YP is FYs 2008
and 2009. For a program whose students are required to complete a
medical or dental internship or residency, as identified by an
institution, a two-year period is the period covered by the sixth and
seventh FYs (2YP-R) prior to the most recently completed FY for which
the debt measures are calculated. For example, if the most recently
completed FY is 2012, the 2YP-R is FYs 2005 and 2006.
We also have provided in the definition of two-year period that a
required medical or dental internship or residency is a supervised
training program that requires the student to hold a degree as a doctor
of medicine or osteopathy, or a doctor of dental science; leads to a
degree or certificate awarded by an institution of higher education, a
hospital, or a health-care facility that offers post-graduate training;
and must be completed before the borrower may be licensed by the State
and board certified for professional practice or service.
Finally, for FYs 2012, 2013, and 2014, the two-year period (2YP-A)
is the period covered by the first and second FYs prior to the most
recently completed FY for which the loan repayment rate is calculated.
For example, if the most recently completed FY is 2012, the 2YP-A is
FYs 2010 and 2011.
Restricted Programs (Proposed Sec. Sec. 668.7(a)(2) and 668.7(e));
Failing Programs and Ineligible Programs (Final Sec. 668.7(h) and (i))
Restricted Programs and Enrollment Limits
Comment: Some commenters objected to proposed Sec. 668.7(e)(3),
which would limit enrollment of title IV, HEA recipients in a
restricted program to the average number enrolled during the prior
three award years. The commenters believed that these growth
restrictions, coupled with the employer affirmations in proposed Sec.
668.7(e)(1), would result in the Department, rather than the market,
controlling how many students are trained for a particular profession.
The commenters argued that the Department would be exercising power
over the job market, even though it is not equipped to assess the needs
of the job market. According to these commenters, an analysis of
whether a job market is growing, contracting, or otherwise changing
requires consideration of many complex and interrelated factors, and
that this analysis is beyond the Department's expertise in the
educational sector. In addition, the commenters opined that the
proposed regulations would have the effect of regulating job markets,
not debt levels or whether a program prepares its students to earn an
income. The commenters noted that a short-term oversupply of potential
employees in a certain field could cause a program to become
restricted, regardless of whether the program adequately trained its
students for employment in that field.
Some commenters argued that title IV, HEA funds are not intended to
be used only for a program that prepares a student for an occupation
that is in demand at the time the student enters the program. Another
commenter concluded that because restricted programs would likely have
a significant number of Pell Grant students, limiting the number of
title IV, HEA eligible students who can enroll in those programs would
impede President Obama's 2020 higher education goal, because these are
the types of students that institutions need to educate to meet that
goal. In view of this consequence, this commenter suggested that the
Department eliminate the proposed growth restriction and employer
verification requirements and only
[[Page 34404]]
require institutions to make debt disclosure warnings to students in
the institutions' promotional materials for these programs.
Some commenters recommended that the Department limit enrollment
for a restricted program to the number of students enrolled during the
previous award year. The commenters noted that under proposed Sec.
668.7(e)(3), limiting enrollment to the average number of title IV, HEA
eligible students enrolled during the last three award years could
result in reducing enrollment. If a program has been growing over the
last three years, the average enrollment for the three-year period
would be lower than the highest enrollment for the most recent year.
For example, if a program had an enrollment of 10 in year 1, 20 in year
2, and 30 in year 3, the average enrollment for all three years would
be 20. The average enrollment would be 10 fewer than the highest
enrollment for the three-year period.
Similarly, other commenters believed that reducing the number of
title IV, HEA eligible students in a restricted program would likely
cause institutions to scale back resources. They noted, however, that
restricting enrollment to the most current award year level would drive
improvement while still limiting growth. The commenters believed that
this approach would avoid any diminishing of program quality that would
otherwise occur when programs that could meet the debt thresholds are
forced to scale back resources.
On the other hand, some commenters noted that the proposed average-
enrollment approach might not reflect historic norms for a program
experiencing rapid enrollment growth during the past three years and
that a baseline reflecting growth in just those years might not provide
an effective limitation. The commenters recommended that the Department
place stricter enrollment limitations on restricted programs.
Commenters supporting the proposal to restrict enrollment argued
that the restriction should be limited in duration. The commenters were
concerned that institutions with large programs could continue to
enroll title IV, HEA eligible students indefinitely without improving
quality. Commenters also noted that nothing would prevent institutions
from enrolling non-title IV students in restricted programs, thus
allowing those programs to continue to grow. The commenters noted that
many institutions enroll large numbers of borrowers who receive
taxpayer-funded assistance from other government-funded educational
programs such as the G.I. Bill. One of the commenters stated that
according to the Department of Veterans Affairs, eight of the top 10
colleges with the most VA-funded students are for-profit institutions.
In view of these concerns, the commenters recommended that the
Department (1) require that a program on restricted status must improve
in order to continue receiving Federal student aid, and (2) make the
program ineligible if it is in a restricted status for three
consecutive years.
In addition, commenters had several questions concerning the
criteria the Department would use in determining how to count enrolled
students for purposes of the enrollment restrictions.
Discussion: See the following discussion.
Ineligible Programs
Comment: Commenters expressed concern that the proposed regulations
did not include a ``grandfather'' provision allowing students attending
programs deemed ineligible to complete their program of study. The
commenters believed that students enrolled in associate's and
bachelor's degree programs should be permitted to attend the ineligible
program and continue to receive title IV, HEA funds for longer than the
one additional year proposed in the regulations. Commenters suggested
alternative time periods including allowing a student to continue to
receive title IV, HEA funds (1) until he or she completes the program,
(2) up to the published length of the program, or (3) up to one and
one-half times the length of the program. The commenters believed these
periods were appropriate as long as the student is continuously
enrolled and complies with satisfactory academic progress standards.
Another commenter contended that requiring a student in an
ineligible program to rely on transferring to another institution to
complete his or her degree or credential would result in substantial
burdens for students, including disrupting the student's academic
progress, adjusting to a new learning environment, and potentially
having difficulties in the job market, including, but not limited to,
having to explain to employers the reason for changing colleges
midstream. The commenter argued that this limitation on student
eligibility would not serve the Department's underlying policy goals
because it would require students to decide among what the commenter
believed to be three unappealing choices: (1) Remain in the program
without title IV, HEA program assistance (but with a continued ability
to obtain private educational loans at higher interest rates); (2)
transfer to another program (with the accompanying negative
consequences); or (3) leave the program without a credential but with
student loan debt.
To help ensure that students in an ineligible program have adequate
alternative options for obtaining a postsecondary education, other
commenters suggested that the Department place an ineligible program on
a probationary status for the first and second years after the year the
program has been determined to be ineligible. The program would lose
its eligibility for title IV, HEA funds only if it failed to meet the
gainful employment standards for a third successive year. The
commenters offered that, under this approach, the Department could
require an institution to submit a plan to bring the program into
compliance with the gainful employment standards, which would result in
the institution having a reasonable amount of time to make needed
adjustments. Similarly, other commenters recommended that in cases
where more than 50 percent of an institution's students are enrolled in
a particular program, the Department should not impose sanctions unless
the program fails to meet the threshold requirements for three
consecutive years.
Another commenter was concerned that a significant number of
students enrolled in ineligible programs would not have meaningful
access to more appropriate alternative educational opportunities and
that there would not be the capacity to accommodate students from
programs that fail the debt measures. The commenter opined that the
Department should work with Congress to develop a transition plan to
increase postsecondary capacity to address the needs of current and
prospective students displaced when their program becomes ineligible
under the regulations. The plan, according to the commenter, could
include new investments in a range of programs that are currently
authorized under the Higher Education Opportunity Act of 2008 (Pub. L.
110-315) (HEOA) but have never been funded, including the ``Program to
Increase College Persistence and Success;'' the ``Bridges from Jobs to
Careers'' grant program; and the ``Business Workforce Partnerships for
Job Skill Training in High Growth Occupation or Industries'' grant
program. In addition, the commenter believed that the Department should
consider developing regulations or guidance to help ease student
transitions between postsecondary institutions and other Federal
training and employment programs, building on
[[Page 34405]]
successful State and local ``career pathways'' models that enable low-
income and other at-risk individuals to acquire the skills they need
for well-paying jobs and careers.
Other commenters believed that students who are unable or choose
not to complete an ineligible program, or who are unable to or choose
not to transfer to another program within the same institution, should
have their Federal student loan debts discharged so that they have the
opportunity to move on without penalty. The commenters noted that FFEL
and Direct Loans may be discharged under the closed-school provisions
of the title IV regulations. Another commenter suggested using the
false certification provisions as the basis for discharging loans for
students enrolled in ineligible programs. Other commenters believed
that incurring loan debt for attending an ineligible program should be
an allowable defense to collection for a student who is later unable to
make loan payments.
Another commenter believed that the Department should give an
institution an opportunity to lower tuition instead of making the
program immediately ineligible. The commenter described a program
designed for speakers of the Spanish language where a student takes
automobile mechanics classes that are taught every day in the Spanish
language for four hours, and then takes two hours of English as a
Second Language on the same day. The commenter stated that the program
is highly effective, but because it costs more than the institution's
traditional programs it may become ineligible for title IV, HEA funds
under the proposed metrics.
Commenters were also concerned that the proposed regulations did
not specify when and under what standards an institution could apply to
have an ineligible program regain its eligibility. The commenters
recommended that the Department allow the institution to apply to
regain eligibility for a program one full award year after the program
became ineligible and determine whether the program regains its
eligibility under the standards proposed for new programs.
Other commenters believed that no penalties should be imposed on a
program for failing to meet a metric until after an institution is
notified and provided with an opportunity to take corrective action.
The commenters suggested that the Department allow the institution to
bring the ineligible program into compliance during at least the same
period of time that a student would be allowed to continue to receive
title IV, HEA program funds for attending that program.
A commenter asked the Department to clarify how a student would be
affected if a program is determined to be ineligible during the course
of the student's studies. The commenter also questioned how the
proposal disallowing the award of title IV, HEA program funds to
students who begin attending an ineligible program after a specified
date relates to a situation where a student has taken a leave of
absence and the student resumes attending the program after the program
became ineligible.
Discussion: As discussed under the heading, Thresholds for the Debt
Measures (Sec. 668.7(a)(1)), we have simplified the regulations by
establishing a single set of minimum standards that are applied over at
least a three year period. Under the simplified approach, a program
either passes or fails the minimum standards. Consistent with the
general emphasis on disclosure and appropriate incentives, the debt
warnings provided students during this extended period will play an
important role.
Because the debt warnings in these final regulations are more
extensive than the requirements proposed in the July 26, 2010 NPRM and
the Department is seeking to focus the sanctions on the lowest-
performing programs, we believe it is no longer appropriate to limit
enrollment or place other restrictions on a gainful employment program.
We agree with commenters that institutions should be allowed some
time to improve a program before it becomes ineligible for title IV,
HEA funds, and we have therefore adopted the suggestion made by some of
the commenters that a program not be subject to sanction for a three-
year period. In Sec. 668.7(h), we are providing that a failing program
is one that does not satisfy at least one of the minimum standards for
a FY. Under Sec. 668.7(i), a failing program becomes ineligible if it
fails the minimum standards for three out of the last four most
recently completed FYs. If and when that occurs, the Department
notifies the institution that the program is ineligible on this basis
and that the institution may no longer disburse title IV, HEA funds to
students enrolled in that program except as permitted using the
procedures in Sec. 668.26(d).
Using an extended period of three out of four FYs of failing the
measures to make a program ineligible will provide greater flexibility
and offer a measure of protection to programs that generally pass at
least one of the measures but have an isolated and perhaps unusual year
in which the program fails both debt measures. This change
simultaneously responds to some of the concerns identified in the
comments about the possibility that merely one year of failing the
measures would result in a program becoming ineligible under the
proposed regulations. In particular, this approach significantly
reduces the chances that random variations in the caliber of a specific
student cohort could put a program at risk of losing its eligibility
for title IV, HEA funds. A good program could have a bad year, but it
is far less likely that a good program could have three bad years out
of four years. Extending the period of measurement to three out of four
years allows for a more accurate reflection of typical performance.
Moreover, the approach helps to control for recessions and other
variations in the labor market that could make it difficult for
students (including those graduating from programs performing well on
the measures) to get jobs. The average recession in the post-World War
II period lasted for 11 months. See http://www.nber.org/cycles/US_Business_Cycle_Expansions_and_Contractions_20100920.pdf. In recent
recoveries the unemployment rate has remained elevated for longer than
the official recessionary period. With a longer observation period of
three out of four years, programs will be less at risk of being judged
by business cycle conditions that are out of their control.
At the same time, if the regulations had been altered to require
two consecutive years of failing both measures for a program to lose
eligibility, it is likely that some programs might not respond quickly
enough to make relevant improvements. Using a period of three out of
four consecutive FYs to determine a program's eligibility will also
have the advantage of preventing a program that generally fails both
measures from remaining eligible by simply passing one of the debt
measures in one year. This extended period provides an opportunity for
the institution to make a sustained assessment of the program's
performance under both debt measures. This approach also provides an
institution with time to make improvements to the program and evaluate
whether it would be better to discontinue the program voluntarily.
As discussed more fully under the heading, Debt warning disclosures
(Sec. 668.7(j)), because prospective and currently enrolled students
face added risks for enrolling or continuing in failing programs, an
institution must inform students of those risks and of the
[[Page 34406]]
options available to those students for continuing their education. The
information provided to students through the debt warnings must address
the questions of how long an institution may disburse funds to students
enrolled in failing and ineligible programs and how students would be
affected when a program becomes ineligible while they are enrolled. We
believe that creating required disclosures of information to students
while a program is failing and using a longer period to determine if a
program is ineligible is better for students than allowing currently
enrolled students in a program that loses eligibility to continue
receiving Federal student aid funds.
With regard to the suggestions that the Department discharge the
loans for students who are unable or unwilling to complete a failing
program or transfer to another program, we note that the current loan
discharge provisions are statutory and do not apply in these
circumstances. Accordingly, a change in the law would be required to
adopt these suggestions.
In response to the question of how an institution can reinstate the
title IV eligibility of a program that becomes ineligible under these
regulations, the institution must comply with the requirements under
Sec. 668.7(l). These provisions, discussed under the heading,
Additional Programs (proposed Sec. 668.7(g)(2) and (3); Restrictions
for ineligible and voluntarily discontinued failing programs (final
Sec. 668.7(l)), describe the process by which an institution can
reestablish the eligibility of an ineligible program or a failing
program that the institution voluntarily discontinued, or establish the
eligibility of a program substantially similar to an ineligible
program.
Regarding the commenters' concern that a significant number of
students enrolled in ineligible programs would not have meaningful
access to more appropriate alternative educational opportunities and
there would not be the capacity to accommodate students from programs
that fail the debt measures, past experience with student loan default
rates suggests that educational opportunities can continue to expand
even if large numbers of institutions lose student aid eligibility.
Pursuant to the Omnibus Budget Reconciliation Act of 1990, between 1991
and 1996, we eliminated approximately 1,148 schools from our student
loan programs based on three consecutive years of unacceptably high
default rates. Table D uses data from the National Postsecondary
Student Aid Study (NPSAS) to show student enrollment between 1991 and
1996 by various characteristics. Over the course of this six-year
period, schools that remained eligible for Stafford loans appear to
have been able to accommodate the number of students who once attended,
or otherwise would have attended, schools that lost eligibility.
[GRAPHIC] [TIFF OMITTED] TR13JN11.014
[[Page 34407]]
As can be seen in Table D, overall undergraduate enrollment
increased by some 400,000 in this timeframe, while enrollment at for-
profit institutions declined by approximately one-third. In this case,
the students appear to have increased their attendance at community
colleges, by approximately 1.25 million students, as well as at public
four-year universities.
The Department recognizes that the higher education landscape has
changed since the early 1990s, with strong growth in for-profit
institutions and innovations in online and distance learning options
that allow for enrollment to expand at lower marginal costs. Therefore,
we expect that the distribution of students leaving programs that fail
the debt measures will differ from the situation in the 1990s, with a
larger share of students expected to remain at institutions within the
for-profit sector by moving to successful programs that increase
enrollment in response to increased demand created by the closure of
ineligible programs.
We appreciate comments suggesting that the Department work with
Congress to develop a transition plan to increase postsecondary
capacity to address the needs of potentially displaced students by
funding programs authorized but not funded under the HEOA or to develop
regulations to help ease student transitions between postsecondary
institutions and other Federal training and employment programs.
Congressional action would be required for these actions to occur.
The President's 2020 higher education goal is the guiding star for
the Department. All of our efforts are directed to developing higher
education strategies that support institutions in their efforts to
better serve students and prospective students, particularly those who
are from disadvantaged backgrounds, minority students, students with
disabilities, working adults, and others that are at risk. However, the
purposes of the 2020 goal will not be achieved by allowing institutions
to continue offering low-performing programs that upon completion leave
students with large debts and poor employment prospects.
These regulations have been developed specifically to provide
opportunities for institutions to improve the gainful employment
programs they are providing. Today, the effective programs must compete
with ineffective programs. These regulations will first provide
feedback to institutions so that they can improve programs against the
debt measures. These regulations then provide a significant period of
time for institutions to re-assess and re-design marginally effective
programs. Further, the regulations would require institutions to
provide prospective students and families with meaningful consumer
information that includes these debt measures. Finally, and only after
three years of failing all three debt measures within a four-year
period, programs become ineligible. This approach balances the
competing forces of costs and benefits associated with regulatory
change to provide a path to improving gainful employment programs that
will move us towards meeting our national college completion goals,
while giving institutions the flexibility they need to continue
generating quality, innovative education programs.
The final regulations are intended to strengthen programs, not
cause them to close, and institutions are already acting to improve the
performance of their programs. The likely result is not only better
outcomes in terms of the debt measures but also, as described in the
RIA, increased retention, in and graduation from, gainful employment
programs. And if the institutions that are currently offering poor
performing gainful employment programs fail to make the necessary
improvements, we have no doubt that other for-profit providers--
particularly those that are offering one of the many effective programs
today--will fill the gap left by the termination of programs that fail
three out of four FYs. The gainful employment regulations are a step
toward achieving the President's 2020 goal.
With respect to the comments asking for clarification about how a
student would be affected if a program is determined to be ineligible
while the student was on a leave of absence, the institution will need
to follow the procedures under Sec. 668.26(d), regarding disbursement
of funds after a program loses eligibility.
Changes: We have removed the thresholds and conditions that would
have applied to restricted programs under proposed Sec. 668.7(a)(2)
and (e). In Sec. 668.7(h), we specify that, starting with the debt
measures calculated for FY 2012, a program fails for a FY if it does
not meet any of the minimum standards.
In new Sec. 668.7(i) we provide that, starting with the debt
measures calculated for FY 2012, a program will become ineligible if it
fails all of the debt measures for three out of the four most recent
FYs.
Loan Repayment Rate (Sec. 668.7(b))
Loan Repayment Rate Calculation
Comment: Commenters argued that the definition of ``repayment'' as
it relates to the repayment rate ignores students who are actively
repaying their loans because the recognized repayment is limited to
payments that reduce loan principal during a given FY. The commenters
pointed out that this approach omits borrowers from the numerator of
the repayment rate who are in good standing in repaying their loans,
including some borrowers repaying under income-based, income-
contingent, or graduated repayment plans. While the treatment is
different in each of these payment plans, each can permit monthly
payments that are equal to or less than accrued interest. In other
words, under those plans, a borrower can be making reduced payments
that leave interest unpaid. As a result, the loan amount outstanding
does not decrease between the beginning and end of the FY. The
commenters argued that because these repayment plans are attractive to
borrowers who consolidate loans from multiple lenders, and to borrowers
with loans from both undergraduate and graduate programs, institutions
should not be penalized in the repayment rate calculation for borrowers
who choose these plans. The commenters believed that institutions would
be penalized by borrower choices beyond their control, particularly
since those plans are promoted by the Department as a means of
responsible borrower debt management.
Discussion: In the July 26, 2010 NPRM, the Department proposed
considering students making payments under the income-contingent
repayment (ICR) and income-based repayment (IBR) plans to be
successfully repaying their loans if they were paying more than the
interest accruing on their loans, or if they were working in fields
that made them eligible for PSLF. The Department recognizes that some
borrowers are meeting their obligations under the IBR and ICR plans but
are not paying enough to reduce the outstanding balance on their loans.
Considering all of these students to be successfully repaying their
loans would create a loophole that would allow high repayment rates for
programs based solely on enrollment in IBR and ICR, no matter how large
the debts and how low the earnings of the programs' graduates. These
plans are intended to help borrowers in financial distress; however, an
educational program generating large numbers of borrowers in financial
distress raises troubling
[[Page 34408]]
questions about the affordability of those debts. Therefore, we have
struck a balance in these final regulations that recognizes the
legitimate use of the ICR, IBR, and other plans that provide for
scheduled payments that are equal to or less than the interest accruing
on the loan but maintains protections against excessive reliance on
these plans among a particular program's former students.
The Department is replacing the term Reduced Principal Loan (RPL)
with the term Payments-Made Loan (PML) to clarify that under the
revised methodology for calculating the repayment rate, payments made
on a loan include not only those payments that reduce the outstanding
balance but also payments made under certain repayment plans, or for
certain consolidation loans, payments that do not reduce the
outstanding balance. Under these final regulations, PML includes the
loans of borrowers who are repaying under all of the FFEL and Direct
Loan repayment plans, including repayment under the IBR and ICR plans.
The Original Outstanding Principal Balance (OOPB) on loans of borrowers
included in the applicable two- or four-year period who make payments
during the most recently completed FY that reduce the loan amount to an
amount that is less than the total outstanding balance of the loan at
the beginning of that FY, will now be included in the numerator of the
repayment rate. The final regulations clarify that loans that have
defaulted in the past, including consolidation loans composed of at
least one defaulted loan, are excluded from the numerator of the
calculation, i.e., from the Loans Paid in Full (LPF) and the PML. To be
consistent with the definition of PML, we are also clarifying that LPF
do not include loans that have been in default.
When calculating the repayment rate for post-baccalaureate
certificate, master's degree, doctoral degree, or first-professional
degree programs, we will consider a borrower with a consolidation loan
to be successfully repaying his or her loans if the outstanding balance
does not increase over the course of the most recently completed FY.
For borrowers repaying under the IBR, ICR, and other plans that
provide for scheduled payments that are equal to or less than the
interest that accrues on the loan, the OOPB of loans for borrowers
making scheduled payments under those plans that are equal to or less
than the interest that accrues on the loan during the FY will be
included, on a limited basis, as OOPB of PML in the numerator of the
repayment rate. This approach will also benefit programs whose
borrowers may be repaying their loans under these plans during and
shortly after completing required medical or dental internships and
residencies. However, to ensure that borrowers in gainful employment
programs are thoughtfully counseled into entering the repayment plans
that best meet their needs and do not have to rely excessively on the
IBR or ICR plans because their programs leave them unable to secure
sufficient employment to repay their loans, the Department is limiting
the dollar amount of loans in negative amortization or for which the
borrower is paying accrued interest only that will be included in the
numerator as OOPB of PML to no more than 3 percent of the total amount
of OOPB in the denominator of the ratio (percent limitation). This
percent limitation is based on available data on a program's borrowers
who are making scheduled payments under these repayment plans.
For the loans associated with a particular institution for which
the Department has actual data on borrower repayment plans and
scheduled payment amounts, that data will be used to calculate the
amount to be included in the OOPB of PML. If the amount calculated is
higher than the percent limitation, only the amount of the percent
limitation will be included in the OOPB of PML.
The Department has information on the repayment plans and scheduled
payments for Direct Loans and FFEL loans held by the Department.
However, the Department does not currently collect information about
the repayment plans and scheduled payments amounts on FFEL loans that
it does not hold. The Department is developing plans to collect this
information on loans that it does not hold. Until the Department
determines that there is sufficiently complete data on program
borrowers with scheduled payments that are equal to or less than
accruing interest, the Department will include in the numerator 3
percent of the OOPB in the denominator of the ratio for all programs.
When applying the percent limitation on the dollar amount of the
interest-only or negative amortization loans, the Department may adjust
the limitation by publishing a notice in the Federal Register. The
adjusted limitation may not be lower than the percent limitation
specified in Sec. 668.7(b)(3)(i)(C)(1) or higher than the estimated
percentage of all outstanding Federal student loan dollars that are
interest-only or negative amortization loans.
To establish this limitation, the loan servicing systems were
queried to determine the value of the loans entering repayment on or
after October 1, 2003 that were in a repayment plan that allowed a
scheduled payment equal to or less than accruing interest. That query
identified 1.1 percent of loans in this status. We will not treat
interest-only or negative amortization loans unfavorably in the
repayment rate calculation so long as they do not represent a
disproportionate share of borrowers. The limit on the percentage of
these loans that would count positively in the numerator of the
repayment rate calculation was based on this 1.1 percent figure and
adjusted up to 3 percent to provide some flexibility with regard to
using repayment plans that allow a scheduled payment equal to or less
than accruing interest, but to dissuade excessive use of these plans.
The regulations continue to recognize in the repayment rate
borrowers who are full-time employees of public service organizations
and who are working to qualify for PSLF under 34 CFR 685.219(c). The
Department is developing an employer certification form that should be
available by early 2012 and will allow borrowers, as frequently as
annually, to document that they are engaged in PSLF qualifying
employment. The OOPB of loans for borrowers who are in the process of
qualifying for PSLF will be included in the numerator of the repayment
rate as part of the OOPB of PML if the borrower submits a PSLF
employment certification form to the Department that demonstrates that
the borrower is engaged in qualifying employment and the borrower made
qualifying payments on the loan during the most recently completed FY.
Changes: Section 668.7(b)(3) has been revised by replacing Reduced
Principal Loan (RPL) in the numerator of the repayment rate ratio with
Payments-Made Loans (PML). PML only includes loans that have never been
in default or, in the case of a Federal Consolidation Loan or a Direct
Consolidation Loan, neither the consolidation loan nor the underlying
loan or loans have ever been in default.
PML includes a limited amount of the OOPB of loans in which a
borrower is making scheduled payments under IBR, ICR, or other
repayment plans that are equal to or less than the interest that
accrues on the loan. Section 668.7(b)(3) clarifies the treatment of
Federal Consolidation Loans or Direct Consolidation Loans
(consolidation loans) of a borrower who is repaying loans related to a
gainful employment program when the borrower is reducing the
outstanding balance of the consolidation loan to an amount that is less
than the outstanding balance of the
[[Page 34409]]
consolidation loan at the beginning of that FY. Section 668.7(b)(3)
also clarifies that if the program is a post-baccalaureate certificate,
master's degree, doctoral degree, or first-professional degree program,
PML includes the total outstanding balance of a Federal or Direct
Consolidation Loan that at the end of the most recently completed FY is
less than or equal to the total outstanding balance of the
consolidation loan at the beginning of the FY, and that the outstanding
balance of a consolidation loan includes any unpaid accrued interest
that has not been capitalized. Section 668.7(b)(3) specifies the
documentation on which the Department will rely to include a borrower
in the process of qualifying for PSLF in the loan repayment rate.
The definition of Loans Paid in Full (LPF) has been revised to
clarify that these are loans that have never been in default or, in the
case of a Federal Consolidation Loan or a Direct Consolidation Loan,
neither the consolidation loan nor the underlying loan or loans have
ever been in default.
Comment: Some commenters recommended that the Department apply the
repayment rate only to those students who graduate or complete a
program. The commenters argued that if the repayment rate is used as a
proxy for determining whether the program prepares students for gainful
employment (i.e., whether graduates have received the capabilities
needed to succeed in the particular occupation), the relevant group
measured should be those who successfully complete the program. The
commenters believed that if students who fail to complete the program
are included in the calculation, the Department would be merely
rewriting the CDR provision. One of the commenters stated that
measuring institutions based on former students who are not paying
their loans is not a fair metric. The commenter stated that only those
students who have maximum earnings potential because they completed the
full program should be measured.
Discussion: The Department disagrees with the commenters that the
repayment rate should focus only on program completers. The Department
believes that in order to determine whether a program is succeeding in
its mission of preparing students for gainful employment using title
IV, HEA funds, it is important to examine the level of success of all
enrollees in the program. Programs that experience a high number of
drop outs and withdrawals leaving students with no employment skills
and student loan debt they have insufficient means to repay cannot be
said to be preparing students for gainful employment. Although we agree
that students who complete the program have a better chance of repaying
their student loans, we believe that including both program completers
and noncompleters in the repayment rate calculation provides a more
comprehensive picture of the program's overall success. Additionally,
students enrolled in certain programs may not be required to receive
the program's academic credential in order to secure employment or
advance in their career field, and as a result, may be repaying their
student loans. Regarding the comment about CDR, we explain the
differences between the repayment rate and CDR under the heading, Use
of the cohort default rate as an alternate measure.
Changes: None.
Comment: Commenters questioned the logic of including in the
numerator of the repayment rate only those loans that were paid in full
or whose principal balance was reduced during the FY. The commenters
believed that institutions should not be penalized for the Federal
government's policy decision to issue loans that are not credit based;
offer borrowers flexible repayment plans; and promote deferments,
forbearances, and loan consolidation to borrowers in repayment. The
commenters recommended that the Department consider a loan to be in
repayment for purposes of the repayment rate calculation if the
borrower has made at least four payments during the most recent FY.
Although the commenters welcomed as a positive first step the
Department's decision to exclude from the repayment rate borrowers who
are in an in-school or military-related deferment status, they argued
that borrowers who have valid reasons for requesting deferment or
forbearance, such as unemployment, maternity leave, disability, elder
care, or economic hardship, should be given equal consideration. The
commenters believed that a deferment or forbearance granted to a
borrower who leaves the workforce for a period of time to care for
children or a sick parent, or to undergo a medical procedure, is as
legitimate as an in-school deferment that primarily benefits students
at two and four-year public and non-profit institutions, and middle
class students enrolled in graduate programs. Consequently, the
commenters recommended that the Department either exclude from the
repayment calculation all loans for which deferment or forbearance is
pending or enact strict standards for issuing deferments and
forbearances.
Discussion: We disagree with the notion that an institution should
be shielded from Federal policy decisions regarding the student loan
programs. The Department makes available its Federal student loan
programs regulations to institutions before the institution agrees to
participate in the title IV, HEA programs. Moreover, we believe the
institution should be held accountable for how it delivers programs
intended to provide gainful employment, particularly when most of its
former student borrowers have to rely on economic hardship deferments,
forbearances, and other means to avoid defaulting on their loans or
managing life circumstances. To be sure, deferments, forbearances, and
other program benefits are necessary to assist borrowers in loan
repayment, but particularly heavy reliance on these tools among former
students of a particular program raise questions about the performance
of that program.
Concerning the request to enact stricter standards for deferment or
forbearance, any such changes are outside the scope of the proposals we
included in the July 26, 2010 NPRM and therefore we are not addressing
them here.
With regard to the request that the Department exclude from the
repayment calculation all loans for which deferment or forbearance is
pending, we are excluding in these final regulations loans that are in
deferment status for reasons that are clearly unrelated to whether a
program prepares students for gainful employment. Specifically, we
exclude from the repayment rate calculation loans that were in an in-
school or military-related deferment status during any part of the FY,
loans that were discharged as a result of the death of the borrower
under 34 CFR 682.402(b) or 34 CFR 685.212(a), and loans that were
assigned or transferred to the Department that we are considering
discharging, or were discharged, on the basis of the total and
permanent disability of the borrower. However, we are not excluding
from the repayment calculation all loans for which deferment or
forbearance is pending because we believe that if an institution
provides a program that leads to borrowers securing gainful employment
at sufficient salary levels to repay their student loans, the program
will be able to meet the repayment rate threshold of 35 percent even if
individual borrowers' life circumstances (e.g., needing to provide
elder care or taking maternity leave) result in some of them using
available deferment and forbearance benefits. Thus, the availability of
deferment and
[[Page 34410]]
forbearance will not prevent a program from meeting the minimum loan
repayment rate standards. Moreover, because the volume and frequency
with which former students of a program use deferments and forbearances
may be an indicator of program success in preparing students for
gainful employment, we are not excluding all borrowers in deferment.
With regard to the comment that a loan should be counted in the
numerator of the repayment rate if a borrower makes four payments in a
FY, we believe that making only four payments in a FY would indicate
strongly that the borrower does not have the capacity to repay the
loan. Therefore, it would be inappropriate to include the loan in the
numerator of the loan repayment rate.
Changes: Section 668.7(b) has been revised to exclude from the
repayment rate calculation loans that were in an in-school or military-
related deferment status during any part of the FY, loans that were
discharged as a result of the death of the borrower under 34 CFR
682.402(b) or 34 CFR 685.212(a), and loans that were assigned or
transferred to the Department that we are considering discharging, or
were discharged, on the basis of the total and permanent disability of
the borrower.
Treatment of Borrowers Carrying Forward Accrued Unpaid Interest
Comment: One commenter, whose analysis and recommendations were
cited by numerous commenters, pointed out that although accrued
interest is generally capitalized when a borrower first enters
repayment, there are circumstances under which accrued unpaid interest
remains outstanding and is not capitalized. Under these circumstances,
due to the manner in which loan payments are applied (borrower payments
are applied first to collection charges and late fees, next to accrued
but unpaid interest, and finally to principal), the commenter concluded
that there was an interest-related problem and called it the
``persistence of interest.'' The commenter noted that in these
circumstances, under the proposed regulations, a borrower making full
monthly payments (i.e., payments that exceed the new interest that
accrues each month on the loan) would not be counted in the numerator
of the repayment rate because the borrower's payments would be applied
to accrued, unpaid interest. According to the commenter, the treatment
of these loans as nonperforming loans in the repayment rate calculation
not only yields a lower repayment rate, but is also based on the past
status of the loan. The commenter also pointed out that even if
outstanding accrued interest is capitalized and added to principal, the
interest-related problem continues to exist unless the capitalization
takes place at the beginning of the FY. The commenter further stated
that if the capitalization takes place during the course of the FY, it
will appear to increase the principal balance when compared to the
principal balance at the beginning of the FY, even if the borrower made
payments that reduced loan principal prior to the capitalization.
The commenter also noted that there are many instances in which
accrued outstanding interest stems from a past loan status, such as a
brief deferment or forbearance period, that may leave the loan in a
nonperforming status for purposes of the repayment rate for a
significant period of time into the future. To address the
``persistence of interest'' factor in the repayment rate calculation,
the commenter recommended that the Department modify the regulations to
provide that the calculation be based on a comparison of the sum of the
principal balance and the accrued unpaid interest on the loan at the
beginning and the end of the given FY rather than on a comparison of
the outstanding principal balance. The commenter supported the proposed
approach of excluding from the numerator of the repayment rate
borrowers' loans in deferment or forbearance status and loans for which
borrowers are paying a scheduled $0 monthly payment or a payment that
is less than the new accruing interest under the IBR and ICR plans.
Discussion: To determine whether a borrower's OOPB should be
included in the numerator of the repayment rate, the Department will
determine whether the total outstanding balance of a borrower's loan at
the end of the FY for which the rate is being calculated is less than
the total outstanding balance of the loan at the beginning of that FY,
and the outstanding balance of a borrower's loan, at both the beginning
and the end of the FY, will include any outstanding unpaid accrued
interest that has not been capitalized. We believe that by including
any outstanding unpaid accrued interest that has not been capitalized
in the beginning year total outstanding balance of the loan, a borrower
who makes full scheduled monthly payments on a loan that are greater
than accruing interest will be able to show a reduced total outstanding
balance for the loan by the end of the FY, even if interest is not
capitalized or is capitalized at some point during the year.
Changes: The new term ``Payments-Made Loans'' (PML) in Sec.
668.7(b)(3) specifies that the outstanding balance of a loan used in
calculating the repayment rate includes any unpaid accrued interest
that has not been capitalized.
Treatment of Consolidation Loans
Comment: Commenters objected to the Department's decision to view
loans repaid through the consolidation process as not being paid-in-
full until the consolidation loan is paid in full. The commenters noted
that the Department has historically treated consolidation loans as a
positive step for a borrower to take in managing student loan debt and
stated that the Department was contradicting this position by treating
consolidation loans unfavorably in the loan repayment calculation.
These commenters noted that there is not sufficient data from the
National Student Loan Data System (NSLDS) that would allow an
institution to track repayment of a consolidation loan and recommended
that such loans be treated positively in the repayment rate calculation
(i.e., treated as in repayment) until the data is available to prove
otherwise.
Other commenters questioned Sec. 668.7(b)(2)(i) of the proposed
regulations, which provides that a ``consolidation loan is not counted
[in the numerator] as paid in full.'' The commenters stated that it was
unclear whether the repayment rate calculations would properly
segregate consolidation loans according to source institution. The
commenters believed that if the repayment rate calculation fails to
properly attribute the underlying loans repaid through the
consolidation for a borrower who consolidates during a given FY, the
borrower's principal balance at the end of the FY will be greater than
the principal balance at the beginning of that FY. The commenters
believe this situation will also result in an institution not receiving
credit in the numerator of the repayment rate for payments the borrower
made on loan principal in the same FY in which the borrower
consolidated the loan. To address this issue, the commenters
recommended that the Department develop an acceptable and transparent
method for determining the amount of a consolidation loan that is
attributable to a particular program.
Another commenter recommended that any consolidation loan on which
a borrower has made scheduled payments, including principal and
interest, during the immediate prior calendar year should be treated as
a reduced principal loan in the repayment rate calculation.
[[Page 34411]]
Discussion: Loan consolidation in the Federal student loan programs
is a refinancing mechanism that allows a borrower to aggregate a number
of loans to secure one repayment source, to extend the maximum
available repayment period, and to reduce the monthly payment amount.
The underlying loans are effectively refinanced through the
consolidation process. Although the Department agrees that loan
consolidation may be a positive step for a borrower, it does not
represent payment by the borrower of the loans consolidated. The loans
paid off through the consolidation process are reflected dollar-for-
dollar in the new consolidation loan debt. We see no basis for treating
a consolidation loan payoff as successful borrower repayment, or LPF,
for purposes of the repayment rate.
The Department has a long history under the CDR process of
successfully tracking loans that were in default and then repaid
through consolidation and including those loans in the appropriate
institution's CDR. For the repayment rate calculation, the Department
has enhanced its capacity to look back through multiple consolidation
loans and to assign loans repaid through consolidation to a program at
an institution. Although a consolidation loan is not considered LPF
until the entire consolidation loan is repaid, the OOPB of the
underlying loans attributable to a gainful employment program is
included in the numerator (i.e., PML of OOPB) if the borrower makes
payments that reduce the total outstanding balance of the consolidation
loan by the end of the FY under review.
As part of the data correction process contained in these final
regulations, and discussed more fully under the heading, Data access
and review, we will provide access to the NSLDS data underlying the
repayment rates, including the information associated with
consolidation loans. As a result, institutions will be able to request
corrections to the assignment of borrowers and loan amounts, including
the portion of consolidation loans, used to calculate a program's
repayment rate.
Changes: Section 668.7(b)(1)(iii) has been added to specify that
for consolidation loans, the OOPB is the OOPB of the FFEL and Direct
Loans attributable to a borrower's attendance in the program. We have
added Sec. 668.7(b)(1)(iii) and revised Sec. 668.7(b)(3)(i)(A) to
clarify that if certain consolidation loan payments are made, the OOPB
of the underlying loans attributable to a gainful employment program
will be included in the numerator of the repayment rate.
Use of the Cohort Default Rate as an Alternate Measure
Comment: One commenter recommended that the Department eliminate
the loan repayment rate and replace it with the CDR. Alternatively, the
commenter suggested that the repayment rate be modified to count
positively in the numerator all borrowers who are not delinquent in
repaying their loans, including those that use various program benefits
such as consolidation, forbearance, and deferment.
Some of the commenters requested that the Department clarify the
definition of a reduced principal loan in the regulations. The
commenters indicated that it was unclear whether a student would need
to make more than one payment that reduces principal in the FY to be
considered to have a reduced outstanding principal balance.
Discussion: The Department does not believe that the CDR is an
appropriate measure of whether the students who attended a program are
gainfully employed. The CDR is an institutional rate that only measures
the number of an institution's borrowers who fail to make payments on a
loan for an extended period of time. The CDR only includes a small
group of the borrowers during a limited time period, and counts many of
those borrowers as successes even if they are struggling to repay their
loans. Borrowers using reduced payment plans may be seeing their loans
grow rather than shrink because their incomes are low and their debts
are high. As a result, the CDR is a better measure of potential loss to
taxpayers than of the repayment burden on students.
Students attending programs leading to gainful employment in a
recognized occupation often do so because they have been told that they
will be able to secure employment that will allow them to pay off their
debts. The Department's experience with the CDR and other institutional
measures is that they may mask an under-performing program and obscure
for students, the Department, and institutions the harm that can result
from enrolling in a specific program. An institution's CDR may
therefore be a misleading measure of an individual program's success in
providing students with sufficient income to pay off education loan
debt.
The repayment rate is intended to operate at the program level and
track the loan repayment by borrowers formerly enrolled in specific
programs, not simply those who reach a certain level of delinquency or
who default. Gainful employment should allow the borrower to make all
the scheduled payments on the loan during the given FY under review,
not simply make intermittent payments.
Regarding the commenter's question about clarifying the term
``reduced principal loan,'' as previously discussed, we have replaced
the term ``reduced principal loan'' with the term ``payments-made
loan''. The reduction of the borrower's total outstanding balance
between the beginning and end of the FY can be as little as one cent in
order for the OOPB of the loan to be included in the numerator of the
program repayment rate. The outstanding balance of a loan includes any
unpaid accrued interest that has not been capitalized.
Changes: None.
Control Over Student Borrowing
Comment: Many commenters stated that student overborrowing and
related repayment difficulties, as reflected in repayment rates, are
related to a program's inability to limit student borrowing. The
commenters objected to the Federal requirement that a school offer
students the maximum loan amount for which they are eligible even when
the program believes that a student may have difficulty repaying the
loans and wishes to recommend a lesser loan amount. The commenters
believe that if they are required to offer the maximum loan amount to
any student who meets the admission requirements and maintains
satisfactory academic progress, they should not be held accountable for
excessive borrowing and a borrower's failure to repay. Some of these
commenters questioned the need for students to receive loan funds in
excess of direct tuition and fee costs and requested authority to adopt
institutional policies of limiting annual loan limits to direct costs.
The commenters did not believe an institution's programs should be
adversely impacted by debt a student chooses to take on for
discretionary expenses. Several of these same commenters recommended
that a school's regulatory authority under the Federal Perkins Loan
program to consider a borrower's ``willingness to repay'' a loan before
making a Perkins loan to a student should be applied to Direct Loan
program loans.
Discussion: To ensure access to postsecondary education, the cost
of attendance provisions in section 472 of the HEA recognize both
direct costs (tuition, fees, books, and supplies) and indirect costs
(room and board allowance and allowances for other educationally-
related costs). Indirect costs are not viewed as discretionary or
[[Page 34412]]
unnecessary costs. The institution, however, has the authority to
decline to originate a Direct Loan or to reduce a Direct Loan amount in
section 479A(c) of the HEA. To prevent discrimination against certain
students or categories of students that may result from the use of
across-the-board policies by an institution, the HEA requires the
institution to exercise its authority under this provision on a case-
by-case, documented basis with a written explanation provided to the
student. This authority provides an institution with the ability to
address individual cases of unnecessary, excessive borrowing by
students. Any change in this authority would require a change in the
HEA.
In response to the statement that links excessive borrowing to an
institution funding all admitted students who are making satisfactory
academic progress, we note that the institution would have to disburse
title IV, HEA funds to any student making satisfactory academic
progress regardless of the amount of loans the student borrowed. For
the debt-to-earnings ratios, if the institution identifies the amount
of the tuition and fees for each student to the Department, we will
limit the amount of loan debt included in that calculation for a
student who completes a program to the total amount of tuition and fees
the institution charged the student for enrollment in all programs at
the institution. However, because the repayment rate is looking at the
cumulative loan amounts in repayment, it would be inconsistent and
impractical to limit the debt considered on a borrower-by-borrower
basis. Such a limitation would require complex adjustments that would
attribute, over time, the amount of the borrower's loan payments to a
tuition-adjusted loan amount. This approach could produce an anomalous
outcome where a borrower who is otherwise severely delinquent in
repaying his or her loan could nevertheless be counted as successfully
repaying the loan after any loan payments made by the borrower are
attributed to the part of the loan used for tuition and fees.
Finally, the application of ``willingness to repay'' as a criteria
when awarding Federal Direct Loans would require a change in the HEA.
Changes: None.
Data Access and Review
Comment: Commenters objected to the limited access institutions had
through the NSLDS to the data elements that will be used to calculate
the repayment rate, including accurately identifying the principal
balance of a loan at various points over the life of a loan and whether
a borrower had made payments to reduce loan principal during the FY.
The commenters requested that the Department disclose, explain, and
confirm the accuracy of the data from NSLDS that it will use to
calculate programmatic repayment rates so that institutions can
internally replicate and monitor their rates. The commenters believe
that this situation denies them a reasonable opportunity to revise
their policies and procedures to come into compliance before sanctions
may be imposed against them. They urged the Department to revise the
repayment rate regulations to clearly state that schools would not be
penalized for data for students who were enrolled in or attended the
school prior to the regulation's enactment, or July 1, 2014, whichever
is earlier. They also asked the Department to provide repayment rate
data to institutions, with available resources to explain the data,
similar to the process we use with school CDR data. The commenters
believe this will provide the institutions and the Department with time
to test the underlying information and time for institutions to
identify changes needed in their programs to meet the gainful
employment regulations' requirements.
Discussion: The Department believes that Sec. 668.7(e) of these
final regulations includes sufficient safeguards regarding NSLDS data
and reasonable access to these data before they are finalized.
Specifically, as specified under Sec. 668.7(e) and discussed more
fully under the heading, Draft debt measures and data corrections
(Sec. 668.7(e)), Final debt measures (Sec. 668.7(f)), and Alternative
earnings (Sec. 668.7(g)), the Department will generate draft rates for
institutional review prior to calculation of the final repayment rate
for each FY for which rates are calculated. The Department will provide
for each program the borrower-related data used to calculate the draft
rate and the institution will be able to review and challenge the
accuracy of the data. The Department believes that the Department's
disclosure of draft rates and a school's ability to identify and
correct the data in the NSLDS used to calculate the repayment rates
prior to the calculation of final rates provides reasonable access to
data for institutions and will assure the accuracy of the final rates.
Based on the effective date of these regulations, the first final
repayment rates will be calculated for FY 2012 and will examine
borrowers who first entered repayment in FY 2008 and FY 2009 and who
have been in repayment for three to four years. Thus, these final
regulations would not result in any program losing eligibility prior to
the final calculation of debt measures for FY 2014. With that said,
there is a great deal that institutions can do to ensure an acceptable
repayment rate by working with former students to encourage repayment
rather than non-payment. After considering the comments, we determined
that this approach is in the best interest of the former students and
taxpayers.
Changes: Section 668.7 of the regulations has been amended by
adding a new paragraph (e) under which the Department notifies an
institution of draft results of the debt measures for each of its
programs. An institution may review and challenge the accuracy of the
NSLDS loan data used to calculate the draft loan repayment results. The
Department will not issue final repayment rates for a program until all
of the data challenges for that program are resolved. Further detail
regarding these changes is provided under the heading, Draft debt
measures and data corrections (Sec. 668.7(e)), Final debt measures
(Sec. 668.7(f)), and Alternative earnings (Sec. 668.7(g)).
Debt-to-Earnings Ratios (Sec. 668.7(c))
General
Comment: For an institution undergoing a change of ownership that
results in a change in control from non-profit to for-profit status,
some commenters suggested that the Department compute the debt-to-
earnings ratios only after three years of data are obtained from the
newly formed for-profit entity.
Discussion: In general, because the debt measures are calculated on
a program basis, nothing about the calculations will change if an
institution undergoes a change of ownership that results in a change in
control, as described in 34 CFR 600.31. For example, if the same
program (same CIP code and credential level) that was offered by the
acquired institution continues to be offered after the change in
ownership, the debt measures are calculated using data from before and
after the changes in ownership. If that program was only offered by the
acquired institution, the debt measures carry over to the acquiring
institution.
However, in the commenter's example where control changes from a
non-profit institution to a for-profit institution, we agree to delay
calculating the debt measures for the degree programs previously
offered by the non-profit institution that are now gainful employment
programs of the for-profit institution. For these programs, the
[[Page 34413]]
Department will calculate the debt measures based on data provided
under Sec. 668.6(a) by the for-profit institution after the change in
control.
Changes: None.
Debt Portion of the Debt-to-Earnings Ratios
Loan Debt
Comment: Some commenters argued that if the proposed regulations
are intended to reduce student debt levels by forcing institutions to
reduce tuition rates, this goal conflicts directly with the current 90/
10 provisions in Sec. 668.28 which inhibit, and in many cases
effectively prohibit, for-profit institutions from reducing tuition.
According to the commenters, the net effect of the proposed regulations
combined with the 90/10 provisions would be to force institutions to
enroll wealthier students and discourage institutions from serving
minority and disadvantaged students. Similarly, other commenters
believed that using debt measures to assess program quality may lead to
adverse consequences for students by increasing pressure on
institutions to comply with the 90/10 provisions and creating
incentives for institutions to minimize risk by limiting applicants who
may adversely impact the institution's metrics. The commenters
contended that these consequences would be further exacerbated because
temporary provisions under the 90/10 provisions in Sec. 668.28(a)(6),
related to counting as cash a portion of unsubsidized Stafford loan
disbursements, will expire June 30, 2011.
Other commenters believed that the 90/10 provisions should be
eliminated because they serve no good purpose and lead to price fixing
or have compelled institutions to price a program at the maximum amount
of title IV aid for which low-income students qualify to receive plus
an additional 10 percent that is funded by other sources.
Discussion: The 90/10 provisions, which require a proprietary
institution to derive at least 10 percent of its revenue from sources
other than title IV, HEA program funds, are statutory and are therefore
beyond the scope of these regulations. However, we are not persuaded
that the 90/10 provisions conflict with the gainful employment
measures. In a report published October 2010, the GAO did not find any
relationship between an institution's tuition rate and its likelihood
of having a very high 90/10 rate. This report, United States Government
Accountability Office, ``For Profit Schools: Large Schools that
Specialize in Healthcare are More Likely to Rely Heavily on Federal
Student Aid,'' October 2010, is available at http://www.gao.gov/new.items/d114.pdf. GAO's regression analysis of 2008 data indicated
that schools that were (1) Large, (2) specialized in healthcare, and
(3) did not grant academic degrees were more likely to have 90/10 rates
above 85 percent when controlling for other characteristics. Other
characteristics associated with higher than average 90/10 rates were
(1) high proportions of low-income students, (2) offering distance
education, (3) having a publicly-traded parent company, and (4) being
part of a corporate chain. GAO defined ``very high'' as a rate between
85 and 90 percent, and about 15 percent of the for-profit institutions
were in this range. Also, GAO found that in general there was no
correlation between an institution's tuition rate and its average 90/10
rate. In one exception, GAO found that institutions with tuition rates
that did not exceed the 2008-2009 Pell Grant and Stafford Loan award
limits (the award amounts were for first-year dependent undergraduates)
had slightly higher average 90/10 rates than other institutions, at 68
versus 66 percent.
The Department's most recent data on 90/10, submitted to Congress
in February 2011 and available at http://federalstudentaid.ed.gov/datacenter/proprietary.html, show that only 8 of 1851 institutions had
ratios over 90 percent and about 14 percent had ratios in the very high
range of 85 to 90 percent. The GAO report and the Department's data
suggest that most institutions could reduce tuition costs without the
consequences envisioned by the commenters.
An analysis by the Department of the repayment rate indicates that
it is entirely possible to meet both the 90/10 requirements of the
existing statute and the repayment rate thresholds in these final
regulations. Table E shows the distribution of for-profit institutions
by 90/10 rate category and their performance on the repayment rate
test. The percent of schools falling below the 35 percent repayment
rate threshold increases with the 90/10 rate, indicating that many
schools score well on both measures simultaneously. Moreover, even in
the highest 90/10 rate categories, almost 50 percent of schools pass
the repayment rate.
[[Page 34414]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.015
Chart 3 is a scatter plot of paired institutional 90/10 and
repayment rates. It includes the regression line that describes the
linear relationship between the two rates when the 90/10 ratio is used
to predict the repayment rate.
[[Page 34415]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.016
At the upper end of the repayment rate distribution it appears
there is roughly an equal likelihood that repayment rates will be
either above or below the regression line. In other words, based simply
on visual inspection there appears to be little relationship between
90/10 and repayment rates for institutions with relatively high 90/10
rates. A further analysis of the 1,475 institutions with both a
repayment rate and 90/10 calculation reveals a correlation coefficient
(R) between the two variables of -.483. That is, institutional 90/10
ratios tend to decline as their repayment rates increase. A correlation
coefficient between 0.3 and 0.5 (irrespective of sign) is indicative of
a moderate effect; a value greater than 0.5 is considered a large
effect. Thus, the relationship between these two variables can be
described as moderate. Continuing the analysis one step further, the R-
Squared value is .233, meaning that about 23 percent of the variation
in the repayment rates can be explained by the 90/10 rates. Thus we see
no evidence here supporting the notion that better performance on the
measures, i.e. increasing repayment rates, will adversely affect 90/10
calculations.
Several other factors also suggest that any tension between the 90/
10 requirements and the gainful employment measures can be managed by
most institutions. First, even though some of the provisions of the HEA
that make it easier for institutions to meet the 90/10 requirements are
time-limited, other provisions enacted in 2008 as part of the
reauthorization of the HEA will remain in effect, such as the ability
to count income from other programs that are not eligible for HEA
funds. Second, institutions have opportunities to recruit students that
have all or a portion of their costs paid from other sources. The
changes to the HEA in 2008 also permit an institution to fail the 90/10
measure for one year without losing eligibility, and the institution
can retain its eligibility so long as it does not fail the 90/10
measure for two consecutive years. Furthermore, institutions that have
students who receive title IV, HEA funds to pay for indirect costs such
as living expenses already are in the situation described by the
commenters where the amount of title IV, HEA funds may exceed the
institutional costs. These institutions are presumably managing their
90/10 measures using a combination of other resources, and this result
would also be consistent with the findings in the GAO report described
above.
Changes: None.
Comment: Some commenters argued that excluding parent PLUS loans
from median loan debt greatly understates the debt levels associated
with middle-class students attending public and non-profit
institutions. At the same time, the amount of debt students incur for
attending for-profit institutions is greatly overstated because most of
these students are independent and low-income and are therefore more
likely to receive additional support through unsubsidized Stafford
loans instead of parent PLUS loans. Consequently, the commenters
believed that excluding parent PLUS loans reflects the
[[Page 34416]]
Department's bias in depicting educational loan burdens and the costs
of education attributable to various education sectors in general.
Other commenters opined that an effect of the proposed regulations
would be that an institution would counsel parents to incur more loan
debt because parental debt would not count against it under the
proposed metrics.
Discussion: Overall, only 3.5 percent of the students enrolled in
certificate programs benefited from parent PLUS loans. Including these
loans would have little impact on the debt measures. Moreover,
including parent PLUS loans would distort the measures, which are
designed to measure and assess a student's debt burden, because the
student is not responsible for repaying loans incurred by a parent.
Changes: None.
Comments: With regard to the proposal that loan debt includes all
debt incurred by a student from a FFEL or Direct Loan, a private
education loan, or an institutional loan, some commenters opined that
as a legal and practical matter institutions cannot control student
debt in excess of tuition, fees, books, and prescribed charges that are
part of the cost of attendance. The commenters reasoned that because
excess debt varies depending on the circumstances of the individual
student, not the educational program, it should not be included in
calculating the debt-to-earnings ratios. Similarly, some commenters
believed that the proposed regulations failed to address student over
borrowing because the Department did not change current guidance
prohibiting schools from limiting student indebtedness to the amount of
tuition and fees.
Along the same lines, other commenters opined that the debt portion
of the debt-to-earnings ratios would be a more realistic measurement of
the amount of debt for which an institution should be responsible, if
(1) all private loans are excluded from the calculation, unless
institutions have some method of approving or declining student loan
amounts, or have the ability to impact the amount of funds a student
borrows, and (2) to alleviate the impact that student over borrowing
can have on the debt-to-earnings ratios, institutions are held
accountable only for debt incurred to pay actual educational expenses
and not for excess amounts used for living and other expenses. The
commenters offered that the amount incurred to pay actual educational
expenses can be derived by using the amount institutions report as the
net price on the College Navigator Web site. The reported net price
minus any grant or gift aid received by a student would be the maximum
amount of debt that the student would need to accumulate to pay actual
education expenses.
Commenters contended that the proposed debt-to-earnings ratios
would not cause an institution to reduce tuition and fees because the
Department did not provide a systematic way for the institution to
limit student borrowing. The commenters noted that a student would be
eligible to receive the same amount of student loan funds ($9,500) for
a one-year program costing $15,000 or for one costing $10,000. So
without any borrowing limits, a student who receives $5,500 in Federal
Pell Grant funds could still borrow the maximum loan amounts even if
the institution reduced the cost of the program by 33 percent to
$10,000. Consequently, the commenters reasoned that reducing program
costs, even by unrealistic levels of 33 percent, would not guarantee a
reduction in student debt associated with the program. The commenters
suggested that for the July 26, 2010 NPRM to have its intended effect
of reducing program costs, the total amount of debt included in the
debt-to-earnings ratios should be capped at the cost of tuition and
fees. Other commenters suggested that the amount of loan debt should be
capped at the total of institutional charges less any grant aid
received by students.
Another commenter stated that while the proposed regulations
emphasized protecting the taxpayer from wasteful spending, the HEA
encourages students to over borrow by funding living expenses instead
of just tuition, fees, and books. The commenter believed that the HEA
makes the taxpayer the student's individual bank, but under the
proposed regulations, institutions would be the responsible party for
these expenses. The commenter provided an example of an institution
where student loans totaled $7.34 million for the 2009-10 award year,
of which approximately $1.75 million, or 24 percent, was used for
student living expenses. The year before, living expenses accounted for
only 6 percent of total loans. The commenter suggested that the
Department place limits on the amount of a loan that could be used for
living expenses or not hold institutions responsible for this portion
of student loan debt.
Discussion: Although a statutory change would be required to allow
an institution to directly limit or control student borrowing, we are
not persuaded that an institution that makes reasonable efforts to
counsel its students about the dangers of over borrowing cannot affect
student behavior. Nevertheless, for the purpose of calculating median
loan debt the Department agrees to limit the total amount of loans a
student incurs in completing a program to the total amount the
institution charged the student for tuition and fees if the institution
reports those amounts to the Department. Using the actual amount
charged, instead of a derived or estimated amount, allows the
Department to more accurately limit loan debt for the ratio
calculations.
We are revising Sec. 668.7(c)(2) to reflect this change. Under
this section, an institution may report the total amount charged for
tuition and fees for each student who attended programs at the
institution. In cases where a student attends more than one program,
the Department will compare the total amount of tuition and fees the
student was charged for attending those programs to the total amount of
loan debt the student incurred for attending those programs. Of course,
for a student who attended only one program, we will compare the amount
of tuition and fees charged to the loan debt incurred for that program.
For each student, we will use the lower of the amount of tuition and
fees charged or the total loan debt incurred for purposes of
calculating the median loan debt for the program. However, because some
programs would not benefit from limiting loan debt, reporting the
amount charged is optional for the institution. In any event, the
amount of the median loan debt the Department will provide to
institutions for disclosure purposes under Sec. 668.6(b) will not be
limited to tuition and fees charges because we believe a prospective
student should know how much loan debt a typical student incurred in
completing the program.
In the Program Integrity Issues final regulations, we discussed
generally in the preamble the process the Department will use to
calculate the median loan debt of a program. In these final
regulations, we are establishing how the Department determines the loan
debt of each student in a program and derives the median loan debt of
the program.
Under these provisions:
(1) Loan debt includes FFEL and Direct loans (except for parent
PLUS or TEACH Grant-related loans) owed by the student for attendance
in a program, and as reported by the institution under Sec.
668.6(a)(1)(i)(C)(2), the amounts the student received from private
education loans for attendance in the program and the amount from
institutional financing plans that the student owes the
[[Page 34417]]
institution upon completing the program.
(2) Loan debt does not include any loan debt incurred by the
student for attendance in programs at other institutions. However, the
Department may include loan debt incurred by the student for attending
other institutions if the institution providing the program for which
the debt-to-earnings ratios are calculated and the other institutions
are under common ownership or control, as determined in accordance with
34 CFR 600.31. We generally do not include educational loan debt from
institutions students previously attended because those students made
individual decisions to enroll at other institutions where they
completed a program. Entities with ownership and control of more than
one institution offering similar programs might have an incentive under
these regulations to shift students between those institutions to
shield some portion of the educational loan debt from the debt included
in the debt measures under these final regulations. The provision in
Sec. 668.7(c)(4)(iii) will negate that incentive by permitting the
Department to include that debt in the analysis. The regulations also
provide that a determination of common ownership or control will be
made under 34 CFR 600.31, which sets forth the definitions and concepts
that the Department routinely uses to review changes of ownership,
financial responsibility determinations, and identifying past
performance liabilities at institutions.
(3) Under Sec. 668.7(c)(5)(iv), the Department will not include a
student in calculating the debt-to-earnings ratios for the program the
student completed if the student is enrolled in another eligible
program at the institution or at another institution. However, we
clarify that the student must be enrolled in another program during the
calendar year for which the Department obtains earnings data from SSA
(the earnings year). We exclude the enrolled student based on the
assumption that he or she will not be employed for the earnings year
used to calculate the debt-to-earnings ratios for the program the
student originally completed.
We illustrate in Table F how the Department will implement this
process.
[GRAPHIC] [TIFF OMITTED] TR13JN11.017
Changes: Section 668.7(c)(2) has been revised to provide that an
institution has the option to report the total amount of tuition and
fees the institution charged a student for attending programs at the
institution. This section
[[Page 34418]]
also has been revised to provide that the Department calculates the
median loan debt of the program for each student who completed the
program during the 2YP, the 2YP-R, the 4YP, or the 4YP-R based on the
lesser of the total loan debt incurred or the total amount of tuition
and fees the institution charged the student for enrollment in all
programs at the institution, if the institution provides this
information to the Department. Also, we have added Sec. 668.7(c)(4) to
specify how the Department determines the loan debt for a student.
Comment: Some commenters expressed concern that the proposed debt-
to-earnings ratios inappropriately inflate the cost of education by
incorrectly capitalizing unpaid interest in determining median loan
debt.
Discussion: The commenters are correct in noting that the
Department will calculate median loan debt using loan amounts for
unsubsidized loans that include capitalized interest. However, we do
not believe this treatment inflates the cost of education because the
interest incurred during program attendance is part of the cost of the
loan. Moreover, the total amount of the student's loan debt may now be
limited to the total cost of tuition and fees.
Changes: None.
Loan Amortization
Comment: Commenters urged the Department to calculate the annual
loan amount for the debt-to-earnings ratios by using a more accurate
loan amortization schedule. Under the proposed regulations, the annual
loan debt for a program is based on a 10-year repayment schedule. The
commenters noted that a fixed, 10-year amortization does not reflect
the loan repayment behavior of many borrowers, and suggested that the
Department determine the average length of repayment for borrowers who
entered repayment during the four most recently completed FYs.
Alternatively, the commenters suggested that the loan amortization rate
should vary depending on the program students complete: 15 years for a
certificate program, 20 years for a bachelor's degree program, and 25
years for a graduate degree program. The commenters stated that these
amortization rates reflect the current costs of education and student
repayment practices. Similarly, other commenters suggested using loan
amortization schedules of 15 years for non-degree programs and 20 years
for degree programs. Some commenters recommended that the Department
use (1) the actual term of the loan applicable to each student based on
each student's payment plan in effect at the time the ratios are
calculated, and (2) each student's actual interest rate for the ratio
calculations.
Other commenters expressed concern that using a debt-to-earnings
metric that tracks earnings only over a three-year period while using a
standard 10-year amortization schedule for loan debt over-weights the
debt factor and under-weights the benefits of higher education. The
commenters stated that if a borrower enters a new career upon
completion of a degree program, the borrower's income is likely to
increase with each passing year, but limiting the income timeframe to a
three-year period fails to fully consider the potential for income gain
in relation to debt. The commenters were also concerned that the debt-
to-earnings metric did not take into account other benefits of higher
education such as better health and life insurance coverage, a lower
unemployment rate, and greater mobility to change jobs.
Some commenters believed the proposed regulations were heavily
biased against longer term and higher-cost programs (e.g., health care
programs). Students enrolled in higher-cost programs borrow more, but
their earnings in the first three years after graduation are not likely
to be substantially greater than those students who have earned less
costly degrees. According to the commenters, these students may take
seven years or more after graduation to experience the real financial
advantage of the additional education they obtained.
Discussion: In view of the comments that a fixed 10-year repayment
schedule may not be appropriate for all programs, the Department agrees
to amortize the median loan debt for a program based on credential
level. It would be impractical to use the actual terms of the loan for
each borrower or the time frame the borrower realizes the benefit of
higher education. Using the actual borrower data could also lead to
repayment periods of less than 10 years. The average repayment period
for Federal student loans remains a little over 8 years. We recognize
the commenters' concern that longer programs could be significantly
more likely to fail the debt-to-earnings ratios under the proposed 10-
year repayment schedule. Consequently, we are adopting an approach
along the lines suggested by some of the commenters: For undergraduate
or post-baccalaureate certificate programs and associate's degree
programs, loan debt will be amortized over 10 years; for bachelor's and
master's degrees, 15 years, and for programs that lead to a doctoral or
first-professional degree, 20 years. We believe this approach tracks
the amount of debt that students incur at each level as they progress
through their postsecondary education and will monitor the length of
repayment by credential level to make any necessary future adjustments.
Changes: Section 668.7(c)(2)(ii) has been revised, in part, to
provide that the Department will calculate the annual loan payment for
a program by using a 10-year schedule for undergraduate or post-
baccalaureate certificate programs and associate's degree programs, a
15-year schedule for bachelor's and master's degree programs, and a 20-
year schedule for doctoral and first-professional degree programs.
Earnings Portion of the Debt-to-Earnings Ratios
Earnings of Program Completers
Comment: Some commenters opined that calculating a program's debt-
to-earnings ratio based on earnings received during the first three
years of employment does not take into account the lifelong benefit of
higher education because as earnings increase with experience some
graduates will be able to pay off their loans in the 10th or 15th year
of repayment. Consequently, the commenters argued that the Department
should use BLS data at the 50th percentile because doing so will more
likely track what a student would make within the first 10 years of his
or her career. For those professions not requiring a graduate or first-
professional degree, the commenters suggested using BLS data at the
75th percentile. Some other commenters suggested that the Department
allow institutions to use either SSA data or BLS wage data. For BLS
data, the commenters recommended using wages at the 50th percentile for
degree programs and at the 25th percentile for certificate programs.
Similarly, some commenters opined that a decision of whether to
continue schooling beyond high school should be based on a comparison
of the lifetime benefits and costs of that schooling. The commenters
argued that using SSA data for the income portion of the ratio
calculations does not accurately reflect the impact that postsecondary
education will have on a student's lifetime earnings or the student's
ability to ultimately repay his or her loan obligations. While noting
that the Department's likely intent is to ensure that students are able
to afford the necessary loan payments in the early
[[Page 34419]]
years after leaving school, the commenters cautioned that any deviation
from a comparison of lifetime benefits to lifetime costs has the
potential to harm students. For example, if education confers benefits
to students--such as increased earnings throughout their careers--then
regulations that have the effect of restricting students' ability to
borrow to pay for that education can be detrimental. In addition, the
commenters stated that because the starting salaries are often not that
high for students enrolled in teacher education programs, those
programs would perform poorly under the debt-to-earnings ratios even
though they offer positive lifestyle benefits that are not reflected in
teacher income. Considering the effect that low salaries have on the
debt burden test, the commenters believed the proposed regulations
would create an incentive for institutions to stop providing programs
that lead to low-paying public sector employment.
Under proposed Sec. 668.7(c)(3), the Department would have
required institutions to prove that their graduates' salaries increased
substantially in order to use P3YP salary data. Commenters stated that
institutions do not have this salary data. Moreover, the commenters
noted that there does not appear to be a good reason for requiring
institutions to provide this proof because the Department can obtain
income data for the six prior years as easily as the three prior years.
Therefore, commenters recommended that the Department automatically
calculate the debt-to-earnings ratios over the proposed 3YP as well as
the P3YP and use the most favorable result to determine whether a
program satisfies the debt-to-income requirements.
Other commenters noted that due to the extended length of required
residencies, most medical and dental school graduates have relatively
low earnings for several years. The commenters argued that because a
residency is post-graduate medical education, the debt-to-earnings
ratio for medical school graduates should be calculated not from the
point when the student graduates from medical school, but rather from
the start of the first full year after the student completes his or her
medical residency.
Discussion: In response to concerns that using earnings of recent
program graduates would penalize programs whose students typically
begin careers in low-paying jobs, we agree to extend the employment
period. As discussed more fully under the heading, Definitions, instead
of using the earnings of students who completed a program during the
three most recent award years (years 1 through 3), the Department will
use the earnings of students who completed a program during the third
and fourth FYs (years 3 through 4) prior to the FY for which the ratios
are calculated. For example, the ratios calculated for FY 2016 will use
the most recent earnings available for students who completed a program
between FYs 2012 and 2013 (between October 1, 2011 and September 30,
2013). Although a longer employment period may better reflect the
earnings connected to the education and training provided by a program,
extending the employment period without cause, or extending it
significantly as suggested by commenters advocating the use of lifetime
earnings, may weaken or sever that connection. It would also delay the
Department's efforts in identifying poorly performing programs. For
medical and dental school graduates whose earnings are unquestionably
higher after completing a required internship or residency, the
Department will use the earnings of students who completed those
medical and dental programs during the sixth and seventh FYs (years 6
through 7) prior to the FY for which the ratios are calculated. For
example, the ratios calculated for FY 2016 will use the most recent
earnings available for students who completed a program between FYs
2009 and 2010 (between October 1, 2008 and September 30, 2010).
Finally, the public service programs described in the comments
would likely fare well under the loan repayment rate due to their
former students' potential eligibility for Public Service Loan
Forgiveness.
With regard to the comments about using the 50th or 75th percentile
earnings from BLS, doing so would suggest that all programs yield
similar or better earnings results than average. Moreover, because BLS
includes wages only for those employed in an occupation (individuals
trained in the occupation but not working, are not counted), adopting
the 50th or 75th percentile earnings would allow significantly more
debt than the typical graduate of a program would likely incur.
Changes: See the discussion of the changes to Sec. 668.7(a)(2),
under the heading, Definitions.
Actual Earnings From SSA and Bureau of Labor Statistics (BLS) Wage Data
Comment: Some commenters objected to the proposal that the
Department would use the actual average earnings of program completers
to calculate the debt-to-earnings ratios because neither the Department
nor an institution would have access to individual earnings data. The
commenters believed that an institution would be entirely ignorant of
the figures used to determine whether a program violates the gainful
employment regulations and would have no ability to challenge the
underlying data. Furthermore, the institution would learn of any
noncompliance only after the data set is closed. The commenters argued
that this lack of access to the data compromises the institution's
right to knowledge and notice. For this reason, the commenters
suggested that the Department use earnings data publicly available from
BLS to determine average annual earnings. The commenters stated that
institutions have developed an understanding of how actual wages relate
to BLS data and how BLS wage data relate to program length and tuition
and fees. According to the commenters, by using BLS data, an
institution would be in a better position to assist students in
determining and reducing their debt-to-earnings ratios. Moreover, using
BLS data would allow an institution to determine whether its programs
satisfy the gainful employment requirements and to make necessary
changes prior to being subject to penalties for noncompliance. For
example, if an institution determines it does not have the ability to
offer and satisfy the debt-to-earnings ratios for a program, it can
revise the program or teach out students enrolled in the program and
discontinue admissions. The commenters argued that if the Department's
goal is to make an institution more accountable for the education it
provides, then the institution must be informed, in advance, of the
data the Department will use to determine whether its programs comply
with the regulations. The commenters believed that using BLS data would
further this goal as well as enhance and encourage more transparency
throughout the admissions and enrollment processes.
Along the same lines, other commenters stated that institutions
would be unable to monitor program performance under the debt-to-
earnings ratios. First, the commenters were concerned that the proposed
regulations did not specify the source of the earnings data and there
was nothing in the proposed regulations that would limit the Department
from changing the data source. Second, because the proposed regulations
did not define the term ``earnings'' the commenters believed it was
unclear as to what
[[Page 34420]]
measure would be used to determine whether a program satisfies the
debt-to-earnings ratios. Other commenters questioned whether annual
earnings would equal a full 12 months of earnings or be based on past
calendar earnings because, if based on calendar year data, the data
will not be representative of graduates' actual earnings if employment
began mid-year or towards the end of the reporting period. Third, even
if the Department specified SSA as the source of earnings data and
defined ``earnings,'' the commenters stated that institutions would
still be unable to monitor program performance under the proposed debt-
to-earnings metric because institutions do not have access to actual
earnings for program graduates from SSA or any other source. Therefore,
the commenters believed that institutions would be deprived of
effective notice of the impact of the debt-to-earnings ratios and could
not take effective action to improve program performance before being
subject to sanctions. Finally, the commenters stated that some program
graduates begin their careers in low paying jobs or internships. For
example, graduates of the arts and fashion-based programs typically
know they must begin at a low-paying position to prove themselves and
get a foothold in a competitive market, or to retain the freedom to do
creative work of their choice. The commenters were uncertain how the
Department would assess whether an institution can show that students
completing a program ``typically experience a significant increase in
earnings after an initial employment period'' as described in the July
26, 2010 NPRM. Because of this uncertainty, the unavailability of SSA
data on the actual earnings for program graduates, and the unrealistic
expectation that program graduates would provide earnings data to an
institution four to six years after completing a program, the
commenters concluded that institutions would not be able to monitor
program performance under the debt-to-earnings ratios.
For the following reasons, commenters opined that using actual SSA
wage data to calculate the debt-to-earnings ratios would be arbitrary:
(1) Institutions have no access to the SSA actual earnings data and
therefore have no way to determine whether their programs comply with
the ratio requirements.
(2) By relying on actual earnings data, the Department does not
consider that students may have valid reasons unrelated to the value or
quality of their education for choosing not to seek employment or
seeking low-wage or part-time employment.
(3) The proposed regulations fail to account for macro-economic
conditions that could drive national unemployment rates or that are
beyond the control of institutions.
(4) The SSA data fail to include comparable earnings for self-
employed individuals and fail to include all of the earnings for
graduates who operate small businesses or as independent contractors.
In addition, some commenters opined that because the proposed
regulations do not control for the population served by institutions,
the regulations discriminate against programs in economically
disadvantaged areas. The commenters recommended using data from BLS or
the U.S. Department of Agriculture's Economic Research Service (ERS)
noting that the ERS provides wage data for metropolitan and non-
metropolitan labor markets.
Some commenters believed that the proposed debt-to-earnings ratio
does not reflect gainful employment in a recognized occupation but
instead measures the post-completion debt retirement capacity of a
program completer regardless of whether (1) after initial placement, he
or she has been continuously employed in the occupation related to the
program, or (2) he or she received a waiver for placement, or was never
placed, because of continuing education or another acceptable reason
allowed by an accrediting agency under its placement methodology. As a
result, the commenters contended that the proposed regulations were
heavily biased against programs for the health care professions that
enroll principally women (ages 18-34) who often leave the workplace for
child bearing during the three-year period after graduation.
Some commenters believed that using actual wage data from SSA might
be acceptable if the Department did not count graduates who did not
work, maintained full-time employment for short periods, or worked part
time. The commenters offered that these situations could be more a
reflection of the student than the education provided and would
inappropriately lower the income used in the calculation.
Other commenters conceded that BLS earnings data and Standard
Occupational Classification (SOC) codes may not be as complete as
desired (the BLS data do not account for earnings by degree attainment
and it is difficult to properly align or determine the SOC codes that
apply to a particular program), but nevertheless endorsed using BLS
data to provide a transparent way for institutions to manage their
compliance with the regulations. These commenters supported using BLS
data at the 25th percentile for non-degree programs and at the 50th
percentile for programs leading to bachelor's degrees and higher
credentials.
Other commenters supported using actual earnings and including all
graduates (thus counting those who stray outside the strict mapping to
an occupation), but were concerned that the Department did not propose
to provide debt-to-earnings data, or results, on a quarterly, monthly,
or more frequent basis. The commenters believed that failing to provide
this data, would prohibit institutions from identifying negative trends
and responding to any problems before being subject to sanctions.
Other commenters stated that because the for-profit sector enrolls
a higher percentage of nontraditional and female students, the
Department should use BLS median wages instead of SSA actual wages to
provide a fixed, federally-targeted wage base that would minimize
detrimental, differential, and possibly legally discriminatory,
population effects. The commenters also suggested that the Department
use the BLS median wage instead of the originally proposed 25th
percentile wage to better reflect the earnings in any given occupation.
Other commenters believed that using actual earnings of part-time
workers would force institutions to close down quality programs because
those programs would not satisfy the debt-to-earnings thresholds.
According to the commenters, program closures would have an enormous
effect on female-dominated occupations in health sciences, where
working mothers have the opportunity to work part-time or take leave
from work to manage home and family responsibilities, by leaving
thousands of predominantly low-income women without the opportunity for
an education. To mitigate this circumstance, the commenters suggested
that the Department use BLS wage data instead of actual earnings to
calculate the debt-to-earnings ratios. Alternatively, if actual
earnings are used, the commenters suggested that the Department add a
multiplier to the average annual earnings that is commensurate with the
proportion of enrolled women in a particular program.
Some commenters believed that the proposed loan repayment rate
undercuts the validity and need for debt-to-earnings tests. The
commenters reasoned that graduates who are repaying their loans have
sufficient income, but if they are not repaying
[[Page 34421]]
their loans, the fact that their earnings may exceed some threshold
appears to be irrelevant. These and other commenters stated that even
the brightest, most skilled, and employable graduates will face
earnings limitations in low-wage-earnings cities and surrounding areas.
Consequently, because the proposed metrics do not account for
differences in regional wages, the commenters were concerned that
programs offered in those areas would fail the debt-to-earnings tests
thereby depriving employers of the opportunity to hire qualified, well-
trained graduates.
Some commenters believed that the proposed gainful employment
regulations were irrational because programs would be subject to a
potential loss of eligibility, strict enrollment limits, and other
punitive measures based on metrics that did not exist at the time that
students incurred loan debt that would now be subject to review under
the proposed measures. In addition, the commenters stated that because
the Department would impose punitive measures against programs based on
aggregate data, not on the basis of individual student data, the
proposed regulations are ill-designed to achieve the purposes
identified by the Department in the July 26, 2010 NPRM. For this
reason, the commenters opined that the proposed regulations were
arbitrary and capricious because educational choices would be
eliminated for students who were doing well themselves by repaying
their loans, obtaining jobs in their field, and contributing to society
in general.
Other commenters echoed these concerns noting that every student
whose data would be used under the debt-to-earnings metric would have
left an institution before the implementation date of the regulations,
with some students leaving as early as five years before that date. In
view of the ``retroactive'' nature of the proposed regulations, the
commenters concluded that it would not be feasible for an institution
to take any corrective actions before sanctions would be imposed by the
Department.
Some commenters believed that the final regulations should not
require institutions to retroactively gather data on individuals who
previously enrolled in programs leading to gainful employment because
many institutions would be unable to do so.
Discussion: The Department has several concerns about using BLS
data to calculate the debt-to-earnings ratios. First, as a national
earnings metric that includes untrained, poorly-trained and well-
trained employees, BLS earnings data do not distinguish between
excellent and low-performing programs offering similar credentials.
Second, BLS earnings data do not relate directly to a program--the data
relate to a SOC code or a family of SOC codes stemming from the
education and training provided by the program. An institution may
identify the SOC codes by using the BLS CIP-to-SOC crosswalk that lists
the various SOC codes associated with a program, or the institution
could identify through its placement or employment records the SOC
codes for which program completers find employment. In either case, the
BLS data may not reflect the academic content of the program,
particularly for degree programs. Assuming the SOC codes can be
properly identified, the institution could then attempt to associate
the SOC codes to BLS earnings data. BLS provides earnings data at
various percentiles (10, 25, 50, 75, and 90), but the percentile
earnings do not relate in any way to the educational level or
experience of the persons employed in the SOC code. So, it would be
difficult for an institution to determine the appropriate earnings,
particularly for students who complete programs with the same CIP code
but at different credential levels. For example, there is no difference
in earnings in the SOC codes associated with a certificate program and
an associate's degree program with the same CIP code. Moreover, because
BLS percentiles simply reflect the distribution of earnings of those
employed in a SOC code, selecting the appropriate percentile is
somewhat arbitrary. For example, the 10th percentile does not reflect
entry-level earnings any more than the 50th percentile reflects
earnings of persons employed for 10 years. Even if the institution
could reasonably associate the earnings for each SOC code to a program,
the earnings vary, sometimes significantly, between the associated SOC
codes, so the earnings would need to be averaged or somehow weighted to
derive an amount that could be used in the denominator for the debt-to-
earnings ratios. Finally, and perhaps most significantly, BLS earnings
do not directly reflect the earnings of the students who complete a
program at an institution. Instead, BLS earnings reflect the earnings
of workers in a particular occupation, without any relationship to what
educational institutions those workers attended. While it is reasonable
to use proxy earnings like those available from BLS for research or
consumer information purposes, we believe a direct measure of program
performance must be used in determining whether a program remains
eligible for title IV, HEA funds. The earnings data we obtain from SSA
will reflect the actual earnings of program completers without the
ambiguity and complexity inherent with attempting to use BLS data for a
purpose outside of its intended scope.
As noted by many of the commenters, a tradeoff in using SSA data
rather than BLS data is timely access to the earnings data needed for
making strategic decisions about program offerings and managing
programs to comply with the gainful employment standards. Whereas BLS
data are readily and publicly available, an institution will not have
SSA data for a particular FY until the Department obtains the data from
SSA. This delay is unavoidable because the Department will use the most
recent earnings data available from SSA to calculate the debt-to-
earnings ratios for each FY. To mitigate issues related to timely
access, the Department will implement the following approach:
For the debt measures calculated for FY 2011, we will
provide for each gainful employment program offered by an institution
the debt-to-earnings ratios for the 2YP covering FYs 2007 and 2008.
Along with the ratio results, we will provide the associated median
loan debt and SSA earnings data (the mean and median annual earnings).
In addition, we will provide the loan repayment rates for each program
for the same two-year period. We intend to provide the ratio results
and underlying data for these FYs to the affected institution and only
for informational purposes. The Department will provide the same data
for each subsequent FY the ratios are calculated.
As discussed more fully under the heading, Draft debt
measures and data corrections (Sec. 668.7(e)), Final debt measures
(Sec. 668.7(f)), and Alternative earnings (Sec. 668.7(g)), the
Department is providing a process under which an institution may
demonstrate that a failing program would satisfy a debt-to-earnings
standard by using alternative earnings data from BLS, a State-sponsored
data system, or from an institutional survey conducted in accordance
with the National Center for Education Statistics (NCES) standards, to
recalculate the debt-to-earnings ratios. These options are responsive
to comments suggesting that the actual earnings give an inaccurate view
of a program and that we allow other data sources to be used for the
earnings calculation.
Under this approach, an institution will have an early view of the
performance of its programs from which
[[Page 34422]]
it can make initial assessments and plans for improving or
discontinuing failing programs. In addition, because a program will not
become ineligible until the Department calculates the debt measures for
FY 2014, the institution will have the SSA data for two additional FYs
(FYs 2012 and 2013) to supplement and better inform its initial
assessments. Moreover, to allow more time for improvements of
potentially failing programs, beginning with the debt measures
calculated for FY 2012, the institution may use alternative earnings
data under the recalculation process described more fully under the
heading, Draft debt measures and data corrections (Sec. 668.7(e)),
Final debt measures (Sec. 668.7(f)), and Alternative earnings (Sec.
668.7(g)) to extend the program's eligibility. The following Table G
illustrates this approach.
BILLING CODE 4000-01-P
[GRAPHIC] [TIFF OMITTED] TR13JN11.018
[[Page 34423]]
BILLING CODE 4000-01-C
A program that fails the debt measures for FYs 2012, 2013, and 2014
becomes ineligible for title IV, HEA funds after the final rates are
released for FY 2014. During this initial three-year window, an
institution may use BLS earnings data to show that the program
satisfies the minimum standards for one of the debt-to-earnings ratios.
Despite our concerns about using BLS data, in view of the commenters'
beliefs that BLS data appropriately provides some certainty to
institutions seeking to evaluate their programs before actual earnings
information is available and mitigates the consequences of employment
choices or the effects of macroeconomic conditions that would otherwise
be adversely reflected in the debt measures, we have established a way
for an institution to use BLS data under the recalculation process for
the initial evaluation period. Doing so provides three more years for
many institutions to acclimate to the use of actual earnings data from
SSA by allowing those institutions to extend the eligibility of an
otherwise failing program to at least FY 2015. For FY 2015, the
students in the 2YP (students who completed a program in FYs 2011 and
2012) would have attended the institution contemporaneously with the
development and publication of these regulations and, therefore, the
``retroactive implementation'' that some commenters identified will
largely be mitigated.
Moreover, an institution may be able to extend the eligibility of a
failing program beyond FY 2015 by using alternative earnings data from
a State-sponsored data system or an NCES-based institutional survey. In
either case, we believe that providing an institution the opportunity
to extend a failing program's eligibility through or beyond the initial
three-year window addresses the commenters' concerns that the
regulations apply to students who have already graduated from or
dropped out of a program.
With regard to the comments that SSA data fail to include
comparable earnings for the self-employed or independent contractors,
we note that there are two SSA files: One that includes only wage
earners and another that provides earnings information on sole
proprietors and independent contractors. SSA will provide combined
earnings information for the debt-to-earnings ratios.
In response to the comment about using ERS data, we note that both
BLS and ERS data are for groups. BLS provides data by occupation and
ERS provides data by the location of the wage earner. It is not clear
how either of these data sources would be better than actual earnings
provided by SSA. While it is possible that a State longitudinal data
system could also provide accurate earnings data, neither ERS nor BLS
would achieve the same coverage or accuracy.
The Department recognizes that some graduates will work part-time,
become unemployed, or opt out of the labor force. As a result, the
actual earnings data regarding a program's graduates are likely to
include some individuals who are not working full-time for the entire
year. However, we believe that actual earnings should be used for the
following reasons. First, the quality of the program may be related to
its graduates' ability to find full-time employment. As a result, when
examining a program that generates an unusually large number of
graduates without full-time employment, it is difficult to separate
individual choices from program performance. Second, the Department
designed the debt-to-earnings ratio to identify programs where the
majority of program graduates are carrying debts that far exceed levels
recommended by experts. If an institution expects a program to generate
large numbers of graduates who are not seeking employment or who are
seeking only part-time employment, it should consider reducing their
debt levels rather than expecting their students to bear even higher
debt burdens. Finally, if a particular programs' loans are affordable,
it should succeed under the repayment test even if many of its
graduates are not working full time.
Changes: None in this section. However, many of the changes in the
final regulations address the issues raised in this section.
Comment: Commenters noted that the Department did not indicate in
the proposed regulations whether earnings data would include some or
none of following: gross income, investment income, income from
earnings, income minus expenses for self-employed individuals, or
reported income.
Some commenters requested that the Department clarify how graduates
with no income data in the SSA records would be treated in calculating
the debt ratios. Other commenters suggested including unemployment
benefits as part of actual average annual earnings.
Some commenters urged the Department to use BLS wage data instead
of actual average earnings from SSA because (1) according to these
commenters, earnings for self-employed individuals are not reported to
SSA, and (2) for a sole proprietorship where the company receives the
income, the employee/owner may receive only a modest salary.
Discussion: In response to the questions and comments about
earnings, the Department will use the data reported by an institution
under Sec. 668.6(a) to compile a list of students who completed a
program at the institution during the applicable two- or four-year
period and submit that list to SSA. Based on the most recent earnings
data available, SSA will provide the Department with the mean and
median annual earnings of the students on that list.
SSA defines a person's earnings for a taxable year as the sum of
pay for services as an employee plus all net earnings from self-
employment (minus any net loss from self-employment). Earnings include:
Most wages from employment covered by Social Security;
All cash pay for agricultural and domestic work, even if
it is not considered ``wages'';
Cash tips which equal or exceed $20 a month from work for
an employer;
All pay for work not covered by Social Security if the
work is done in the United States, including work for Federal, State,
and local units of government; and
All net earnings from self-employment, including those not
covered by Social Security.
SSA data privacy requirements restrict access to earnings on an
individual basis. Therefore, SSA will provide the Department with the
mean and median earnings figures based on all completers. However,
because neither the institution nor the Department has access to the
earnings information for those individuals, the process for correcting
errors is limited to ensuring that the institution provided an accurate
list of program completers, that the list of program completers was
accurate when it was provided to SSA, and that the calculation by SSA
was made for those individuals. With respect to any concerns that the
earnings information maintained by SSA is not accurate, it is the
earnings information reported to the Federal government that is
gathered, maintained and disseminated under strict legal standards to
ensure its accuracy, quality, objectivity, utility, and integrity. SSA
will provide safeguards pursuant to section 6103(p)(4) of the Internal
Review Code of 1986, as amended (IRC) for all Federal returns and
return information received from taxpayers and the Internal Revenue
Service (IRS). Contractors receiving returns or return information from
the SSA pursuant to section 6103(l)(5) of
[[Page 34424]]
the IRC, in conjunction with section 6103(n) or (m)(7) of the IRC, are
also subject to the safeguard provisions in section 6103(p)(4) of the
IRC. In addition, SSA employees, and contractors employed under section
6103(l)(5) of the IRC, in conjunction with section 6103(n) or (m)(7) of
the IRC, are subject to criminal and civil penalties imposed by
sections 7213, 7213A, and 7431 of the IRC. SSA will ensure that all
uses and redisclosures of tax information will be in compliance with
the appropriate disclosure authorities.
These legal standards also include compliance with the requirements
of the Information Quality Act (IQA) (section 515 of the Treasury and
General Government Appropriations Act for FY 2001 (Public Law 106-
554)), which obligates Federal agencies, including the SSA (see http://www.ssa.gov/515/ssaguidelines.html), to disseminate information in a
manner that complies with the IQA. We are not aware of any authority
that requires or even allows the Department to question the quality,
objectivity, utility, and integrity of SSA's information under the
provisions of the IQA or otherwise. Further, these data are used today
by families to complete the Free Application for Federal Student
Assistance and are considered as accurate income information for the
purpose of determining aid eligibility. Therefore, the Department
accepts this information as reliable, and limits corrections to the
list of individuals for whom SSA calculates mean and median earnings.
However, the Department has created an opportunity for institutions to
provide alternative reliable earnings information, including BLS data
(see discussion under the heading, Draft debt measures and data
corrections (Sec. 668.7(e)), Final debt measures (Sec. 668.7(f)), and
Alternative earnings (Sec. 668.7(g)).
With respect to the use of SSA data, we also wish to clarify that
the data used will be for all program completers not just those
receiving title IV, HEA program aid. Through these final regulations,
the Department is establishing standards to determine the eligibility
of a gainful employment program. These standards include calculating
the median loan debt for all students enrolling in a program, including
students who are not receiving title IV, HEA program funds. These
students may be covering tuition costs from savings or scholarships, or
their tuition may be paid by an employer, or through private
educational loans that would be tracked by an institution and reported
to the Department. We are therefore requiring institutions to collect
this information and report it to the Department as a part of the
determination of whether the gainful employment program is eligible for
title IV, HEA program funds.
Changes: None.
Comments: Some commenters suggested that the Department adjust the
SSA data because the actual income of students for the first three
years after graduation does not provide a good or reliable measure of
their overall salary levels. For example, many students graduate from
school mid-year, many students may not be fully employed in their first
year for numerous reasons unrelated to the quality of their programs,
or there may be a sharp downturn in an economic sector or geographic
region. Because institutions would bear the full risk that earnings
will be under-reported in these circumstances, the commenters urged the
Department to annualize the wage data.
Other commenters believed the proposed metrics should take into
account high unemployment and underemployment rates by (1) not applying
the metrics until the State or regional unemployment rate applicable to
the institution (relevant unemployment rate) returns to the level
existing on January 1, 2008 or some other earlier date preceding the
start of the current economic malaise (reference date), or (2)
adjusting the upper thresholds of the loan repayment rate and debt-to-
earnings ratios to reflect the percentage change in the relevant
unemployment rate since the reference date. For example, if the
relevant unemployment rate is now 12 percent and it was 8 percent on
the reference date, it has increased by 50 percent so the lowest
acceptable loan repayment rate should be decreased by 50 percent from
35 percent to 17.5 percent and the maximum debt-to-earnings threshold
should be increased from 12 percent to 18 percent and from 30 percent
to 45 percent.
Similarly, other commenters believed that the Department should
have a mechanism for considering the current economic conditions when
determining the impact of repayment rates and debt-to-earnings results.
The commenters recommended that the Department suspend or adjust the
gainful employment calculations when the national unemployment rate is
above seven percent, and suspend the regulations for States or regions
that have more than a seven percent unemployment rate even when the
national rate is less than seven percent.
Some commenters stated that a 10 percent unemployment rate and
stagnant job growth may be a more important cause of a program's
failure to satisfy the proposed metrics than the quality of the
program. The commenters cautioned that further analysis is needed to
gauge the impact of normal economic cycles on metrics used to determine
program eligibility.
Other commenters believed that institutions would be
inappropriately penalized when employment in a field is suddenly and
adversely affected by regional economic downturns and when recently
placed graduates refuse, or are economically unable, to relocate.
Discussion: In view of the suggestions to somehow adjust the debt
measures to account for high unemployment or underemployment, we will
use the higher of the mean or median annual earnings obtained from SSA
to calculate the debt-to-earnings ratios. All things equal, the value
of mean or median earnings is distribution dependent. In a prosperous
economy where fewer people are unemployed and earnings are generally
higher, average earnings are likely to be higher than median earnings.
Conversely, during an economic downturn where more people are
unemployed and earnings are depressed or stagnant, median earnings are
likely to be higher than average earnings.
Programs that prepare students for jobs that suddenly become
unavailable in a local community may begin to fail the debt measures
unless the institution adjusts quickly to labor market conditions. By
allowing programs to remain eligible until they have failed both
measures three out of four FYs, the Department provides time for
successful programs to adjust to market conditions.
Changes: Section 668.7(c)(3) has been revised to provide that the
Department will obtain from SSA the most currently available mean and
median annual earnings of the students who completed a program during
the 2YP, the 2YP-R, the 4YP, or the 4YP-R. We will use the higher of
the mean or median annual earnings to calculate the debt-to-earnings
ratios.
Comment: Some commenters argued that program completers who are
employed in mainly cash businesses, such as massage therapy and
cosmetology, should not be included in the debt-to-earnings
calculations because they may not fully report earnings to the IRS.
Although the commenters did not condone the failure of individuals to
report earnings accurately, they cited studies illustrating the
magnitude of unreported or underreported earnings and urged the
[[Page 34425]]
Department to acknowledge this ``underground'' economy when formulating
the debt-to-earnings ratio it will use as a measure of program quality.
The commenters believed that using BLS earnings data, instead of actual
reported earnings, would reduce the impact of program completers who do
not report their full income.
Discussion: The Department does not condone any practice or
behavior that leads to underreporting of earnings and will not
otherwise encourage this behavior by adjusting SSA earnings. However,
for a failing program, the Department provides flexibility for an
institution to use alternative earnings data under the recalculation
process (see the discussion under the heading, Draft debt measures and
data corrections (Sec. 668.7(e)), Final debt measures (Sec.
668.7(f)), and Alternative earnings (Sec. 668.7(g)).
Changes: None.
Comment: With regard to the proposed debt measure based on
discretionary income, some commenters recommended that the measure
account for family size. The commenters noted that a family of one
earning $33,000 a year would have $16,800 in discretionary income, but
a family of four with the same income would have no discretionary
income. Because 48 percent of all undergraduates at for-profit
institutions have dependent children, and 28 percent have at least two
children, the commenters suggested that the Department adjust the
measure for family size to reflect the real burden on families with
children by (1) determining discretionary income based on a family size
of two instead of one, (2) limiting the use of the discretionary income
measure to programs whose graduates have average earnings sufficiently
high to guarantee that a family's basic expenses could be met,
regardless of family size, or (3) eliminating the discretionary income
measure entirely to avoid leaving families with children unprotected.
On the other hand, some commenters believed that this measure
improperly failed to consider total family income, most notably,
spousal income.
Discussion: We do not believe that it would be feasible to account
for family size in calculating the debt-to-earnings ratio based on
discretionary income. The Department will not have information about
the current or future family size of students who complete a program.
The Department cannot adopt the commenters' alternate suggestion to use
a family size of two, instead of one, because we will not have
information about the earnings for any other member of the family, or
whether there is another family member.
Changes: None.
Alternative Metrics
Comment: Some commenters argued that the proposed gainful
employment metrics evaluate only one aspect of the quality of
programs--whether a student's initial debt burden was reasonable--but
fail to account for other longstanding measures of program quality or a
student's long-term return on his or her educational investment. The
commenters believed that structuring regulations in this manner may
discourage institutions from offering training in jobs with the
potential for long-term salary growth for fear of losing program
eligibility. For example, according to the commenters, based on BLS
data, entry-level salaries for graduates from programs for auto
technicians range from $19,840-$25,970. According to the commenters,
salaries for auto technicians may have long-term growth potential
because it can take a technician 2 to 5 years after graduation to
become fully qualified. Mastering additional complex specialties also
requires the technician to have years of experience and advanced
training. Applying the proposed gainful employment measures to these
programs may prevent students from pursuing training in these necessary
fields. The commenters offered that a more reasonable measure of the
quality of an educational program would be the student's return on
investment (ROI), not a first-year debt service calculation. The
commenters argued that a student's initial capacity to service debt
should be one consideration in judging educational program quality but
is not the essential metric, and that the analysis of a program should
also take into account a student's potential long-term benefits and
earnings.
Other commenters believed that, according to finance theory, the
only correct method for determining the value of a program would be a
Net Present Value (NPV) approach that considers the present value of
all incremental lifetime earnings stemming from the program and the
present value of the total costs of the program. The commenters
contended that even if it were economically rational to base the
regulations on a non-NPV approach, the proposed regulations are
economically irrational because the debt-to-earnings and loan repayment
tests are based on arbitrary three- and four-year evaluation periods
that are too short to fairly reflect the benefits of education.
Some commenters suggested a variety of alternatives to the proposed
gainful employment regulations including using retention rates,
employment/job placement rates adjusted for local and economic
conditions, and completion and CDRs. Other commenters believed there
was no need to further define gainful employment because (1) national
accrediting agencies require that the majority of students graduate and
find jobs in the field in which they were trained, or (2) students who
pass State licensing examinations are gainfully employable. Some
commenters suggested that the Department require for-profit
institutions to refund 100 percent of the student loans for students
who drop out of a program, or not impose penalties on institutions that
make those refunds.
Other commenters suggested that the Department use a composite
score based on default, graduation, and placement rates. The commenters
argued that institutions with exceptional, industry-determined rates
have proven their success in providing quality education and therefore
should be allowed to continue serving their students without
impediments. The commenters noted that Congressman Robert Andrews
pioneered a composite index in the 1990s and suggested using default,
graduation, and placement rates along with the number of Pell Grant
recipients to determine an overall score for an institution. According
to the commenters, factoring in Pell Grant information would
acknowledge the unhappy truth that impoverished students are less
likely to complete higher education programs. To avoid punishing
schools for accepting these students into their programs, the
commenters suggested that the Department use a sliding scale, or
``grading on a curve'', that would help to equalize the additional
difficulties faced by lower socioeconomic students.
Some commenters supporting the composite index approach suggested
weighting the placement rate at 50 percent, the CDR at 30 percent, and
the graduation rate at 20 percent. These commenters also believed that
the index would need to be adjusted to reflect the number of Pell
Grant-eligible students at an institution. The commenters argued that
the composite index approach is superior to the proposed debt approach
in the following ways. First, the composite index would not rely on one
characteristic (debt load) or a complex loan repayment rate, but on a
number of outcomes, most importantly the employment of graduates.
Second, the index could be implemented readily since cohort default and
graduation
[[Page 34426]]
rates are already tracked by the Department, and the great majority of
for-profit colleges already track student placement. Third, this
approach is analogous to the currently used financial responsibility
composite score that integrates a basket of three financial measures
into one index. Finally, it measures outcomes at the institutional
level, rather than the program level, which introduces complexity and
difficulty in implementing a gainful employment standard. The
commenters stated that the index approach could be implemented
relatively rapidly without disrupting the market and risking unintended
consequences. If the metrics need refinement, the commenters offered
that the Department could implement the index, and over the next 36
months (1) redefine how default rates are measured (potentially moving
to measuring the repayment of principal in dollars), (2) redefine how
graduation rates are measured (potentially moving to track all
students), or (3) apply the index at the program level after the
relevant information is gathered and analyzed.
Discussion: While we appreciate the suggestion to incorporate a
return on investment calculation into the measures, we believe there
are significant theoretical and practical reasons for not doing so.
Commenters noted that finance theory dictates an NPV approach for
determining the value of a program offered by an institution. To be
sure, an NPV approach helps to distinguish among competing investment
opportunities. However, inherent in an NPV calculation is a specified
discount rate so that all future cash flows (income as well as
expenses) can be described in terms of present-day values. Thus the
selection of an appropriate discount rate is key to this calculation.
Those with experience in making investment decisions are likely to have
a good understanding of their own discount rates. This cannot be said
for those with limited or no experience in such matters. If the
Department were to incorporate an NPV calculation into the measures, we
would have no basis for establishing a discount rate for borrowers who
make personal investment decisions with respect to pursuing
postsecondary education programs.
The Department agrees that there are long-term benefits, in
particular with respect to increased lifetime earnings, for those with
formal education or training beyond high school. We know from The
National Longitudinal Survey of Youth conducted by BLS that the length
of time an employee remains with the same employer tends to be shorter
for younger workers and that the average worker will have about 11
different jobs in the first 25 years of his or her working lifetime.
However, we are unaware of any ongoing, long-term tracking of work-life
earnings by specific occupation. Thus, we lack a means for measuring
actual long-term benefits and earnings by occupation.
We likewise appreciate the suggestions to use retention rates,
employment/job placement rates, and completion and CDRs as alternative
measures to the proposed measures. While these are all valid and useful
indicators for specific purposes, they do not directly measure whether,
or the extent to which, a student benefits from taking a program
intended to provide gainful employment. For example, placing a student
in a job related to the training provided by a program is a good
outcome, but without considering the student's earnings it is difficult
to say whether the student made a worthwhile investment in taking the
program or whether the student has sufficient earnings to make monthly
loan payments. Moreover, the specific indicators suffer from important
shortcomings: Default rates measure only a portion of the borrowers who
have had difficulty repaying their loans, the statutory definition of
graduation rate excludes transfer and part-time students, and placement
rates are defined differently by accrediting agencies and States.
Although the concept of a composite index is compelling, the suggested
index uses some of the same indicators, which in our view fall short of
directly evaluating gainful employment. That aside, applying a
composite index at the institutional level would mask poor-performing
programs because only the overall performance of the institution, not
each program, would be evaluated. Moreover, if the institution's
overall performance is subpar, the composite index would jeopardize the
eligibility of the entire institution. By using purpose-built measures
applied at the program level, these regulations effectively target
poor-performing programs without necessarily placing the entire
institution at risk because only those programs become ineligible for
title IV, HEA funds.
Changes: None.
Small Numbers (Sec. 668.7(d))
Comment: Some commenters argued that program closures would be
harmful to students, especially if the loan repayment rate is based on
a small sample of borrowers. Similarly, other commenters requested that
the Department clarify how the debt-to-earnings ratios would be
calculated for a small number of program completers.
Discussion: We agree that a program with a small number of
borrowers or completers should not lose its title IV, HEA program
eligibility based on its small numbers and have adopted in Sec.
668.7(d) the standard under the CDR provisions in Sec. 668.197
relating to treatment of institutions with 30 or fewer borrowers.
Changes: See the changes described under the heading, Definitions.
Draft Debt Measures and Data Corrections (Sec. 668.7(e)), Final Debt
Measures (Sec. 668.7(f)), and Alternative Earnings (Sec. 668.7(g))
Comment: Some commenters noted that in the Cohort Default Rate
(CDR) Guide, the Department provides institutions with procedural
rights to review and challenge NSLDS data that they believe is
inaccurate. The commenters recommended that the Department provide a
similar correction and appeal process for an institution that fails to
meet the gainful employment standards. Another commenter recommended
that the Department include additional regulatory language that would
(1) define an institution's right to appeal inaccurate data and include
a reasonable time for an institution to review the Department's data,
and (2) establish a process by which an institution is allowed to
review and correct data to ensure inaccurate data is not released to
the public.
Other commenters believed that the proposed regulations did not
provide a meaningful way for an institution to appeal or contest the
use of SSA wage data. The commenters suggested that the Department
include a provision that accounts for mitigating circumstances beyond
an institution's control that affect earnings data and allows the
institution to present data demonstrating the long-term salary
potential of its program completers.
Some commenters urged the Department to return to the approach
proposed during negotiated rulemaking under which the debt-to-earnings
ratios would be calculated by using the higher of BLS earnings data or
actual earnings of graduates. Specifically, some of the commenters
requested that the Department use the higher of: (1) The most current
BLS national or regional earnings data at the 50th percentile for
persons employed in occupations related to training provided by a
degree program and the most current BLS national or regional earnings
data at the 25th percentile for persons employed in occupations related
to training provided
[[Page 34427]]
by a non-degree program; or (2) actual earnings data submitted by the
institution that demonstrate a substantial number of students who
completed the program during the three-year period had earnings, from
occupations related to the training provided by the program, that are
higher than the BLS earnings data. The commenters recommended using BLS
wage data because actual earnings data fail to capture wages in the
occupation or occupations for which the program provided training to
students. Under the commenters' approach, institutions would also have
the opportunity to submit to the Department actual earnings data that
they collect about students in a relevant occupational field. In
addition, the commenters believed that a modest adjustment to the
Department's negotiated rulemaking proposal would be necessary to
account for inherent differences in the amount of debt that students in
degree programs have compared to students in non-degree programs. The
commenters argued that the inherently higher debt burden for students
in degree programs is not offset by initial earnings immediately after
students graduate because degree students are making a lifetime
investment in their future. According to the commenters, BLS earnings
data at the 50th percentile properly reflect this lifetime investment
decision.
Commenters argued that the proposed debt-to-earnings calculations
do not adequately take into account external factors that may affect
earnings of program graduates. For example:
A 10 percent unemployment rate and stagnant job growth may
contribute more to a program's failure to satisfy the proposed metrics
than the quality of the program. The commenters cautioned that further
analysis is needed to gauge the impact of normal economic cycles on
metrics used to determine program eligibility.
For the three-year cohort of program completers, only the
most recent annual earnings are used to calculate the debt-to-earnings
ratios. However, completers in the cohort could work full-time for two
years and then due to economic conditions may be able to work only
part-time or may choose to work part-time.
Using actual earnings data places on the institution all
of the risk that students may underreport income to the Federal agency.
In view of these factors, the commenters suggested that the
regulations provide for mitigating circumstances or allow institutions
to use BLS data to comply with the debt-to-earnings metrics.
Discussion: We are persuaded that an institution should be able to
correct the data used to calculate the debt-to-earnings and loan
repayment rates for a program to determine with certainty whether the
program meets the minimum standards and to guard against requiring
institutions to publicly disclose incorrect rates. As suggested by the
commenters, we are adopting a data challenge and correction process in
these final regulations that is similar to the process used for CDRs.
We also agree that an institution should be able to use
alternative, but reliable, earnings data to demonstrate that a program
meets the minimum standards for the debt-to-earnings ratios. The data
collected by SSA is used to determine the amount of Federal benefits
that a wage earner will ultimately be eligible to receive. The data
collected also are used as a primary source for earnings information
for Federal income tax purposes. As a result, the data are extremely
accurate and likely will be the best source of income data. The data
the SSA collects, maintains, and disseminates is compliant with the
requirements of the IQA. Therefore, the Department accepts this
information as reliable, and in these final regulations will limit
corrections to the list of individuals for whom SSA calculates mean and
median earnings.
However, we understand that institutions will not have access to
individual wage records maintained by the SSA. As a result, to provide
institutions with additional assurance on the accuracy of the data and
to provide greater flexibility for institutions, the Department will
accept alternative reliable earnings data on a particular program's
graduates from State longitudinal data systems and from institutional
surveys conducted in accordance with NCES statistical standards.
In addition, the Department understands that data on typical
earnings by occupation are already available from BLS, while SSA data
will not be available for a number of months. Making earnings data
available now will help institutions analyze the impact of the
regulations on their programs and set targets for improvement. As a
result, the Department is prepared to accept BLS earnings data under
certain circumstances for debt measures calculated for FYs 2012, 2013,
and 2014.
Under Sec. 668.7(e), Draft debt measures and data corrections, we
establish a two-step process whereby an institution first corrects
information about the students that will be included in the draft debt-
to-earnings ratios (pre-draft corrections) and then corrects
information about borrowers and loan amounts after the Department
issues draft debt measures (post-draft correction process).
In the pre-draft corrections process, an institution will be able
to review and correct the information about the students that the
Department intends to use to calculate the draft debt-to-earnings
ratios. For each FY beginning with FY 2012, we will provide to the
institution for each program a list of the students in the applicable
two- or four-year period. Those lists will be based initially on the
information provided by the institution under the program reporting
requirements in Sec. 668.6(a) but may be revised by the Department to
account for students who are excluded from the ratio calculations under
Sec. 668.7(c)(5). We will identify the students that we exclude. After
the lists are made available, the institution will have 30 days to
provide evidence identifying the students who should be included on or
removed from the list and to otherwise correct or update the identity
information provided by the Department about each student. The
institution may not correct any information about the students on a
list after this 30-day period. If the information provided by the
institution is accurate, that information is used to create the final
list of students that the Department submits to SSA. The Department
will calculate the draft debt-to-earnings ratios based on the mean and
median earnings provided by SSA for the students on the final list.
However, the institution may not challenge the accuracy of the mean or
median annual earnings the Department obtained from SSA to calculate
the draft debt-to-earnings ratios for the program.
We are establishing this process to make certain that the list
identifying the students in the applicable two- or four-year period is
accurate before transmitting the list to SSA. As discussed earlier in
this preamble, SSA will perform an identity match to ensure that the
earnings data it maintains are properly associated with the individuals
on the list. In cases where the identity match fails, SSA will exclude
those students from its calculation of the mean and median earnings for
the program. Where these instances arise or for any other reason that
SSA excludes students, the Department will adjust the median loan debt
to compensate for the loss of earnings of the excluded students. Based
on the Department's experience matching to SSA to determine student
eligibility, we anticipate that identity mismatches or
[[Page 34428]]
other exclusions by SSA will be very limited--less than 2 percent of
all students submitted to SSA. As a result, these mismatches will not
materially impact the debt-to-earnings ratios for most programs.
Therefore, as a practical matter we will limit the median loan
adjustment to failing programs that have at least one mismatch. In
these cases small variations in the ratio results could be the
difference between a program failing and passing the measures. The
Department will adjust the median loan debt for the program by removing
the highest loan debt associated with the number of students excluded
by SSA. For example, SSA excludes four students from the calculation.
The Department identifies the students on the list with the highest
loan debts and removes those four students from the calculation of the
median loan debt for the program. We would then use the adjusted median
loan debt to recalculate the debt-to-earnings ratios for the program.
In the post-draft corrections process, for each FY beginning with
FY 2012, we will notify an institution of the draft results of the debt
measures for each of its programs. No later than 45 days after the
Department issues the draft results, the institution may challenge the
accuracy of the loan data for a borrower that was used to calculate the
draft loan repayment rate, or the median loan debt for the program that
was used for the numerator of the draft debt-to-earnings ratios. To
challenge the information, the institution must submit evidence showing
that the borrower loan data or the program median-loan debt is
inaccurate. For the draft loan repayment rate, the institution may also
challenge the accuracy of the list of borrowers included in the
applicable two- or four-year period used to calculate the draft loan
repayment rate by submitting evidence showing that a borrower should be
included on or removed from the list, or by correcting or updating the
identity information provided for a borrower on the list, such as name,
social security number, or date of birth.
If the updated information provided by the institution is accurate,
the information is used to recalculate the debt measures for the
program. Like the CDR data challenges and appeals, no sanctions will be
imposed on an institution during this corrections process.
We note that the 45-day correction period under the post-draft
corrections process begins on the date the Department issues a
particular draft result. For example, we may issue a draft loan
repayment rate for a program on May 1 but not issue the draft debt-to-
earnings ratios for that program until June 1. The 45-day correction
period for the loan repayment rate would start on May 1 and a separate
45-day period for the debt-to-earnings ratios would start on June 1.
In Sec. 668.7(f), Final debt measures, we specify that the
recalculated debt measures, and any draft debt measures that are not
challenged or are unsuccessfully challenged, become the final debt
measures for the program. The Secretary will notify the institution of
these final debt measures.
Under Sec. 668.7(g), Alternative earnings, we provide that an
institution may recalculate the final debt-to-earnings ratios for a
failing program to show that the program would meet a debt-to-earnings
standard by using the median loan debt for the program and alternative
earnings data from: A State-sponsored data system, an institutional
survey conducted in accordance with NCES statistical standards, or BLS.
State data. An institution may recalculate the final debt-to-
earnings ratios under Sec. 668.7(g)(2) using State data only if the
institution obtains earnings data from State-sponsored data systems for
more than 50 percent of the students in the applicable two- or four-
year period, or a comparable two- or four-year period, and that number
of students is more than 30. The institution must use the actual,
State-derived mean or median earnings of the students in the applicable
two- or four-year period and demonstrate that it accurately used the
actual State-derived data to recalculate the ratios.
Currently, only about half of the States have longitudinal data
systems and those systems track employment outcomes only for students
who find jobs within a State. Consequently, it may be difficult for an
institution to obtain State earnings data if it offers a program in
several States or in States with no data systems or if its program
graduates find employment outside the State in which the institution is
located. Although we expect more States to implement these systems, to
make it easier for an institution to use data from multiple State
systems under this alternative:
(1) The regulations provide that the institution must obtain State
earnings data for the majority of the students who completed a program
(more than 50 percent), not for all the students who completed the
program during the applicable two- or four-year period.
(2) For students who find employment in a State outside the State
in which the institution is located, the institution may enter into an
agreement with the other State in which the student is employed to
obtain earnings data for those students, if the other State agrees to
provide the data.
Survey using NCES Standards. An institution may also recalculate
the final debt-to-earnings ratios for a failing program under Sec.
668.7(g)(3) using reported earnings obtained from an institutional
survey conducted of the students in the applicable two- or four-year
period, or a comparable two- or four-year period, only if the survey
data is for more than 30 students. The institution may use the mean or
median annual earnings derived from the survey data. In addition, the
institution must submit (1) a copy of the survey and certify that it
was conducted in accordance with the statistical standards and
procedures established by NCES and available at http://nces.ed.gov, and
(2) an examination-level attestation by an independent public
accountant or independent governmental auditor, as appropriate, that
the survey was conducted in accordance with the specified NCES
standards and procedures. The attestation must be conducted in
accordance with the general, field work, and reporting standards for
attestation engagements contained in the GAO's Government Auditing
Standards, and with procedures for attestations contained in guides
developed by and available from the Department of Education's Office of
Inspector General. The attestation is required to ensure that the
survey was conducted properly, which allows for a more expedited review
by the Department of the institution's recalculation submission.
The NCES standards were last revised in 2002. They comprise the
statistical standards and guidelines for NCES, the principal
statistical agency within the U.S. Department of Education. NCES'
primary goal in establishing these standards was to provide high
quality, reliable, useful, and informative statistical information to
public policy decision makers and to the general public. In particular,
the standards and guidelines described in the following paragraphs are
intended for use by NCES staff and contractors to guide them in their
data collection, analysis, and dissemination activities. The standards
and guidelines serve to provide a clear statement for data users
regarding how data should be collected in NCES surveys and the limits
of acceptable applications and use.
In establishing the standards and guidelines, NCES articulated a
view that other organizations involved in similar public endeavors
would find the standards and guidelines useful in their work as well.
Accordingly, we believe
[[Page 34429]]
that the application of this existing standard is appropriate given the
need for high-quality data on earnings to use as an alternative source
for earnings data.
In evaluating whether an institution has met the statistical
standards and guidelines, the Department will look to determine
particularly whether the institution met the NCES standard related to
response rate. The purpose of this standard is to specify design
parameters for survey response rates. The following is a summary of the
key elements of the NCES response rate standard. High survey response
rates help to ensure that the results are representative of the target
population. Surveys conducted by or for an institution must be designed
and executed to meet the highest practical rates of response and to
ensure that nonresponse bias analyses are conducted when response rates
suggest the potential for bias to occur.
When an institution collects data from all program completers--a
universe data collection--it must be designed to meet a target unit
response rate of at least 95 percent. A unit-level nonresponse bias
analysis is recommended in the case where the universe survey unit
response rate is less than 90 percent. When an institution conducts a
sample survey, a unit response rate must be calculated without
substitutions (see NCES Standard 1-3). A sample survey data collection
must be designed to meet unit-level response rate parameters that are
at least consistent with historical response rates from surveys
conducted with best practices. The following parameters summarize
current NCES historical experiences: For longitudinal sample surveys,
the target school-level unit response rate should be at least 70
percent. In the base year and each follow-up, the target unit response
rates at each additional stage should be at least 90 percent. For
cross-sectional samples, the target unit response rate should be at
least 85 percent at each stage of data collection.
Sample survey data collections must be designed to meet a target
item response rate of at least 90 percent for each key item. For the
purposes of meeting the requirements related to gainful employment,
items related to placement and earnings would be considered key items.
A nonresponse bias analysis is required at any stage of a data
collection with a unit response rate less than 85 percent. If the item
response rate is below 85 percent for any items used in a report, a
nonresponse bias analysis is also required for each of those items
(this does not include individual test items). The extent of the
analysis must reflect the magnitude of the nonresponse. In longitudinal
sample surveys, item nonresponse bias analyses need only be done once
for any individual item, unless there is a substantial deterioration in
the item response rate.
BLS Data. An institution may also recalculate the debt-to-earnings
ratios under Sec. 668.7(g)(4) using BLS earnings data only if the
institution identifies and provides documentation of the occupation by
SOC code, or combination of SOC codes, in which more than 50 percent of
the students in the 2YP or 4YP were placed or found employment, and
that number of students is more than 30. The institution may use
placement records it maintains to satisfy accrediting agency or State
requirements if those records indicate the occupation in which the
student was placed. Otherwise, the institution must submit employment
records or other documentation showing the SOC code or codes in which
the students typically found employment.
For the identified SOC code or codes, the institution must use the
most current BLS earnings data to calculate the debt-to-earnings ratio.
If more than one SOC code is identified, the institution must calculate
the weighted average earnings of those SOC codes based on BLS
employment data or institutional placement data. In either case, the
institution must use BLS earnings at no higher than the 25th
percentile.
With regard to the 50 percent requirement, we believe that the BLS
earnings data associated with the SOC codes must represent the majority
of students that were placed or found employment to be used as an
adequate proxy for the actual earnings of the program's graduates. For
this reason, the Department may require the institution to submit all
the placement, employment, and other records maintained by the
institution for the program that the institution examined to determine
whether those records identified the SOC codes for the students who
were placed or found employment. In addition, for the same reasons we
do not calculate debt measures for programs with small numbers of
borrowers or completers, an institution may not use the BLS data-based
recalculation if 30 or fewer of the program's graduates were placed or
found employment during the applicable two- or four-year period.
Finally, for the reasons discussed under the heading, Actual
earnings from SSA and Bureau of Labor Statistics (BLS) wage data, an
institution may recalculate the ratios using BLS data only for FYs
2012, 2013, and 2014.
Under Sec. 668.7(g)(5), an institution must notify the Department
of its intent to use alternative earnings no later than 14 days after
the date the institution is notified of its final debt measures and
must submit all supporting documentation related to the recalculation
of the debt-to-earnings ratios using alternative earnings no later than
60 days after the date the institution is notified of its final debt
measures. Pending the Department's review of the institution's
recalculation, the institution is not subject to the requirements
arising from the program's failure to satisfy the debt measures,
provided the submission was complete, timely, and accurate. If we deny
the submission, we will notify the institution of the reasons for the
denial. If the Department approves the institution's submission, the
recalculated debt-to-earnings ratios become final for that FY.
Changes: New Sec. 668.7(e), (f), and (g) have been added to
provide for the data corrections, draft debt measures, final debt
measures, and alternative earnings processes described in the
Discussion section.
Debt Warning Disclosures (Sec. 668.7(j))
General
Comment: Commenters raised a number of concerns and questions
regarding the debt warning disclosures described in proposed Sec.
668.7(d). First, commenters asked the Department to clarify whether the
prominent warning referenced in paragraph (d)(1) and the disclosure of
repayment rates and debt-to-earnings measures referenced in paragraph
(d)(2) applied to programs or institutions. The commenters believed
that the proposed regulations could be interpreted to require
disclosures for all programs and warnings for specific programs or to
require disclosures and warnings for only restricted programs. Second,
commenters questioned whether the debt warning disclosures should be
included with, or made separately from, all other required disclosures,
and whether enrolled students should be notified annually or only when
a program is in restricted status. Third, some of the commenters
requested additional information about the types of institutional
materials that would have to contain the warnings. Giving the example
of an institution that provides numerous programs, only some of which
are subject to the debt warning disclosures, the commenters questioned
whether the institution would have to list the programs subject
[[Page 34430]]
to the disclosures in all of its promotional, enrollment, registration,
and other materials. Other commenters recommended that the Department
revise the regulations to clarify that the warnings must be placed on
all institutional materials that pertain to any program required to
provide a debt warning. These commenters asked the Department to
clarify the meaning of a ``prominent warning'' and whether the warning
would have to be on every page of an institution's Web site or only on
the institution's homepage.
Some commenters expressed concern that institutions would try to
hide the required disclosures within their institutional materials and
Web sites and suggested that the Department provide more specificity in
the final regulations about the format and content of the disclosures
to prevent this outcome.
Some commenters asked the Department to clarify the phrase
``admissions meetings'' and the types of interactions these meetings
would include. Some of these commenters believed that this term could
be interpreted to mean only in-person meetings and recommended
specifying that in-person meetings and online or telephonic
communications would all be covered under this phrase.
To improve the clarity of the regulations, commenters recommended
technical changes such as changing the title of the paragraph from
``debt warning disclosures'' to ``debt warnings and disclosures.''
These commenters argued that the suggested phrase would more accurately
describe the substance of the requirements. The commenters further
noted that it is appropriate to separate warnings and disclosures
because the two are very different in nature: disclosures can provide
information without judgment, while warnings can provide important
context about what the information means.
Commenters also asked the Department to clarify the relationship
between the proposed disclosure requirements and other disclosure
requirements under the title IV, HEA regulations.
Discussion: See the discussion under the heading, Implementation
date.
Concerns About Properly Disclosing the Debt Warnings
Comment: Some commenters supported our proposal to require debt
warning disclosures. These commenters believed that the disclosures
would help to ensure that prospective and enrolled students have
adequate information to make decisions about where to pursue a program
of study. However, the commenters believed that the proposed regulatory
language was ambiguous, raising concerns that institutions would
attempt to circumvent the regulations by (1) not providing students
with enough contextual information to fully understand the meaning of a
debt warning disclosure, (2) using language that would not be easily
understood by prospective or enrolled students, or (3) manipulating the
timing or delivery of the debt warning disclosures to pressure students
to enroll. Specifically, the commenters were concerned that the
proposed requirements would allow institutions to include only a bare
minimum of information in the debt warning disclosure and that this
information would not clearly convey to a student the risks of
borrowing to attend a particular program.
To address the first issue, the commenters recommended that the
Department require institutions to be more specific about a program's
actual status. According to the commenters, this would help to ensure
that students would have as much information as possible about the
status of the program in which they were enrolling and of the potential
impact that status could have on the student's Federal financial aid.
The commenters believed that using this approach would better inform
student choices about what programs to attend and would also encourage
students to compare different programs. Some of the commenters
suggested that, to facilitate student analysis of different programs,
institutions' debt warning disclosures should also direct students to
the Federal Web site http://www.collegenavigator.gov, which provides a
comparison of college costs and programs. Similarly, other commenters
recommended that the Department create a Web site that would list
programs that are in compliance with the Federal requirements and
programs that are not, thereby allowing students to compare programs at
different educational institutions. These commenters recommended
requiring institutions to include a reference to this Web site on the
debt warning disclosure to ensure that students are aware of
alternative school options, asserting that, as a result of marketing
and sales strategies of some institutions, a student may erroneously
believe that a particular school is unique in providing the flexibility
or curricular training that the student needs.
With respect to the second issue regarding ensuring clarity and
accessibility of the debt warning disclosure, commenters agreed that
the Department should require that the language used in disclosures be
as transparent as possible. However, there was disagreement among these
commenters about how prescriptive the Department should be. Some of the
commenters believed that it would be sufficient for the Department to
specify the minimum content that must be included in a debt warning
disclosure but that institutions should develop the disclosures. These
commenters recommended that the Department develop and circulate
examples of the language that could be used by institutions in lieu of
mandating specific wording. They asserted that this would protect
students by creating a minimum threshold for the types of information
that must be included in the debt warning disclosures so that
institutions would not have an opportunity to leave out important
content, but would still provide necessary flexibility for
institutions. Some of the commenters recommended that institutions be
allowed to add context, such as the percentage of borrowers in a given
program of study, to the disclosures to give students a better
understanding of the rates. The commenters pointed out that a very
small population of borrowers could dramatically skew the rates at an
institution and stated that institutions should have the opportunity to
explain this anomaly to prospective and current students. However, the
commenters recommended that the Department monitor institutions
providing this type of contextual information closely and strictly
enforce existing regulations on misrepresentation.
Another group of commenters believed that the Department should be
far more prescriptive in mandating the content, format, and location of
the debt warning disclosures to limit institutions' ability to mislead
students. In making these recommendations, some of these commenters
noted that other agencies, such as the Federal Reserve Board, have
prescribed specific formatting and layout standards for disclosure
requirements, and they believed that the Department should adopt a
similar approach. Some commenters recommended that the Department
develop, through a collaborative process with students and institutions
designed to determine the most effective language and delivery mode, a
standardized disclosure form that explains to students the risks they
face in choosing to attend a school that has failed to meet the
Department's debt thresholds and advises students to enroll in a school
that is in compliance with those thresholds.
Additionally, commenters stressed that the Department should
require that
[[Page 34431]]
debt warning disclosures be made in understandable, plain English to
ensure that the information is accessible to students and consumers.
Some of these commenters further recommended that the Department
require institutions to provide, to the extent practicable, the debt
warning disclosures in a language or at a level that students can
understand to ensure that students are not misled by the disclosures
because they cannot fully access their meaning.
Some of the commenters also suggested that the Department require
institutions to not only disclose the program's most recent loan
repayment rate and debt measures, but also to define a ``loan repayment
rate'' and to provide context with regards to the required repayment
rates for program eligibility. The commenters believed that students
would be misled or confused by the disclosures unless they understood
what the terms meant and could compare the rates against the
Department's regulations and the rates for similar programs at other
schools.
With respect to the third issue regarding timing of disclosures,
commenters were also concerned that institutions would undermine the
intent of the regulations by unfairly manipulating the timing of their
disclosures. Specifically, the commenters raised the possibility that
students would not be provided with the debt warning disclosures early
enough in the enrollment process or in a manner appropriate to inform
their decisions about whether to enroll in a program. Some commenters
suggested potential solutions to address this issue. For example, some
commenters recommended that the Department require institutions to
provide the disclosures to a student both orally (unless there is no
oral communication) and in writing, at the first contact between the
prospective student and the institution, rather than at the time of
enrollment. The commenters argued that waiting to make the disclosure
at the time of enrollment is too late to inform consumer decisions
because the student likely already feels committed to the program at
that point. They believed that it was necessary to provide the
information orally because written information is too easily glossed
over, particularly if it is mailed after the admissions meetings are
held. Other commenters recommended requiring a delay of seven days
between the time that an institution provides a student with a
disclosure and the date that the institution may enroll the student.
Citing the legal precedent set by the Mortgage Disclosure Improvement
Act, which mandates that creditors abide by a seven-day cooling-off
period before closing a loan, the commenters believed that the level of
financial commitment required in financing a higher education is
comparable to the commitment involved in taking on mortgage debt.
Accordingly, they argued that consumers should be afforded the same
sort of protections given to home buyers, particularly because student
loan debt cannot be discharged in bankruptcy and may be collected from
Federal tax refunds and social security payments. The commenters
further believed that this waiting period is necessary because it would
allow students time to digest the information and research other
program options before enrolling, protecting students from the coercive
enrollment techniques used at some institutions.
Discussion: See discussion under the heading, Implementation date.
Concerns about feasibility and burden of warnings
Comment: Some commenters believed that the proposed debt warning
disclosures were not feasible. They asserted that it would be unduly
burdensome for institutions to include the prominent warnings in every
newspaper ad, television ad, and sign, and in all materials used in
meetings with admissions representatives. The commenters further
believed that including this information in their materials would
potentially confuse students.
In addition to questioning the feasibility of implementing the
proposed regulations, some of the commenters argued that the Department
did not have the statutory authority to require a prominent warning,
stating that this requirement was unprecedented and too broad in scope.
The commenters noted that in the regulations governing other disclosure
requirements under the HEA, the Department has not mandated a specific
manner of disclosure, and they asserted that the Department therefore
should not do so in this case.
As an alternative, some of the commenters suggested that the
Department amend the proposed regulations to require institutions to
only make these disclosures by providing written information to each
applicant about its repayment rates prior to the student's enrollment.
Other commenters recommended that the regulations require warnings to
be clearly stated on the institution's Web site and on the enrollment
agreement, and that the warnings be provided to the student in writing
by the admissions representative before the prospective student signs
an enrollment agreement.
Discussion: See discussion under the heading, Implementation date.
Implementation Date
Comment: Some commenters stressed that the Department should make
the proposed provisions in Sec. 668.7(d) effective as soon as possible
to help inform consumer decisions. While noting that program level
assessments may be unavailable immediately, the commenters suggested
requiring institutions with both high rates of borrowing and defaults
to place this information in a clear and conspicuous location on the
institution's Web site and marketing materials as a stop-gap measure.
The commenters argued that this transparency might accelerate efforts
by institutions with at-risk programs to revise program content and
instruction and provide more effective job counseling, job placement,
and other support services that could reduce the risk to students and
taxpayers.
Discussion: In view of these comments and other changes we are
making in these regulations, we have made a number of changes to the
proposed regulations on debt warnings and disclosures to students. We
believe that this new approach appropriately distinguishes and
clarifies the program disclosure and debt warning requirements, will
help to ensure that students are provided with sufficient information
about a program's continued eligibility for title IV, HEA funds, and
addresses commenter concerns that institutions will undermine the
intent of the regulations.
We agree that disclosures and warnings serve very different
purposes and students should have basic, comparable information across
all gainful employment programs. Accordingly, in these final
regulations, we are separating the disclosure and warning requirements.
Under Sec. 668.6(b) of the Program Integrity Issues final
regulations, institutions are required to disclose, for each gainful
employment program, the occupations that the program prepares students
to enter, the on-time graduation rate, the tuition and fees charged to
a student for completing the program within normal time, the placement
rate for students completing the program, and the median loan debt
incurred by students who completed the program, as well as any other
information the Secretary provided to the institution about that
program. Under Sec. 668.7(f), or Sec. 668.7(g) if the institution
submitted a successful request for recalculation, of these final
regulations, the Secretary will provide to each institution the final
repayment
[[Page 34432]]
rate and debt-to-earnings ratios for each gainful employment program at
that institution. Accordingly, an institution must disclose the final
repayment rate and debt-to-earnings ratio (for total earnings) for each
gainful employment program along with the other information required in
Sec. 668.6(b), regardless of whether the program passed the debt
measures in Sec. 668.7(a)(1).
With respect to the disclosures established in Sec. 668.6(b)(1) in
the Program Integrity Issues final regulations, we strongly encourage
institutions to timely update the disclosures whenever a change occurs
in the information. We believe that it is reasonable to expect that an
institution will update this information on the program Web site as
soon as administratively feasible, but no later than 30 days after the
date the change occurs. For example, if at any point during the year,
the institution changes the amount of tuition and fees that it charges
a student for completing the program within normal time, the
institution should update that information on the Web page for that
program within 30 days. Similarly, when an institution receives its
final repayment rate and debt-to-earnings ratios, it should update that
information on the Web page for that program within 30 days. We
encourage institutions to have procedures in place to update
information on a regular basis to assure that students and consumers
have accurate, current information for all of the gainful employment
programs at an institution.
Under Sec. 668.7(j) of these final regulations, institutions must
issue debt warnings to prospective and enrolled students for each
gainful employment program at the institution that is a failing program
to ensure that students are aware of and understand that a particular
program has a greater risk than another program. In response to the
suggestion that we develop differentiated disclosure requirements based
on a program's level of risk, we have developed a two-tiered warning
system that we believe appropriately balances the needs of students
with the level of risk that a program will fail to remain eligible for
title IV, HEA program funds. On the one hand, knowledge of a program's
failure to meet the debt thresholds will inform a student's decision
about which institution to attend. On the other hand, we recognize that
the number of times a program has failed translates into very different
levels of risk. We address these considerations under this approach by
differentiating between a warning after a first year failure (``first
year warning'') and a warning after a second year failure (``second
year warning'').
Under Sec. 668.7(j)(1), if a failing program does not meet the
debt measure minimum standards for a single FY, the institution must
issue a warning that contains the following information. This first
year warning must directly alert currently enrolled and prospective
students that the program has failed to meet the minimum standards in
Sec. 668.7(a)(1), and, to ensure that students understand the meaning
and context of this warning, the institution must in plain language and
in an easy to understand format explain the debt measures and show the
amount by which the program did not meet the minimum standards. The
first year warning must further explain any steps that the institution
plans to take to improve the program's performance under the debt
measures. While this warning requires a direct communication with
enrolled and prospective students, it is not a publicly disclosed
warning. An institution must continue to provide this warning to
enrolled and prospective students until the institution has been
notified by the Secretary that the program has met one of the minimum
standards or the institution is notified that it has not met the
minimum standards a second time.
We believe that a program that has only failed the debt measures
for one year is still capable of significantly improving, and we want
to support the development or improvement of programs that provide
strong, viable opportunities for students to earn high-value
credentials. We are concerned that requiring too harsh a warning early
on will result in unnecessary program closures. Accordingly, the first
year warning provides basic information that will ensure that a student
is aware of a program's performance on the debt measures, and is able
to evaluate, based on the steps that the institution lays out for
improvement, whether to remain in that program or explore other
options.
An institution must issue a second year warning after a failing
program fails to meet the minimum standards for two consecutive FYs or
for two of the three most recently completed FYs. Given that a program
in this situation has only one additional FY to meet the minimum
standards, it is critical that students be made aware of the
possibility that they will no longer receive aid to attend that
program. In view of that, a second year warning must, in addition to
the information required for a first year warning, further include: (1)
A plain language explanation of the actions the institution plans to
take in response to the second failure, including, if the institution
plans to discontinue the program, the timeline for doing so and the
options available to the student; (2) a plain language explanation of
the risks associated with enrolling or continuing in the program,
including the potential consequences for, and options available to, the
student if the program becomes ineligible for title IV, HEA program
funds; (3) a plain language explanation of the resources available,
including http://www.collegenavigator.gov, that the student may use to
research other educational options and to compare program costs; and
(4) a clear and conspicuous statement that a student who enrolls or
continues to enroll in the program should expect to have difficulty
repaying his or her student loans. An institution must continue to
provide this warning to enrolled and prospective students until the
program has have met one or more of the minimum standards for two of
the three most recently completed FYs. The following Table H
illustrates the application of these requirements under several
different scenarios.
BILLING CODE 4000-01-P
[[Page 34433]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.019
[[Page 34434]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.020
[[Page 34435]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.021
In general, an institution must provide a student with the
information necessary to make reasoned and informed choices about
pursuing an education. This includes any options that the institution
will provide to the student. For example, in some cases, the student
may be able to transfer into another program at the institution, or the
student may be able to arrange to transfer credits to another
institution in the area. In other cases, an institution may opt to
permit a student to withdraw from the program with a full refund for
the cost of the program. Whatever the options, the institution must
explain them clearly to the student in an easily understandable manner.
Under this approach, institutions have the responsibility, but also the
flexibility, to create the best options for serving their students in
failing programs. The institution must also describe the risk and
potential consequences of remaining in the program, namely, that the
student will still be liable for any student loan debt incurred if the
student is unable to complete the program. Further, the institution
must provide students with resources that they can use to research
other education options and program costs. We have specified that an
institution must direct students to http://www.collegenavigator.com as
one resource available to students.
We agree with commenters that it would be helpful for the
Department to separately publish information regarding a program's
final debt measures. This information can complement other information
about gainful employment programs to help students choose among well-
performing programs and avoid poorly performing programs. Under Sec.
668.7(g)(6), therefore,
[[Page 34436]]
we are providing that the Secretary may disseminate the final debt
measures or information about, or related to, the final debt measures
to the public in any time, manner, and form, including publishing
information that will allow the public to ascertain how well programs
perform under the debt measures and other appropriate objective
metrics. While institutions are also required to disclose this
information, we think that the Department's dissemination of this
information will facilitate students' access to the information and
their ability to draw comparisons of programs.
We are requiring in Sec. 668.7(j)(5) that, if an institution
voluntarily discontinues a failing program under Sec. 668.7(l)(1), it
must notify enrolled students at the same that it provides the written
notice to the Department that it relinquishes the program's title IV,
HEA program eligibility. We believe that this is necessary to ensure
that enrolled students are notified promptly of any plans by the
institution to discontinue a program so that they can make reasoned and
informed choices about pursuing an education.
Under Sec. 668.7(j)(4), for the second year warning, the
institution must prominently display the debt warning on the home page
of the program Web site and include the debt warning in all promotional
materials related to the failing program that it makes available to
prospective students. The Department considers promotional materials to
include a wide range of materials pertaining to the program, from
course catalogues, to brochures, to television ads, to poster
advertisements. For example, if a poster advertisement on a public bus
mentions a failing program, even as part of a list of programs offered
at the institution, the warning must be included on that poster. If the
poster advertises the institution as a whole, or other programs at the
institution that have not failed the minimum standards for more than
one of the three most recently completed FYs, then the institution is
not required to include the warning in that material.
With respect to currently enrolled students, we have clarified
under Sec. 668.7(j)(3)(i) that an institution must provide the first
or second year warnings to these students as soon as administratively
feasible, but no later than 30 days after the date the Secretary
notifies the institution that the program failed the minimum standards.
We believe that this requirement balances the need for students to be
informed as quickly as possible of the risk involved in remaining in a
program with the recognition that in some cases, such as a program with
a high number of students, it may take an institution more than a few
days to comply with the debt warning requirement.
We agree with commenters that there should be no undue pressure on
students to enroll in a particular program, and are requiring under
Sec. 668.7(j)(3)(ii) that an institution provide the first and second
year warnings to a prospective student at the time the student first
contacts the institution requesting information about the program. If
the prospective student intends to use title IV, HEA program funds to
attend the program, the institution may not enroll the student until
three days after the debt warnings are first provided to the student.
Additionally, if more than more 30 days passes from the date the debt
warnings are first provided to the student and the date the student
seeks to enroll in the program, the institution must provide the debt
warnings again. In this situation, the institution may not enroll the
student until three days after the debt warnings are most recently
provided to the student under this section.
We believe that this approach will be more effective than requiring
institutions to provide the debt warnings only at the time that the
student enrolls in a program because, as some of the commenters noted,
by that point a student most likely already feels committed to enroll
in the program. Requiring that the debt warnings be given at a point in
time close to but prior to the time that a student actually enrolls
will ensure that the information is still fresh in the student's mind,
particularly if this point in time is far removed from the first point
of contact. It will also provide students a final chance to consider
the commitment involved in taking on student loan debt without the
pressure to enroll immediately. While we considered limiting this
cooling-off period to seven days, as suggested by some of the
commenters, we believe that the longer period of three to 30 days will
allow and encourage students to digest the information in the debt
warnings fully, compare that information to the information available
from other institutions offering similar programs, evaluate the
potential consequences of enrolling in the program, and research other
education options. We also note that institutions are expected to
comply with any applicable State laws including those requiring a
cooling-off period.
In response to concerns that a warning may be difficult to find or
understand, we have clarified the manner in which institutions must
provide these warnings. First, we have specified that a first year
warning must be delivered directly to the student orally or in writing
in accordance with the procedures established by the institution.
Delivering the debt warning directly to the student includes
communicating with the student face-to-face or telephonically,
communicating with the student along with other affected students as
part of a group presentation, and sending the warning to the student's
e-mail address. We would expect this direct warning to occur in the
mode of correspondence that the institution typically uses to
communicate with the student in order to ensure that the student has
received the debt warning. For example, if an institution regularly
corresponds with the student via electronic mail, it can be reasonably
certain the student received the warning.
We are further providing in these final regulations that, if an
institution chooses to communicate this first year warning to a student
orally, the institution must maintain documentation of how that
information was provided, including any materials the institution used
to deliver the warning. We believe this would include such materials as
a copy of the script or any other written materials used to deliver the
warning. Further, if an institution provides the warning orally to a
group of affected students, it would have to document each student's
presence to demonstrate that the warning was given directly to each
student. For a second year warning, an institution may use any of the
methods described for the first year warning; however, it must at a
minimum provide the warning to the student in writing. So, if an
institution opts to provide the second year warning orally, it must be
provided in written form as well. We believe that requiring that the
warnings be given directly to the student will address the commenters'
concerns that a student will overlook the warning because the
institution must ensure that it is received.
Second, we have specified that both the first and second year
warnings must be made in ``plain language'' and in an ``easy to
understand format'' to require that the warnings be understandable the
first time that an individual reads or hears them. Although we are not
mandating the specific language that must be used in the debt warnings,
we anticipate developing a model warning form through the information
collection process under the Paperwork Reduction Act of 1995 (PRA) to
guide institutions
[[Page 34437]]
in providing these debt warnings to students. In the meantime, the Web
site, http://www.plainlanguage.gov, contains guidelines and numerous
examples that will be helpful to institutions in complying with these
regulations.
With respect to ensuring the prominence of the debt warnings, we
are requiring in Sec. 668.7(j)(4) that the second year warning
included in an institution's promotional materials must be prominently
displayed on the program home page of the institution' Web site.
Institutions may not bury the warnings for a program on a Web site that
students have to search for or are unlikely to look at. The requirement
to prominently display the debt warning ``on the program home page''
means that the actual information must be found on that page. A link to
a downloadable document or to another page with the information would
not meet the requirements of this section. We believe that requiring
the use of plain language, specifying the content that must be
included, and prescribing where on the Web site the warnings must be
located will go far to ensure that institutions cannot hide this
important information from students.
Third, we have added a requirement in Sec. 668.7(j)(6) that, to
the extent practicable, an institution must provide alternatives to
English-language warnings for those students for whom English is not
their first language. We believe this is necessary because a student
receiving a warning in a nonnative language may not be able to fully
appreciate the gravity of the warning and its implications. This means
that, for example, an institution that serves a large Hispanic
population would be expected to provide the debt warnings in Spanish
for students for whom English is not their first language. We have
included the phrase ``to the extent practicable'' to acknowledge that
an institution may serve students that speak a wide variety of
languages and that it may not be feasible to provide the warnings in
every single language or dialect. However, we believe that it is
appropriate to require the alternatives wherever possible to ensure
that students can understand the meaning of the debt warnings. We do
not believe that it is necessary to require alternate warnings for
students with lower literacy levels, as suggested by some of the
commenters, because we believe that the ``plain language'' requirements
address this issue. Using plain language requires that the warning be
presented in simple, understandable terms that are accessible to all
audiences, including students who have only basic literacy skills.
For the disclosures under Sec. 668.6(b) that an institution must
make for all of its gainful employment programs, an institution is
strongly encouraged to maintain accurate electronic and printed
materials. While the Program Integrity Issues final regulations do not
specify a timeframe within which an institution must update the Web
site and other promotional materials, the Department expects that
institutions will make a good faith effort to maintain current
information. We believe that it is reasonable to expect that any
changes will be made by no later than 30 days after the date that the
change in the information occurred. For the disclosure of the tuition
and fees under Sec. 668.6(b)(1)(iii), for example, we would expect an
institution to update any electronic materials as soon as it is
administratively feasible but no later than 30 days after the date that
the Department notifies the institution that the program has failed.
Along these lines, we strongly encourage institutions to include within
any printed promotional materials a link to the electronic Web site
that contains the current disclosure information and an explanation to
students and consumers that while the information in the printed
materials was accurate at the time of printing, that they may obtain
more current information on the homepage of the program Web site.
With respect to the relationship between the disclosure
requirements in Sec. Sec. 668.6(b) and 668.41 through 668.49, the
disclosure requirements in Sec. 668.6(b) are more prescriptive than
those under the Student Right to Know (SRK) provisions under Sec.
668.41-.49. We specified in the Program Integrity Issues final
regulations that the disclosures in Sec. 668.6(b) must be prominently
posted on the home page of the program Web site and that the
institution must include a prominent and direct link on any other Web
page containing general, academic, or admissions information about the
program to the single Web page that contains all of the required
information. By contrast, while the SRK disclosures must be given to
enrolled or prospective students ``through appropriate publications,
mailings, or electronic media,'' they are not required to be included
on the home page of a program Web site. Specifically, under Sec.
668.41(b), an institution may satisfy the disclosure requirements by
posting the information on an Internet Web site that is reasonably
accessible to the individuals to whom the information must be
disclosed. We remind institutions that the provisions in Sec. 668.6(b)
that were published in the Program Integrity Issues final regulations
go into effect on July 1, 2011 in accordance with the master calendar.
These disclosure requirements will provide students with a level of
protection beginning this year. The changes in Sec. 668.7(j) in these
final regulations will go into effect one year later on July 1, 2012,
and the debt warnings will enhance this protection going forward.
Finally, we disagree with the commenters who believed that the debt
warning requirements are too broad in scope or that establishing them
is beyond our statutory authority. As discussed earlier, the Department
has broad authority to promulgate regulations regarding gainful
employment programs. In the context of regulating these programs, we
believe it is critical to require debt warnings because a program may
lose its eligibility when the next set of debt measures becomes final,
and an institution may recruit students to enroll in that program
without restriction unless, and until, the program loses eligibility.
By including the stricter warning in all promotional materials that
mention the program by name, students will be in a better position to
evaluate the marketing information describing the program before
engaging in further contact with the institution or its
representatives. This is particularly important when the institution is
recruiting students to enroll in a program that may lose its title IV,
HEA program eligibility soon after the student enrolls, since such a
change could significantly impair the student's ability to complete the
program. Institutions may also provide prospective students with
information showing the improvements to the program that have been made
and other similar actions taken to improve the outcomes for program
graduates. We believe that requiring these debt warnings in the
marketing materials is a reasonable step to protect students while
permitting institutions to continue enrolling students in programs that
are at risk of losing eligibility under the gainful employment metrics.
Changes: We have replaced proposed Sec. 668.7(d) with new Sec.
668.7(j). Under Sec. 668.7(j)(1)(i), an institution must provide
enrolled and prospective students in a failing program that has failed
the minimum standards for one FY with a first year warning prepared in
plain language and presented in an easy to understand format that
explains the debt measures and shows the amount by which the program
did not meet the minimum standards and describes any
[[Page 34438]]
actions the institution plans to take to improve the program's
performance under the debt measures. Under Sec. 668.7(j)(1)(ii), an
institution must provide the debt warning orally or in writing directly
to the student, in accordance with the procedures established by the
institution. The regulation provides that delivering the warning
directly to the student includes communicating with the student face-
to-face or telephonically, communicating with the student along with
other affected students as part of a group presentation, or sending the
warning to the student's e-mail address. Under Sec. 668.7(j)(1)(iii),
an institution must maintain documentation of any warning that it gives
to students orally, including any materials the institution used to
deliver that warning and documentation of the student's presence at the
time of the warning. Under Sec. 668.7(j)(1)(iv), an institution must
continue to provide the debt warning until it is notified by the
Secretary that the failing program now satisfies one of the minimum
standards in Sec. 668.7(a)(1).
Under Sec. 668.7(j)(2), an institution must, in addition to the
information in Sec. 668.7(j)(1)(i), provide enrolled and prospective
students in a failing program that has not met the minimum standards
for two consecutive FYs or for two out of the three most recently
completed FYs a second year warning in writing that, in plain language
and an easy to understand format, explains the actions the
institution's plans to take in response to the second failure. If the
institution plans to discontinue the program, the explanation must
include the timeline for doing so and the options that students have
available as a result of those plans; explains the risk associated with
enrolling or continuing in the program, including the potential
consequences for and options available to a student if the program
becomes ineligible for title IV, HEA program funds; explains the
resources available to students, including http://www.collegenavigator.gov, for the purpose of researching other
educational options and comparing program costs; and states in a clear
and conspicuous manner that a student who enrolls or continues in the
program should expect to have difficulty repaying his or her student
loans. This warning must be given in written form, in addition to any
other method chosen by the institution.
Under Sec. 668.7(j)(3), we have specified when an institution must
provide prospective and enrolled students with the first and second
year debt warnings. For an enrolled student, the institution must
provide the debt warnings as soon as administratively feasible but no
later than 30 days after the date the Secretary notifies the
institution that the program has failed the minimum standards. For a
prospective student, the institution must provide the debt warnings at
the time the student first contacts the institution requesting
information about the program. If the prospective student intends to
use title IV, HEA program funds to attend the program, the institution
may not enroll the student until three days after the debt warnings are
first provided to the student. Additionally, if more than more 30 days
pass from the date the debt warnings are first provided to the student
and the date the student seeks to enroll in the program, the
institution must provide the debt warnings again. The institution may
not enroll the student until three days after the debt warnings are
most recently provided to the student under this section. In Sec.
668.7(j)(4), we have required institutions that must comply with the
requirements in Sec. 668.7(j)(2) to prominently display the debt
warning on the program home page of its Web site and include the debt
warning in all promotional materials it makes available to prospective
students. These debt warnings may be provided in conjunction with the
disclosures required under Sec. 668.7(b)(2).
In Sec. 668.7(j)(5), we have specified that if an institution
voluntarily discontinues a failing program under Sec. 668.7(l)(1), it
must notify enrolled students at the same time that it provides the
written notice to the Department that it relinquishes the program's
title IV, HEA program eligibility. Finally, in Sec. 668.7(j)(6), we
have required institutions to provide alternatives to English-language
debt warnings to students for whom English is not their first language,
to the extent practicable.
In Sec. 668.7(g)(6), we have provided that the Secretary may
disseminate the final debt measures and information about, or related
to, the debt measures to the public in any time, manner, and form,
including publishing information that will allow the public to
ascertain how well programs perform under the debt measures and other
appropriate objective metrics.
Additional Concerns on Reporting
Comments: Some commenters believed that the final regulations
should ensure that student debts are reasonable, both in relation to
earnings and whether the debts are repaid, by discouraging borrowing
altogether. Consequently, the commenters suggested that the Department
provide incentives to colleges to offer low-tuition programs or other
mechanisms that help students avoid borrowing. To that end, the
commenters stated that in cases where fewer than 35 percent of a
program's enrollees rely on Federal loans, the program should not be
subject to any of the potential limitations under proposed Sec. 668.7.
The commenters reasoned that a program in which only a small percentage
of students take out loans will, by definition, have a Federal median
loan debt of zero, and therefore the program most likely would not be
limited under these regulations. Therefore, the commenters believed it
would be counterproductive and needlessly burdensome to subject
institutions to further reporting requirements for such programs.
According to the commenters, exempting these programs would ensure that
Federal oversight efforts and institutional regulatory burden are
efficiently balanced.
Discussion: Although programs with zero median loan debt will not
be adversely impacted under these regulations, we do not agree that
those programs should be exempt from the data reporting requirements
under Sec. 668.6 based solely on institutional burden. On the
contrary, isolating those programs from an established reporting stream
may be more burdensome for an institution. In any event, students
choosing among programs should have access to information about the
typical debt burdens associated with those programs, and the Department
needs the data to determine whether programs satisfy the minimum
standards for the loan repayment rate under Sec. 668.7(b).
Changes: None.
Transition Year (Proposed Sec. 668.7(f); Final Sec. 668.7(k))
Comment: With respect to the proposal under which the Department
would cap the number of ineligible programs, commenters were concerned
that the proposed regulations did not provide any means for
institutions to appeal or verify whether their programs were accurately
placed below the cap. Commenters also requested that the Department
clarify (1) that the 5 percent cap on ineligible programs applied only
to the transition year (2012-13 award year), and (2) how the Department
would select the ineligible programs falling below the cap based on the
number of students who completed those programs. Other commenters
proposed extending the 5 percent cap from one to two years as added
insurance against unintended, negative consequences for students.
Commenters suggested that the Department treat the 2012-13 award
[[Page 34439]]
year as an ``information'' year and begin the actual ``phase-in year''
in award year 2013-14. Other commenters suggested a three-year
transition period so that the Department and institutions have
sufficient time to collect the required data and make accurate
determinations. Similarly, some commenters suggested that the
Department provide a three-year transition period, from July 1, 2012 to
July 1, 2015, during which the Department would simply notify
institutions of how their programs performed under the gainful
employment metrics. Another commenter recommended a transition period
of up to seven years to prevent loss of student access to educational
programs, and to allow programs sufficient time to implement the new
disclosure requirements under Sec. 668.6(b) and other program changes
that could affect 3-year or 4-year student cohorts entering repayment.
Finally, some commenters asked how the 5 percent cap would be
applied. Specifically, the commenters asked whether the cap would be
applied by sector or overall.
Discussion: In response to the question of how an institution can
verify that a program fell below the 5 percent cap, under these
regulations the institution may challenge the accuracy of the data used
to calculate the repayment rate that is subsequently used by the
Department to sort the ineligible programs under the cap provisions.
The other data used for the cap, students completing programs, are
reported by institutions and that data will be publicly available.
The Department does not believe that any additional time is needed
beyond the first year of eligibility because, as discussed more fully
under the heading, Actual earnings from SSA and Bureau of Labor
Statistics (BLS) wage data an institution will have gainful employment
data for several years before a program could become ineligible. The
Department will apply the 5 percent cap for programs that become
ineligible based on final debt measures for FYs 2012, 2013, and 2014.
FY 2014 is now the first year that a program could become ineligible.
As set forth in these final regulations, the cap is set at 5 percent
but that percentage now applies to the total number of students who
completed gainful employment programs in each of three institutional
categories--public, private nonprofit, and proprietary, instead of the
proposed categories. We made this change in response to concerns voiced
by proprietary institutions that the impact of the new regulations
would have the biggest impact on them as a sector. This change
therefore allows no sector to bear more than 5 percent of the initial
impact of the regulations.
With regard to how the Department will select programs falling
under the cap, we assume the commenter is referring to a situation
where the number of students completing a program crosses over the 5
percent mark. For example, a program is 10th on the list of programs
with the lowest repayment rates. The total number of students
completing programs in that institutional category is 100,000, so the 5
percent mark is 5,000. If the first nine programs totaled 4,900
students and 200 students completed the 10th program, the 10th program
would not fall under the cap because including the 200 students who
completed it would cross over the 5 percent mark and could not be
subject to the sanctions specified in these final regulations.
Changes: We have redesignated proposed Sec. 668.7(f)(2),
transition year, to new Sec. 668.7(k) and are providing that, based on
final debt measures for FYs 2012, 2013, and 2014, the Department will
cap the number of ineligible programs by first sorting all programs by
category of institutions (public, private non-profit, and proprietary),
then by loan repayment rate within that category from the lowest to the
highest rate, and finally, starting with the ineligible programs with
the lowest repayment rate, by determining ineligible programs
accounting for a combined number of program completers during FY 2014
that does not exceed 5 percent of the total number of program
completers in that category.
Additional Programs (Proposed Sec. 668.7(g)(2) and (3)); Restrictions
for Ineligible and Voluntarily Discontinued Failing Programs (Final
Sec. 668.7(l))
Background: The July 26, 2010 NPRM contained proposals regarding
Department approval of the eligibility of new gainful employment
programs. Because the Department was concerned that some institutions
might attempt to circumvent the proposed gainful employment standards
in Sec. 668.7(a)(1) of the July 26, 2010 NPRM by adding new programs
before those standards could take effect, we published the Gainful
Employment/New Programs final regulations, which take effect on July 1,
2011. In the Gainful Employment/New Programs final regulations, we
established requirements in 34 CFR 600.10 and 34 CFR 600.20 under which
an institution must notify the Department at least 90 days before it
intends to offer an additional gainful employment program. The notice
must include a narrative explaining among other things how the
institution determined the need for the program and how the program was
designed to meet market needs. Under these requirements, an institution
is not required to obtain approval from the Department to offer the
program unless the Department alerts the institution at least 30 days
before the program's first day of classes that the program must be
approved for title IV, HEA program purposes. A summary of the comments,
discussion, and the regulatory language supporting these requirements
is contained in the Gainful Employment/New Programs final regulations
and can be accessed at http://www.ifap.ed.gov/fregisters/FR102910GainfulEmploymentFinal.html.
We are not modifying this notification and approval process for new
gainful employment programs in these final regulations; however, the
Department is continuing to consider whether this process may be
simplified and narrowed further after these new regulations are in
place. We may address these issues in a separate rulemaking proceeding.
Note: We did not summarize or address in the Gainful
Employment/New Programs final regulations the comments we received
on proposed Sec. 668.7(g)(2), regarding restricting approval of a
program based on projected growth estimates and institutional
ability to offer gainful employment programs, or (g)(3) regarding
calculation of the debt measures if an additional program
constitutes a substantive change based on program content. A summary
of these comments and our responses are included in the following
discussion.
Comments: Several commenters argued that limiting an institution's
ability to establish new programs should only apply to an institution
with a record of poor performance, such as an institution whose
programs were restricted or determined in the previous three years to
be ineligible under the debt measures. The commenters believed this
approach would provide an incentive to institutions to keep their
programs fully eligible and would reduce the burden on institutions
that have a strong record of preparing students for gainful employment.
One commenter suggested that the Department modify the proposed
approval process so that it applies only to an institution where over
50 percent of the institution's programs are on a restricted status.
Another commenter recommended that institutions be allowed to bypass
Department approval entirely if programs representing 50 percent or
more of the institution's total enrollment or programs representing 50
percent of the institution's enrollment
[[Page 34440]]
in the same job family are not restricted or ineligible.
Several commenters stated that additional programs should be
allowed to prove their worth over time, and that the Department should
not calculate debt measures until relevant data are available. Along
the same lines, another commenter stated that an additional program
should not be required to meet either the loan repayment rate or debt-
to-earnings standards until the program has been in continuous
operation for a period sufficient to calculate the program's three-year
CDR.
Some commenters expressed concerns with proposed Sec. 668.7(g)(3),
under which an additional program's loan repayment rate and debt-to-
earnings ratios would be based on data from the additional program and,
for the first three years, loan data from all other programs currently
or previously offered by the institution that are in the same job
family as the additional program. (The BLS describes a job family as a
group of occupations based on work performed, skills, education,
training, and credentials and identifies the SOC code for each
occupation in a job family at: http://online.onetcenter.org/find/family.) Under this proposal, if the additional program constituted a
substantive change based solely on program content as provided in Sec.
602.22(a)(2)(iii), the program's loan repayment rate and debt-to-
earnings ratios would not be calculated until data were available.
Commenters expressed concern that applying the loan repayment rate
and debt-to-earnings standards to additional programs in the same job
family would inhibit or prevent an institution from improving, over
time, the content and, by extension, the loan repayment rate and debt-
to-earnings standards of gainful employment programs currently offered
by the institution. Another commenter opined that improvements made to
an existing gainful employment program over time might constitute a
``substantive change'' but was concerned that such a program would
continue to be subject to the standards of other programs in the same
job family instead of a loan repayment rate and debt-to-income measure
that was unique to that program.
Other commenters argued that an institution's ability to offer
effective and affordable additional programs would be stymied if the
Department uses data from programs in the same job family to approve a
new program. These commenters urged the Department to use data from the
new programs as soon as it became available. One of the commenters
cited an example of an institution that offers a new one-year
certificate program in addition to or in place of a two-year
associate's degree program in the same area. According to the
commenter, under the Department's proposal, the metrics for the shorter
certificate program would be based on data from the longer, more
costly, associate's degree program, increasing the likelihood that the
additional program would not be approved.
Another commenter expressed concern that the loan repayment rates
and the debt-to-earnings ratios at new schools and existing schools
that offer additional programs that constitute a substantive change
based solely on program content may not be representative of the true
repayment and income characteristics of the institution's students
because the metrics would be based on the experience of recent
graduates rather than experienced graduates with higher incomes and
greater loan repayment rates. The commenter suggested that the
Department permit an institution to rely on job family data from
similar gainful employment programs at its institution or at affiliated
institutions to approve a new program because these programs will have
graduates who have higher incomes and higher loan repayment rates.
Another commenter expressed concern about the impact of the
Department's proposals on the approval of new green technology
education programs. The commenter objected to the Department's
proposals because approval of new green technology programs would be
based on data from programs currently or previously offered by the
institution that are in the same job family; however, the term ``same
job family'' does not exist for this category of programs. The
commenter feared that applying this requirement to green technology
programs would devastate the economy and provide no support to
President Obama's stated goal of creating a new economic segment in
emerging green technologies.
Commenters also asked the Department to clarify whether a gainful
employment program would have to reestablish eligibility, or be treated
as a new program, if the program became ineligible but was allowed to
continue operating because it was ranked above the 5 percent threshold
for the transition year.
Discussion: With regard to commenters' concerns about the use of
job families, we believe that the due diligence undertaken by an
institution in developing and designing a program that meets markets
needs, as required under 34 CFR 600.20(d), mitigates the need to
condition the initial performance of a new program based on the
performance under the debt measures of related programs offered by the
institution. Moreover, in view of the concerns raised that the proposed
job-family approach may inhibit the development of new programs or not
properly reflect the performance of new programs, we are adopting the
suggestion made by the commenters that we calculate the debt measures
for all new programs only when the data become available for those
programs. So, in lieu of the job-family approach, we provide under
Sec. 668.7(a)(1)(iii) that a program is considered to provide training
that leads to gainful employment if the data needed to determine
whether the program satisfies the minimum standards are not available
to the Secretary.
We generally agree with the commenters that restrictions on an
institution's ability to offer new programs should be based on the
performance of an institution's program under the debt measures. In
keeping with the focus in these final regulations on the poorest
performing programs, we believe it is appropriate to prevent an
institution from immediately recycling an ineligible program or a
failing program that the institution voluntarily discontinued.
Therefore, in new Sec. 668.7(l) we are providing that an ineligible or
voluntarily discontinued failing program remains ineligible for title
IV, HEA funds until the institution reestablishes the program's
eligibility under 34 CFR 600.20(d).
With respect to failing programs, under these final regulations, we
are providing that an institution may not reestablish the program's
eligibility for two or three FYs following the FY the program was
discontinued depending on when the institution voluntarily discontinued
the program. And, with respect to ineligible programs, an institution
may not reestablish the eligibility of that program or establish the
eligibility of a substantially similar program until three FYs
following the FY the program became ineligible.
The Department is establishing these ``wait-out'' periods to
provide incentives for institutions to improve programs rather than
allow programs to fail and lose eligibility for title IV, HEA funds.
Consistent with our approach in defining the debt measures to identify
the poorest performing programs, institutions should not be able to
merely reestablish the eligibility of failed programs without taking
the time to substantially improve those programs or making other
adjustments to ensure that the programs do not fail again.
[[Page 34441]]
A program that becomes ineligible because it failed the measures
three out of four FYs is required to wait three years before it may
reestablish that program's eligibility or establish the eligibility of
program that is a substantially similar program to the one that became
ineligible. The three year wait-out period reflects the three years the
program failed the debt measures and is severe enough that it provides
an added incentive to an institution to take the actions needed to
avoid a failing program from becoming ineligible. However, where a
program becomes ineligible, the Department is concerned that an
institution may attempt to evade the wait-out period by repackaging
that program and establishing under 34 CFR 600.20(d) the eligibility of
the repackaged program as a new program. Consequently, the wait-out
period also applies to a ``substantially similar program'' to avoid the
outcome where the repackaged program, in the guise of a new program,
would not have any prior history under the debt measures. The wait-out
period provides a material break in the program's eligibility for title
IV, HEA program funds to mark that the prior history of that ineligible
program under the debt measures will not be used if the program later
reestablishes its eligibility. This approach ensures that students are
not placed in a program that may be so similar to the failed program
that they have a high likelihood of finding themselves in another
failed program. We believe this temporary limitation on an
institution's ability to seek eligibility for a program that is
substantially similar to one that lost eligibility is a reasonable
consequence of the institution's impaired capability to offer that
program under the measures in these regulations.
An institution that voluntarily discontinues a failing program will
be required to wait two or three years before the Department will allow
the institution to reestablish the eligibility of that program. The
wait-out periods generally reflect the number of years the program
failed the debt measures. So, an institution that voluntarily
discontinues a program after being required to provide the first-year
debt warnings, or within 90 days of receiving a notice from the
Department that it must provide second year debt warnings, will have to
wait two years before it may seek to reestablish the eligibility of
that program. On the other hand, an institution that voluntarily
discontinues a failing program after the 90-day period could continue
to offer the program up to the date that the program would otherwise
become ineligible under the debt measures--three years. In this case,
there would be no material difference between a failing program
discontinued by the institution and an ineligible program. We note that
an institution retains the ability to seek to establish the eligibility
of a program substantially similar to a voluntarily discontinued
program without any waiting period.
These temporary two or three year restrictions do not affect the
eligibility of any other programs an institution already offers that
are substantially similar to the program that lost eligibility, nor
does it prevent an institution from seeking to establish the
eligibility of new programs that are not substantially similar to the
ineligible program. The effective date for reestablishing the
eligibility of an ineligible program or failing program that was
voluntarily discontinued is July 1, 2012. However, the Department will
not issue FY 2012 final debt measures until calendar year 2013.
With regard to the comment on the status of an ineligible program
measured for the transition year, that year is counted as a failing
year even if the program's ranking is over the 5 percent cap. That year
will count as a failing year for purposes of determining whether the
program meets the eligibility requirements in subsequent years.
Changes: New Sec. 668.7(l) provides that an ineligible program, or
a failing program that an institution voluntarily discontinues, remains
ineligible until the institution reestablishes the eligibility of the
program under 34 CFR 600.20(d). For these purposes, an institution is
considered to have voluntarily discontinued a failing program on the
date the institution provides written notice to the Secretary that it
relinquishes title IV, HEA program eligibility for the program.
We have also provided in Sec. 668.7(l) that an institution may not
seek to reestablish eligibility of a failing program it voluntarily
discontinued until the end of the second FY following the FY the
program was discontinued if the institution voluntarily discontinued
the program at any time after the program is determined to be a failing
program, but no later than 90 days after the date the Secretary
notified the institution that it must provide the second year debt
warnings under Sec. 668.7(j)(2). For an institution that voluntarily
discontinues the failing program more than 90 days after the date the
Secretary notifies the institution that it must provide the second year
debt warnings, the institution is prohibited from seeking to
reestablish eligibility for the program until the end of the third FY
following the FY the program was voluntarily discontinued.
In this new section, we also have provided that an institution may
not seek to reestablish the eligibility of an ineligible program, or to
establish the eligibility of a program that is substantially similar to
the ineligible program until the end of the third FY following the FY
the program became ineligible. Under the regulations, we consider a
program to be substantially similar to an ineligible program if it has
the same credential level and the same first four digits of the CIP
code as that of the ineligible program.
Certification Procedures (Proposed Sec. 668.13(c)(1))
General
Comment: Commenters noted that section 498(h)(1) of the HEA only
authorizes the Secretary to provisionally certify an institution when
considering the institution for initial certification, reviewing the
institution's administrative capability and financial responsibility
for the first time, reviewing an institution in connection with a
change of ownership, or when reviewing the institution's application to
renew its certification.
Therefore the commenters believe that placing an institution on
provisional certification if a program is subject to the eligibility
limitations under the gainful employment provisions in proposed Sec.
668.7(e) or becomes ineligible under the gainful employment provisions
in proposed Sec. 668.7(f) has no foundation in the law and is not in
line with other conditions under Sec. 668.13(c) that could place in an
institution on provisional certification.
Commenters objected to provisionally certifying an institution when
a single program is determined ineligible for not meeting the standards
for the gainful employment provisions in Sec. 668.7(a). The commenters
offered alternative methods for determining if an institution should be
provisionally certified. For example, a commenter suggested the
Department consider the relationship between the number of programs
subject to gainful employment sanctions and the total number of
programs offered or the average past enrollment in sanctioned programs
compared to the enrollment in all eligible programs.
Discussion: Section 668.13(c) provides the circumstances for when
the Department may provisionally certify an institution. We initially
proposed to amend Sec. 668.13(c)(1)(i) to provide that
[[Page 34442]]
the Department may provisionally certify an institution if one or more
programs offered at the institution failed to prepare students for
gainful employment in a recognized occupation in accordance with Sec.
668.7.
We believe Sec. 668.7, as revised in these final regulations,
provides institutions whose programs fail the gainful employment debt
measures with sufficient and comprehensive protections, such as the
draft debt measures and data corrections in Sec. 668.7(e) and the
alternative earnings process specified in Sec. 668.7(g), before any of
its programs lose eligibility for title IV, HEA funds. Therefore,
placing these institutions on provisional certification is no longer
necessary.
Changes: We have removed proposed Sec. 668.13(c)(1)(i)(F) from the
regulations. Therefore, we are not amending current Sec. 668.13.
Initial and Final Decisions (Proposed Sec. 668.90(a)(3))
Comment: Commenters were concerned that the termination proceedings
against a program that does not meet the standards for gainful
employment in proposed Sec. 668.7(a) would violate an institution's
due process rights because the institution would not be allowed to
examine the earnings of program completers maintained by another
Federal agency. Some commenters referenced findings from several court
cases noting that procedural due process requires that a party against
whom an agency has proceeded to withdraw a benefit or service be
allowed to rebut evidence offered by the agency. The commenters stated
that it would be difficult for an institution to challenge data if the
institution could not access the information against which it is being
measured to determine if it is accurate data. The commenters believed
the courts would support the position that not allowing an institution
to examine the earnings of program completers maintained by another
Federal agency would violate the institution's due process rights.
Some commenters questioned how the Department, SSA, or the hearing
official could confirm that the list of program completers was
accurate. Commenters suggested that the source of data used to
calculate the debt-to-earnings ratios under Sec. 668.7(c) should be
data that can be made accessible to institutions.
Other commenters noted that the Department should clarify the
evidence an institution would need to supply to document that its data
is more reliable than the Federal data and specify the minimum
standards that must be met. For example, the minimum standards might
include income for all program completers that can be documented by
employers unaffiliated with the institution.
Some commenters noted that under the Cohort Default Rate (CDR)
Guide, the Department provides procedural rights to challenge NSLDS
data that they believe is inaccurate. The commenters recommended that
the Department provide a similar process for an institution that fails
to meet the gainful employment standards. Another commenter recommended
that language be added to the final regulations that would define an
institution's appeal rights and establish a process by which an
institution is allowed to review and correct data to ensure inaccurate
data is not released to the public.
A commenter was concerned that the appeals process under proposed
Sec. 668.90(a)(3)(vii) may result in possible abuses and delays
similar to problems experienced in the CDR sanction process. The
commenter believed institutions were successful in changing the CDR
process to expand the appeal process for reasons ranging from hardship
to mitigating circumstances. The commenter stated that over time the
definition of ``default rate'' was weakened and institutions continued
to increase enrollment while delaying final action by appeals. The
commenter suggested that the hearings be limited to appeals about the
accuracy of the data and recommended that the Department clarify how an
administrative law judge should consider alternative evidence to the
government's data.
Other commenters noted that the Department did not specify who
would appoint the hearing official or the required qualifications for
this position and recommended that the hearing official be a trained,
impartial administrative law judge with no affiliation to a proprietary
institution.
Discussion: Section 668.90(a)(3) sets forth the limitations on the
matters and decisions rendered in termination proceedings by a hearing
official in accordance with subpart G of part 668. We initially
proposed to add a provision under Sec. 668.90(a)(3)(vii) that would
allow a termination action against a program for not meeting the
standards for gainful employment in Sec. 668.7(a). The proposed
regulations required the hearing official to accept as accurate the
average annual earnings calculated by another Federal agency, i.e.,
SSA, for the list of program completers identified by the institution
and accepted by the Department. An institution could provide the
hearing official with a different average annual amount to be used to
calculate the debt-to-earnings ratio for the same list of program
completers that had been determined to be reliable.
In response to concerns raised by commenters about our proposal, we
have developed an administrative process that implements many of the
suggestions made by commenters. This process provides an institution
with a reasonable amount of access to information and time to review
draft debt measures and to challenge the accuracy of certain
information used to calculate the debt measures (loan repayment rate
and debt-to-earnings ratio) similar to the process used to review and
challenge CDRs. For instance, an institution that questions the
accuracy of the debt-to-earnings ratios may review the list of students
that the Department will provide to SSA to determine that the correct
cohort of students will be used by SSA to calculate the mean or median
annual earnings. The institution may not challenge the accuracy of the
mean or median annual earnings the Secretary obtains from SSA. However,
an institution may challenge a final debt measure for a program that
does not satisfy the debt-to-earnings ratios by using earnings data
from BLS during a transitional period, a State-sponsored data system,
or an institutional survey conducted in accordance with NCES standards.
With regard to the comment that the appeals process under proposed
Sec. 668.90(a)(3)(vii) may result in possible abuses and delays
similar to problems experienced in the CDR sanction process, the
proposed change to Sec. 668.90(a)(3)(vii) has been replaced with
procedures established under Sec. 668.7. Section 668.7(d), (e), and
(g) limits challenges to the data used to calculate the debt measures
rather than allowing for the various circumstances under which an
institution may challenge, adjust, and appeal decisions affecting the
institution's CDRs. Therefore, we believe that the procedures
established under Sec. 668.7 will be less susceptible to abuse and
delays than the CDR process. Also, by removing proposed Sec.
668.90(a)(3)(vii), there is no longer a need to address in the final
regulations the appointment or qualifications of the hearing official
as requested by some commenters.
Details of the administrative process can be found under the
preamble discussion under the headings, Small numbers (668.7(d)), and
Draft debt measures and data corrections (Sec. 668.7(e)), Final debt
measures
[[Page 34443]]
(Sec. 668.7(f)), and Alternative earnings (Sec. 668.7(g)).
Changes: We have removed Sec. 668.90(a)(3)(vii) of the proposed
regulations that would allow a termination action against a program
that failed the gainful employment standards in Sec. 668.7(a).
Therefore, current Sec. 668.90 will not be amended.
Executive Orders 12866 and 13563
Regulatory Impact Analysis
Under Executive Order 12866, the Secretary must determine whether
the regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Section 3(f) of Executive Order 12866
defines a ``significant regulatory action'' as an action likely to
result in regulations that may (1) Have an annual effect on the economy
of $100 million or more, or adversely affect a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities in a
material way (also referred to as ``economically significant''
regulations); (2) create serious inconsistency or otherwise interfere
with an action taken or planned by another agency; (3) materially alter
the budgetary impacts of entitlement grants, user fees, or loan
programs or the rights and obligations of recipients thereof; or (4)
raise novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in the Executive
order.
Pursuant to the terms of the Executive Order, we have determined
this regulatory action will have an annual effect on the economy of
more than $100 million. Therefore, this action is ``economically
significant'' and subject to OMB review under section 3(f)(1) of
Executive Order 12866. Notwithstanding this determination, we have
assessed the potential costs and benefits--both quantitative and
qualitative--of this regulatory action. The agency believes that the
benefits justify the costs.
The Department has also reviewed these regulations pursuant to
Executive Order 13563, published on January 21, 2011 (76 FR 3821).
Executive Order 13563 is supplemental to and explicitly reaffirms the
principles, structures, and definitions governing regulatory review
established in Executive Order 12866. To the extent permitted by law,
agencies are required by Executive Order 13563 to: (1) Propose or adopt
regulations only upon a reasoned determination that their benefits
justify their costs (recognizing that some benefits and costs are
difficult to quantify); (2) tailor their regulations to impose the
least burden on society, consistent with obtaining regulatory
objectives, taking into account, among other things, and to the extent
practicable, the costs of cumulative regulations; (3) select, in
choosing among alternative regulatory approaches, those approaches that
maximize net benefits (including potential economic, environmental,
public health and safety, and other advantages; distributive impacts;
and equity); (4) the extent feasible, specify performance objectives,
rather than specifying the behavior or manner of compliance that
regulated entities must adopt; and (5) identify and assess available
alternatives to direct regulation, including providing economic
incentives to encourage the desired behavior, such as user fees or
marketable permits, or providing information upon which choices can be
made by the public.
We emphasize as well that Executive Order 13563 requires agencies
``to use the best available techniques to quantify anticipated present
and future benefits and costs as accurately as possible.'' In its
February 2, 2011, memorandum (M-11-10) on Executive Order 13563,
improving regulation and regulatory review, the Office of Information
and Regulatory Affairs has emphasized that such techniques may include
``identifying changing future compliance costs that might result from
technological innovation or anticipated behavioral changes.''
We are issuing these regulations only upon a reasoned determination
that their benefits justify their costs and we selected, in choosing
among alternative regulatory approaches, those approaches that maximize
net benefits. Based on this analysis and for the additional reasons
stated in the preamble, the Department believes that these final
regulations are consistent with the principles in Executive Order
13563.
A detailed analysis, including the Department's Regulatory
Flexibility Act Analysis, is found in Appendix A to these final
regulations.
Paperwork Reduction Act of 1995
Section 668.7 contains information collection requirements. Under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department
has submitted a copy of this section to OMB for its review. In general,
throughout the preamble, we discuss debt-to-earnings ratios, repayment
rates, draft rates and required disclosures of the final repayment rate
and the debt-to-earnings ratios in the context of being calculated in
or beginning in FY 2012. We have chosen in this section to reference FY
2013 so that our analysis can include critical data tied to second year
failure of a debt measure and the level of debt warning notice required
after a second year failure. We believe that only by including this
data in our analysis can we provide complete and accurate information
regarding burden under these final regulations.
Section 668.7(g)(6)(i) also contains information collection
requirements. However, that burden is already reflected under OMB
Control Number 1845-0107.
Section 668.7--Gainful Employment in a Recognized Occupation
Under Sec. 668.7(c)(2)(i)(A)(2) of these final regulations,
institutions are provided the option to report the total amount of
tuition and fees the institution charged a student in a gainful
employment program. The advantage of exercising this option occurs when
the debt-to-earnings ratios are calculated. In cases where students
borrowed more than the amount of tuition and fees (such as additional
amounts for room and board, books and supplies, or for other living and
personal costs), the amount of indebtedness used for the debt-to-
earnings calculation is limited to the amount that the institution
reported it charged for tuition and fees.
We estimate there will be a very high percentage of proprietary
institutions that will exercise this option. We estimate that
proprietary institutions will choose this option for 99 percent of the
applicable 4,067,680 students for a total of 4,027,003 students. On
average, we estimate that it will take the institution 2 minutes (.03
hours) per student to report this information for a total of 120,810
hours of additional burden under OMB Control Number 1845-0109.
We estimate there will be a high percentage of private non-profit
institutions that will exercise this option. We estimate that private
non-profit institutions will choose this option for 90 percent of the
applicable 242,705 students for a total of 218,435 students. On
average, we estimate that it will take the institution 2 minutes (.03
hours) per student to report this information for a total of 6,553
hours of additional burden under OMB Control Number 1845-0109.
We estimate there will be a moderately high percentage of public
institutions that will exercise this option. We estimate public
institutions will choose this option for 80 percent of the applicable
4,426,327 students for a
[[Page 34444]]
total of 3,541,062 students. On average, we estimate that it will take
the institution 2 minutes (.03 hours) per student to report this
information for a total of 106,232 hours of additional burden under OMB
Control Number 1845-0109.
Collectively, we estimate that these reporting requirements will
increase burden for institutions by 233,595 hours under OMB Control
Number 1845-0109.
Under Sec. 668.7(e)(1) in these final regulations, before issuing
the draft debt-to-earnings ratios, the Secretary will provide to an
institution a list of the students who will be included in the
applicable two- or four-year period used to calculate the debt-to-
earnings ratios beginning in FY 2012. No later than 30 days after the
date the Secretary provides the list to the institution, the
institution may (1) provide evidence showing that a student should be
included on or removed from the list or, (2) correct or update the
student identity information. While this will increase burden to
institutions participating in the pre-draft data challenge, the
increase is estimated to be modest. In many cases, institutions will be
comparing the information that they have previously sent to the
Department about their students in gainful employment programs with
this pre-draft list. If the corrected and updated information is
accurate, the corrected information will be used to create a final list
that will be sent by the Department to SSA in order to calculate the
draft debt-to-earnings ratios.
We estimate that only those institutions who have concerns that
their programs may be failing or believe that they have a failing
program will submit a pre-draft data challenge. Therefore, we are
multiplying by two the total estimated number of failing programs that
will submit a pre-draft data challenge.
We estimate that 601 gainful employment programs will initially
fail the debt measures during FY 2013. We estimate that 323 gainful
employment programs will fail the debt measures for the second time
during FY 2013 for a total of 924 failing programs. We estimate that
twice that number of failing programs or 1,848 pre-draft corrections
will be submitted.
We estimate that proprietary institutions will submit a total of
1,552 pre-draft data challenges. On average, we estimate that
institutional staff will take 1.5 hours per submission to analyze the
draft data supplied by the Department to the institution and to submit
the institution's pre-draft data challenge for a total of 2,328 hours
of increased burden under OMB Control Number 1845-0109.
We estimate that private non-profit institutions will submit a
total of 44 pre-draft data challenges. On average, we estimate that
institutional staff will take 1.5 hours per submission to analyze the
draft data supplied by the Department to the institution and to submit
its pre-draft data challenge for a total of 66 hours of increased
burden under OMB Control Number 1845-0109.
We estimate that public institutions will submit a total of 252
pre-draft data challenges. On average, we estimate that institutional
staff will take 1.5 hours per submission to analyze the draft data
supplied by the Department to the institution and to submit its pre-
draft data challenge for a total of 378 hours of increased burden under
OMB Control Number 1845-0109.
Collectively, under Sec. 668.7(e)(1), we estimate pre-draft data
challenges will increase burden for institutions by 2,772 hours under
OMB Control Number 1845-0109.
Under Sec. 668.7(e)(2) in these final regulations we will notify
an institution of the draft results of the debt-to-earnings ratios for
each gainful employment program. No later than 45 days after the
Secretary issues the draft results of the debt-to-earnings ratios for a
program and no later than 45 days after the Secretary issues the draft
results of the loan repayment rate for a program, the institution may
challenge the accuracy of the loan data for a borrower that was used to
calculate the draft loan repayment rate, or the median loan debt for
the program that was used for the numerator of the draft debt-to-
earnings ratios. Institutions submitting a post-draft corrections
challenge will provide evidence showing that the borrower loan data or
the program median loan debt is inaccurate. The institution may
challenge the accuracy of the list of borrowers included in the
applicable two- or four-year period used to calculate the draft loan
repayment rate by submitting evidence showing that a borrower should be
included on or removed from the list, or correcting or updating
identity information provided for a borrower on the list, such as the
name, social security number, or date of birth.
We estimate that 601 gainful employment programs will fail the debt
measures issued for FY 2013. We estimate that 323 gainful employment
programs will fail the debt measures issued for FY 2013 for the second
time for a total of 924 failing programs.
We estimate that 776 programs will fail the draft debt measures at
proprietary institutions. On average, we estimate that institutional
staff will take 5 hours per program to analyze the draft data supplied
by the Department to the institution and to submit its data challenge
for a total of 3,880 hours of increased burden under OMB Control Number
1845-0109.
We estimate that 22 programs will fail the draft debt measures at
private non-profit institutions. On average, we estimate that
institutional staff will take 5 hours per program to analyze the draft
data supplied by the Department to the institution and to submit its
data challenge for a total of 110 hours of increased burden under OMB
Control Number 1845-0109.
We estimate that 126 programs will fail the draft debt measures at
public institutions. On average, we estimate that institutional staff
will take 5 hours per program to analyze the draft data supplied by the
Department to the institution and to submit its data challenge for a
total of 630 hours of increased burden under OMB Control Number 1845-
0109.
Collectively, under Sec. 668.7(e), we estimate debt measures
challenges will increase burden for institutions by 4,620 hours under
OMB Control Number 1845-0109.
Under Sec. 668.7(g), Alternative earnings, in these final
regulations we provide that an institution may demonstrate that a
failing program would meet a debt-to-earnings standard by recalculating
the debt-to-earnings ratios using the median loan debt for the program
as determined under Sec. 668.7(c) and using alternative earnings from:
A State-sponsored data system; an institutional survey conducted in
accordance with NCES standards; or, for FYs 2012, 2013, and 2014, the
Bureau of Labor Statistics (BLS).
Under Sec. 668.7(g)(2) of these final regulations, for final debt-
to-earnings ratios for a failing program, an institution may use State
data to recalculate those ratios for a failing program only if the
institution obtains earnings data from State-sponsored data systems for
more than 50 percent of the students in the applicable two- or four-
year period, or a comparable two- or four-year period, and that number
of students is more than 30 students; and the institution uses the
actual, State-derived mean or median earnings of the students in the
applicable two- or four-year period. In the institution's submission,
it must demonstrate that it accurately used the actual State-derived
data to recalculate the ratios.
We estimate that 18 percent of the 776 failed programs during the
FY 2013 period at proprietary institutions will choose to use State-
sponsored system
[[Page 34445]]
data to provide alternative earnings. Based on this estimate,
proprietary institutions will submit alternative earnings data from
State-sponsored systems for 140 programs. On average, we estimate that
institutional staff will take 2 hours per submission to acquire the
alternative earnings data from State-sponsored systems, recalculate the
ratios, and submit that data to the Department for a total of 280 hours
of increased burden under OMB Control Number 1845-0109.
We estimate that 5 percent of the 22 failed programs during the FY
2013 period at private non-profit institutions will choose to use
State-sponsored system data to provide alternative earnings. Based on
this estimate, proprietary institutions will submit alternative
earnings data from State-sponsored systems for one program. On average,
we estimate that institutional staff will take 2 hours per submission
to acquire the alternative earnings data from State-sponsored systems,
recalculate the ratios, and submit that data to the Department for a
total of 2 hours of increased burden under OMB Control Number 1845-
0109.
We estimate that 10 percent of the 126 failed programs during the
FY 2013 period at public institutions will choose to use State-
sponsored system data to provide alternative earnings. Based on this
estimate, proprietary institutions will submit alternative earnings
data from State-sponsored systems for 13 programs. On average, we
estimate that institutional staff will take 2 hours per submission to
acquire the alternative earnings data from State-sponsored systems,
recalculate the ratios, and submit that data to the Department for a
total of 26 hours of increased burden under OMB Control Number 1845-
0109.
Collectively, under Sec. 668.7(g)(2), we estimate using State-
sponsored system data for alternative earnings will increase burden for
institutions by 308 hours under OMB Control Number 1845-0109.
Under Sec. 668.7(g)(3) of these final regulations, for final debt-
to-earnings ratios calculated by the Secretary for FY 2012 and any
subsequent FY, an institution may use survey data to recalculate the
ratios for a failing program only if the institution: (1) Uses reported
earnings obtained from an institutional survey conducted of the
students in the applicable two- or four-year period, or a comparable
two- or four-year period, and the survey data is for more than 30
students; (2) submits a copy of the survey and certifies that it was
conducted in accordance with the statistical standards and procedures
established by NCES and available at http://nces.ed.gov; and (3)
submits an examination-level attestation by an independent public
accountant or independent governmental auditor, as appropriate, that
the survey was conducted in accordance with the specified NCES
standards and procedures.
We estimate that 2 percent of the 776 failed programs during the FY
2013 period at proprietary institutions will choose to use survey data
to provide alternative earnings. Based on this estimate, proprietary
institutions will submit survey data to provide alternative earnings
for 16 programs. On average, we estimate that institutional staff will
take 40 hours per submission to attain survey data, to formulate the
alternative earnings based upon that data, and to submit that data to
the Department for a total of 640 hours of increased burden under OMB
Control Number 1845-0109.
We estimate that 0 percent of private non-profit and public
institutions will choose to submit alternative earnings data based upon
an NCES compliant survey.
Collectively, under Sec. 668.7(g)(3), we estimate the burden for
institutions to use an NCES compliant survey for alternative earnings
will increase burden by 640 hours under OMB Control Number 1845-0109.
Under Sec. 668.7(g)(4) of these final regulations, for the final
debt-to-earnings ratios calculated by the Secretary for FYs 2012, 2013,
and 2014, an institution may use BLS earnings data to recalculate those
ratios for a failing program only if the institution: (1) Identifies
and provides documentation of the occupation by SOC code, or
combination of SOC codes, in which more than 50 percent of the students
in the 2YP or 4YP were placed or found employment, and that number of
students is more than 30; (2) uses the most current BLS earnings data
for the identified SOC code to calculate the debt-to-earnings ratio;
and (3) submits, upon request, all the placement, employment, and other
records maintained by the institution for the program under Sec.
668.7(g)(4)(i) that the institution examined to determine whether those
records identified the SOC codes for the students who were placed or
found employment.
We estimate that 776 programs at proprietary institutions will fail
the debt-to-earnings ratios issued for FY 2013 and choose to use BLS
data to provide alternative earnings. We estimate that proprietary
institutions will provide alternative earnings information using BLS
data for 75 percent of the total number of failed programs which equals
582 alternative earnings submissions. On average, we estimate that
institutional staff will take 5 hours per submission to formulate the
alternative earnings based upon BLS data and submit that data to the
Department for a total of 2,910 hours of increased burden under OMB
Control Number 1845-0109.
We estimate that 22 programs at private non-profit institutions
will fail the debt-to-earnings ratios issued for FY 2013 and choose to
use BLS data to provide alternative earnings. We estimate that private
non-profit institutions will provide alternative earnings information
using BLS data for 55 percent of the total number of failed programs,
which equals 12 alternative earnings submissions. On average, we
estimate that institutional staff will take 5 hours per submission to
formulate the alternative earnings based upon BLS data and submit that
data to the Department for a total of 60 hours of increased burden
under OMB Control Number 1845-0109.
We estimate that 126 programs at public institutions will fail the
debt-to-earnings ratios issued for FY 2013 and choose to use BLS data
to provide alternative earnings. We estimate that public institutions
will provide alternative earnings information using BLS data for 80
percent of the total number of failed programs which equals 101
alternative earnings submissions. On average, we estimate that
institutional staff will take 5 hours per submission to formulate the
alternative earnings based upon BLS data and submit that data to the
Department for a total of 505 hours of increased burden under OMB
Control Number 1845-0109.
Collectively, under Sec. 668.7(g)(4), we estimate using BLS data
for alternative earnings will increase burden for institutions by 3,475
hours under OMB Control Number 1845-0109.
Under Sec. 668.7(g)(5) of these final regulations, institutions
must notify the Secretary of the institution's intent to use
alternative earnings no later than 14 days after the date the
institution is notified of its final debt measures. Additionally,
institutions must submit all supporting documentation related to
recalculation of the debt-to-earnings ratios using alternative
earnings, no later than 60 days after the institution is notified of
its final debt measures.
We estimate that proprietary institutions will notify the Secretary
of their intent to use alternative earnings in the recalculation of the
debt-to-earnings ratios and will submit their documentation in a timely
manner for 776 programs that failed the debt measures issued for FY
2013. On
[[Page 34446]]
average, we estimate that it will take institutional staff 15 minutes
(.25 hours) to notify the Secretary of the institution's intent to use
alternative earnings no later than 14 days after the date the
institution is notified of its final debt measures for a total of 194
hours of increased burden under OMB Control Number 1845-0109.
We estimate that private non-profit institutions will notify the
Secretary of their intent to use alternative earnings in the
recalculation of the debt-to-earnings ratios and will submit their
documentation in a timely manner for 22 programs that failed the debt
measures issued for FY 2013. On average, we estimate that it will take
institutional staff 15 minutes (.25 hours) to notify the Secretary of
the institution's intent to use alternative earnings no later than 14
days after the date the institution is notified of its final debt
measures for a total of 6 hours of increased burden under OMB Control
Number 1845-0109.
We estimate that public institutions will notify the Secretary of
their intent to use alternative earnings in the recalculation of the
debt-to-earnings ratios and will submit their documentation in a timely
manner for 126 programs that failed the debt measures issued for FY
2013. On average, we estimate that it will take institutional staff 15
minutes (.25 hours) to notify the Secretary of its intent to use
alternative earnings no later than 14 days after the date the
institution is notified of its final debt measures for a total of 32
hours of increased burden under OMB Control Number 1845-0109.
Collectively, under Sec. 668.7(g)(5), we estimate the burden for
institutions to notify the Secretary of their intent to use alternative
earnings to recalculate the debt-to-earnings ratios and submit the
supporting documentation will increase burden by 232 hours under OMB
Control Number 1845-0109.
Under Sec. 668.7(j)(1) of these final regulations, the institution
is required to provide for each enrolled and prospective student a
warning prepared in plain language and presented either orally or in
writing directly to the students when a program fails the debt measures
for the first time. The initial warning explains the debt measures and
shows the amount by which the program did not meet the minimum
standards. In addition, the initial warning describes any actions the
institution plans to take to improve the program's performance. To the
extent that the institution delivers the initial warning orally, it
must maintain documentation of how that information was provided,
including any materials the institution used to deliver that warning
and any documentation of the student's presence at the time of the
warning.
Under Sec. 668.7(j)(2) of these final regulations, an institution
that has a program that has failed the debt measures for two
consecutive FYs or for two out of the three most recently completed
FYs, must provide the debt warning containing the requirements in Sec.
668.7(j)(1) in writing, together with a plain language explanation of
what actions the institution plans to take in response to the second
failure. If the institution plans to discontinue the program, it must
provide the timeline for doing so, and the options available to the
student. The second debt warning must also explain the risks associated
with enrolling or continuing in the program, including the potential
consequences for, and options available to, the student if the program
becomes ineligible for title IV, HEA program funds. Additionally, the
second debt warning must include a plain language explanation of the
resources available, including http://www.collegenavigator.gov, that
the student may use to research other educational options and compare
program costs, and include a clear and conspicuous statement that a
student who enrolls or continues in the program should expect to have
difficulty repaying his or her student loans.
Under Sec. 668.7(j)(4) of these final regulations, the institution
must prominently display the second-year debt warning on the program
home page of the institution's Web site and include the warning in all
promotional materials it makes available to prospective students. We do
not expect that the following requirements will be overly burdensome
for institutions: (1) Providing a plain language explanation of the
actions the institution plans to take in response to the second
failure; the risks associated with enrolling or continuing in the
program; and the resources available, including http://www.collegenavigator.gov; (2) providing a clear and conspicuous
statement that a student who enrolls in or continues in the program
should expect to have difficulty repaying their student loan debt; and
(3) posting that information on the program home page of the
institution's Web site and in its promotional materials.
We estimate that 493 programs at proprietary institutions will fail
the debt measures issued for FY 2013 for the first time. We estimate
that an additional 283 programs at proprietary institutions will fail
the debt measures for the second time during the same period of time.
We estimate that on average, it will take institutional staff 30
minutes (.5 hours) to prepare and distribute a first or second year
warning as required for a total of 776 affected programs, resulting in
an increase in burden of 388 hours under OMB Control Number 1845-0109.
We estimate that 16 programs at private non-profit institutions
will fail the debt measures issued for FY 2013 for the first time. We
estimate that an additional 6 programs at private non-profit
institutions will fail the debt measures for the second time during the
same period of time. We estimate that on average, it will take
institutional staff 30 minutes (.5 hours) to prepare and distribute a
first or second year warning as required for a total of 22 affected
programs times, resulting in an increase in burden of 11 hours under
OMB Control Number 1845-0109.
We estimate that 92 programs at public institutions will fail the
debt measures issued for FY 2013 for the first time. We estimate that
an additional 34 programs at public institutions will fail the debt
measures for the second time during the same period of time. We
estimate that on average, it will take institutional staff 30 minutes
(.5 hours) to prepare and distribute a first or second year warning for
a total of 126 affected programs times, resulting in an increase in
burden of 63 hours under OMB Control Number 1845-0109.
Collectively, we estimate that the burden for meeting these
disclosure requirements will increase burden for institutions by 462
hours under OMB Control Number 1845-0109.
Under Sec. 668.7(j)(5) of these final regulations, if an
institution voluntarily discontinues a failing program, it must notify
enrolled students at the same time that it provides the written notice
to the Secretary that it relinquishes the program's title IV, HEA
program eligibility.
We estimate that for the period from July 1, 2012 through June 30,
2013 proprietary institutions will have 493 programs that have failed
the debt measures once and 283 programs that have failed the debt
measures twice, totaling 776 failing programs. We estimate that 70
percent of that total number of failing programs or 543 programs will
be voluntarily discontinued. On average, it will take institutional
staff 10 minutes (.17 hours) to provide written notice to the Secretary
that it relinquishes the program's title IV, HEA program eligibility
for a total of 92 hours of increased burden under OMB Control Number
1845-0109.
We estimate that for the period from July 1, 2012 through June 30,
2013
[[Page 34447]]
private non-profit institutions will have 16 programs that have failed
the debt measures once and 6 programs that have failed the debt
measures twice, totaling 22 failing programs. We estimate that 10
percent of that total number of failing programs or 2 programs will be
voluntarily discontinued. On average, it will take institutional staff
10 minutes (.17 hours) to provide written notice to the Secretary that
it relinquishes the program's title IV, HEA program eligibility for a
total of 1 hour of increased burden under OMB Control Number 1845-0109.
We estimate that for the period from July 1, 2012 through June 30,
2013 public institutions will have 92 programs that have failed the
debt measures once and 34 programs that have failed the debt measures
twice, totaling 126 failing programs. We estimate that 20 percent of
that total number of failing programs or 25 program will be voluntarily
discontinued. On average, it will take institutional staff 10 minutes
(.17 hours) to provide written notice to the Secretary that it
relinquishes the program's title IV, HEA program eligibility for a
total of 4 hours of increased burden under OMB Control Number 1845-
0109.
Collectively, under Sec. 668.7(j)(5), we estimate the burden for
institutions to notify the Secretary to relinquish the program's title
IV, HEA program eligibility will increase burden by 97 hours under OMB
Control Number 1845-0109.
We estimate that for FY 2013 there will be 8,736,711 students in
55,405 gainful employment programs which yields an average program size
of 158 students per program.
We estimated above that there will be 543 proprietary programs that
are voluntarily discontinued. Using the average of 158 students per
program, proprietary institutions will be required to notify 85,794
students that the program is being discontinued. On average, we
estimate that it will take a student 15 minutes (.25 hours) to read the
notice provided by the institution and determine the impact on the
completion of the program without title IV, HEA program assistance for
a total of 21,449 hours of increased burden under OMB Control Number
1845-0109.
We estimated above that there will be 2 private non-profit programs
that are voluntarily discontinued. Using the average of 158 students
per program, private non-profit institutions will be required to notify
316 students that the program is being discontinued. On average, we
estimate that it will take a student 15 minutes (.25 hours) to read the
notice provided by the institution and determine the impact on the
completion of the program without title IV, HEA program assistance for
a total of 79 hours of increased burden under OMB Control Number 1845-
0109.
We estimated above that 25 public programs will be voluntarily
discontinued. Using the average of 158 students per program, public
institutions will be required to notify 3,950 students that the program
is being discontinued. On average, we estimate that it will take a
student 15 minutes (.25 hours) to read the notice provided by the
institution and determine the impact on the completion of the program
without title IV, HEA program assistance for a total of 988 hours of
increased burden under OMB Control Number 1845-0109.
Collectively, under Sec. 668.7(j)(5), we estimate that for
students to read the notice provided by the institution about the
institution's decision to voluntarily a failing program will increase
burden by 22,516 hours under OMB 1845-0109.
Under Sec. 688.7(j)(5) of these final regulations, we estimate
that 85,794 students will be enrolled at proprietary institutions in
failing programs that are voluntarily discontinued. On average, we
estimate that it will take institutional staff 10 minutes (.17 hours)
per student to prepare and mail a notice provided by the institution
indicating that the failing gainful employment program is being
voluntarily discontinued and the date that title IV, HEA program
assistance will no longer be available for a total of 14,585 hours of
increased burden under OMB Control Number 1845-0109.
Under Sec. 688.7(j)(5) of these final regulations, we estimate
that 316 students will be enrolled at private non-profit institutions
in failing programs that are voluntarily discontinued. On average, we
estimate that it will take institutional staff 10 minutes (.17 hours)
per student to prepare and mail a notice provided by the institution
indicating that the failing gainful employment program is being
voluntarily discontinued and the date that title IV, HEA program
assistance will no longer be available for a total of 54 hours of
increased burden under OMB Control Number 1845-0109.
Under Sec. 688.7(j)(5) of these final regulations, we estimate
that 3,950 students will be enrolled at public institutions in failing
programs that are voluntarily discontinued. On average, we estimate
that it will take institutional staff 10 minutes (.17 hours) per
student to prepare and mail a notice provided by the institution
indicating that the failing gainful employment program is being
voluntarily discontinued and the date that title IV, HEA program
assistance will no longer be available for a total of 672 hours of
increased burden under OMB Control Number 1845-0109.
Collectively, under Sec. 688.7(j)(5) of these final regulations,
we estimate that it will take institutional staff a total of 15,311
hours of increased burden under OMB Control Number 1845-0109 to prepare
and mail a notice provided by the institution indicating that the
failing gainful employment program is being voluntarily discontinued
and the date that title IV, HEA program assistance will no longer be
available.
[[Page 34448]]
Collection of Information
----------------------------------------------------------------------------------------------------------------
Regulatory section Information collection Collection
----------------------------------------------------------------------------------------------------------------
668.7..................... This section provides institutions the option to OMB Control Number 1845-0109.
submit the tuition and fee amount charged a This will be a new collection.
student in a gainful employment program. This The burden will increase by
section also provides for draft data challenges 284,028 hours.
whereby institutions will have the opportunity to
challenge the accuracy of the information used to
calculate the debt measures in the event that
student identifying information was erroneously
included or excluded. Institutions with programs
that fail the debt measures will have an
opportunity to provide alternative earnings data
from BLS data, State-sponsored earnings data, or
the results of an institutional earnings survey as
long as the survey meets NCES standards and an
independent public accountant or independent
governmental auditor, as appropriate, has attested
that the survey was conducted in accordance with
the specific NCES standards and procedures. This
section also provides for institutions to notify
the Secretary of the institution's intent to use
alternative earnings data. This section provides
that institutions must disclose debt warnings for
first year failures and second year failures to
each enrolled student and prospective student in a
gainful employment program. Institutions that
choose to voluntarily discontinue a failing
program must do so in writing to the Secretary
relinquishing the program's title IV, HEA program
eligibility and by notice to the enrolled students.
----------------------------------------------------------------------------------------------------------------
Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded
Mandates Act''), Public Law 104-4 (March 22, 1995), requires that an
agency prepare a budgetary impact statement before promulgating
regulations that may result in expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, section 205 of the Unfunded Mandates Act also requires an
agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. Please see the Regulatory
Impact Analysis, attached as Appendix A, for a discussion of the
budgetary impact of these final regulations.
Assessment of Educational Impact
In accordance with section 411 of the General Education Provisions
Act, 20 U.S.C. 1221e-4, and based on our own review, we have determined
that these final regulations do not require transmission of information
that any other agency or authority of the United States gathers or
makes available.
Electronic Access to This Document: The official version of this
document is the document published in the Federal Register. Free
Internet access to the official edition of the Federal Register and the
Code of Federal Regulations is available via the Federal Digital System
at: http://www.gpo.gov/fdsys. At this site you can view this document,
as well as all other documents of this Department published in the
Federal Register, in text or Adobe Portable Document Format (PDF). To
use PDF you must have Adobe Acrobat Reader, which is available free at
the site.
You may also access documents of the Department published in the
Federal Register by using the article search feature at: http://www.federalregister.gov. Specifically, through the advanced search
feature at this site, you can limit your search to documents published
by the Department.
(Catalog of Federal Domestic Assistance Numbers: 84.007 FSEOG;
84.032 Federal Family Education Loan Program; 84.033 Federal Work-
Study Program; 84.037 Federal Perkins Loan Program; 84.063 Federal
Pell Grant Program; 84.069 LEAP; 84.268 William D. Ford Federal
Direct Loan Program; 84.376 ACG/SMART; 84.379 TEACH Grant Program)
List of Subjects in 34 CFR Part 668
Administrative practice and procedure, Aliens, Colleges and
universities, Consumer protection, Grant programs--education,
Incorporation by reference, Loan programs--education, Reporting and
recordkeeping requirements, Selective Service System, Student aid,
Vocational education.
Dated: June 1, 2011.
Arne Duncan,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary amends
part 668 of title 34 of the Code of Federal Regulations as follows:
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
0
1. The authority citation for part 668 continues to read as follows:
Authority: 20 U.S.C. 1001, 1002, 1003, 1070g, 1085, 1088, 1091,
1092, 1094, 1099c, and 1099c-1, unless otherwise noted.
0
2. Section 668.7 is added to read as follows:
Sec. 668.7 Gainful employment in a recognized occupation.
(a) Gainful employment. (1) Minimum standards. A program is
considered to provide training that leads to gainful employment in a
recognized occupation if--
(i) As determined under paragraph (b) of this section, the
program's annual loan repayment rate is at least 35 percent;
(ii) As determined under paragraph (c) of this section, the
program's annual loan payment is less than or equal to--
(A) 30 percent of discretionary income (discretionary income
threshold); or
(B) 12 percent of annual earnings (actual earnings threshold); or
(iii) The data needed to determine whether a program satisfies the
minimum standards are not available to the Secretary.
(2) General. For the purposes of this section--
(i)(A) A program refers to an educational program offered by an
institution under Sec. 668.8(c)(3) or (d) that is identified by a
combination of the institution's six-digit OPEID number, the program's
six-digit CIP code as assigned by an institution or determined by the
Secretary, and credential level;
(B) The Secretary determines whether an institution accurately
assigns a CIP code for a program based on the classifications and
program codes established by the National Center for Education
Statistics (NCES); and
[[Page 34449]]
(C) The credential levels for identifying a program are
undergraduate certificate, associate's degree, bachelor's degree, post-
baccalaureate certificate, master's degree, doctoral degree, and first-
professional degree;
(ii) Debt measures refers collectively to the loan repayment rate
and debt-to-earnings ratios described in paragraphs (b) and (c) of this
section;
(iii) A fiscal year (FY) is the 12-month period starting October 1
and ending September 30 that is designated by the calendar year in
which it ends; for example FY 2013 is from October 1, 2012 to September
30, 2013. That designation also represents the FY for which the
Secretary calculates the debt measures;
(iv) A two-year period is the period covering two consecutive FYs
that occur on--
(A)(1) The third and fourth FYs (2YP) prior to the most recently
completed FY for which the debt measures are calculated. For example,
if the most recently completed FY is 2012, the 2YP is FYs 2008 and
2009; or
(2) For FYs 2012, 2013, and 2014, the first and second FYs (2YP-A)
prior to the most recently completed FY for which the loan repayment
rate is calculated under paragraph (b) of this section. For example, if
the most recently completed FY is 2012, the 2YP-A is FYs 2010 and 2011;
or
(B) For a program whose students are required to complete a medical
or dental internship or residency, as identified by an institution, the
sixth and seventh FYs (2YP-R) prior to the most recently completed FY
for which the debt measures are calculated. For example, if the most
recently completed FY is 2012, the 2YP-R is FYs 2005 and 2006. For this
purpose, a required medical or dental internship or residency is a
supervised training program that--
(1) Requires the student to hold a degree as a doctor of medicine
or osteopathy, or a doctor of dental science;
(2) Leads to a degree or certificate awarded by an institution of
higher education, a hospital, or a health care facility that offers
post-graduate training; and
(3) Must be completed before the borrower may be licensed by the
State and board certified for professional practice or service;
(v) A four-year period is the period covering four consecutive FYs
that occur on--
(A) The third, fourth, fifth, and sixth FYs (4YP) prior to the most
recently completed FY for which the debt measures are calculated. For
example, if the most recently completed FY is 2017, the 4YP is FYs
2011, 2012, 2013, and 2014; or
(B) For a program whose students are required to complete a medical
or dental internship or residency, as identified by an institution, the
sixth, seventh, eighth, and ninth FYs (4YP-R) prior to the most
recently completed FY for which the debt measures are calculated. For
example, if the most recently completed FY is 2017, the 4YP-R is FYs
2008, 2009, 2010, and 2011. For this purpose, a required medical or
dental internship or residency is a supervised training program that--
(1) Requires the student to hold a degree as a doctor of medicine
or osteopathy, or a doctor of dental science;
(2) Leads to a degree or certificate awarded by an institution of
higher education, a hospital, or a health care facility that offers
post-graduate training; and
(3) Must be completed before the borrower may be licensed by the
State and board certified for professional practice or service; and
(vi) Discretionary income is the difference between the mean or
median annual earnings and 150 percent of the most current Poverty
Guideline for a single person in the continental U.S. The Poverty
Guidelines are published annually by the U.S. Department of Health and
Human Services (HHS) and are available at http://aspe.hhs.gov/poverty.
(b) Loan repayment rate. For the most recently completed FY, the
Secretary calculates the loan repayment rate for a program using the
following ratio:
[GRAPHIC] [TIFF OMITTED] TR13JN11.022
(1) Original Outstanding Principal Balance (OOPB). (i) The OOPB is
the amount of the outstanding balance, including capitalized interest,
on FFEL or Direct Loans owed by students for attendance in the program
on the date those loans first entered repayment.
(ii) The OOPB includes FFEL and Direct Loans that first entered
repayment during the 2YP, the 2YP-A, the 2YP-R, the 4YP, or the 4YP-R.
The OOPB does not include PLUS loans made to parent borrowers or TEACH
Grant-related unsubsidized loans.
(iii) For consolidation loans, the OOPB is the OOPB of the FFEL and
Direct Loans attributable to a borrower's attendance in the program.
(iv) For FYs 2012, 2013, and 2014, the Secretary calculates two
loan repayment rates for a program, one with the 2YP and the other with
the 2YP-A, so long as the 2YP-A represents more than 30 borrowers whose
loans entered repayment. Provided that both loan repayment rates are
calculated, the Secretary determines whether the program meets the
minimum standard under paragraph (a)(1)(i) of this section by using the
higher of the 2YP rate or the 2YP-A rate.
(2) Loans Paid in Full (LPF). (i) LPF are loans that have never
been in default or, in the case of a Federal Consolidation Loan or a
Direct Consolidation Loan, neither the consolidation loan nor the
underlying loan or loans have ever been in default and that have been
paid in full by a borrower. A loan that is paid through a Federal
Consolidation loan, a Direct Consolidation loan, or under another
refinancing process provided for under the HEA, is not counted as paid-
in-full for this purpose until the consolidation loan or other
financial instrument is paid in full by the borrower.
(ii) The OOPB of LPF in the numerator of the ratio is the total
amount of OOPB for these loans.
(3) Payments-Made Loans (PML). (i) PML are loans that have never
been in default or, in the case of a Federal Consolidation Loan or a
Direct Consolidation Loan, neither the consolidation loan nor the
underlying loan or loans have ever been in default, where--
(A)(1) Payments made by a borrower during the most recently
completed FY reduce the outstanding balance of a loan, including the
outstanding balance of a Federal Consolidation Loan or Direct
Consolidation Loan, to an amount that is less than the outstanding
balance of the loan at the beginning of that FY. The outstanding
balance of a loan includes any unpaid accrued interest that has not
been capitalized; or
(2) If the program is a post-baccalaureate certificate, master's
degree, doctoral degree, or first-professional degree program, the
total outstanding balance of a Federal or Direct Consolidation Loan at
the end of
[[Page 34450]]
the most recently completed FY is less than or equal to the total
outstanding balance of the consolidation loan at the beginning of the
FY. The outstanding balance of the consolidation loan includes any
unpaid accrued interest that has not been capitalized;
(B) A borrower is in the process of qualifying for Public Service
Loan Forgiveness under 34 CFR 685.219(c) and submits an employment
certification to the Secretary that demonstrates the borrower is
engaged in qualifying employment and the borrower made qualifying
payments on the loan during the most recently completed FY; or
(C)(1) Except as provided under paragraph (b)(3)(i)(C)(2) of this
section, a borrower in the income-based repayment plan (IBR), income
contingent repayment plan (ICR), or any other repayment plan makes
scheduled payments on the loan during the most recently completed FY
for an amount that is equal to or less than the interest that accrues
on the loan during the FY. The Secretary limits the dollar amount of
these interest-only or negative amortization loans in the numerator of
the ratio to no more than 3 percent of the total amount of OOPB in the
denominator of the ratio, based on available data on a program's
borrowers who are making scheduled payments under these repayment
plans.
(2) Until the Secretary determines that there is sufficiently
complete data on which of the program's borrowers have scheduled
payments that are equal to or less than accruing interest, the
Secretary will include in the numerator 3 percent of the OOPB in the
denominator.
(3) Notwithstanding paragraph (b)(3)(i)(C)(1) of this section, with
regard to applying the percent limitation on the dollar amount of the
interest-only or negative amortization loans, the Secretary may adjust
the limitation by publishing a notice in the Federal Register. The
adjusted limitation may not be lower than the percent limitation
specified in paragraph (b)(3)(i)(C)(1) of this section or higher than
the estimated percentage of all outstanding Federal student loan
dollars that are interest-only or negative amortization loans.
(ii) The OOPB of PML in the numerator of the ratio is the total
amount of OOPB for the loans described in paragraph (b)(3)(i) of this
section.
(4) Exclusions. For the most recently completed FY, the OOPB of the
following loans is excluded from both the numerator and the denominator
of the ratio:
(i) Loans that were in an in-school deferment status during any
part of the FY.
(ii) Loans that were in a military-related deferment status during
any part of the FY.
(iii) Loans that were discharged as a result of the death of the
borrower under 34 CFR 682.402(b) or 34 CFR 685.212(a).
(iv) Loans that were assigned or transferred to the Secretary that
are being considered for discharge as a result of the total and
permanent disability of the borrower, or were discharged by the
Secretary on that basis under 34 CFR 682.402(c) or 34 CFR 685.212(b).
(c) Debt-to-earnings ratios. (1) General. For each FY, the
Secretary calculates the debt-to-earnings ratios using the following
formulas:
(i) Discretionary income rate = Annual loan payment/(Mean or Median
Annual Earnings -(1.5 x Poverty Guideline)).
(ii) Earnings rate = Annual loan payment/Mean or Median Annual
Earnings.
(2) Annual loan payment. The Secretary determines the annual loan
payment for a program by--
(i) Calculating the median loan debt of the program by--
(A) For each student who completed the program during the 2YP, the
2YP-R, the 4YP, or the 4YP-R, determining the lesser of--
(1) The amount of loan debt the student incurred, as determined
under paragraph (c)(4) of this section; or
(2) If tuition and fee information is provided by the institution,
the total amount of tuition and fees the institution charged the
student for enrollment in all programs at the institution; and
(B) Using the lower amount obtained under paragraph (c)(2)(i)(A) of
this section for each student in the calculation of the median loan
debt for the program; and
(ii) Using the median loan debt for the program and the current
annual interest rate on Federal Direct Unsubsidized Loans to calculate
the annual loan payment based on--
(A) A 10-year repayment schedule for a program that leads to an
undergraduate or post-baccalaureate certificate or to an associate's
degree;
(B) A 15-year repayment schedule for a program that leads to a
bachelor's or master's degree; or
(C) A 20-year repayment schedule for a program that leads to a
doctoral or first-professional degree.
(3) Annual earnings. The Secretary obtains from the Social Security
Administration (SSA), or another Federal agency, the most currently
available mean and median annual earnings of the students who completed
the program during the 2YP, the 2YP-R, the 4YP, or the 4YP-R. The
Secretary calculates the debt-to-earnings ratios using the higher of
the mean or median annual earnings.
(4) Loan debt. In determining the loan debt for a student, the
Secretary--
(i) Includes FFEL and Direct loans (except for parent PLUS or TEACH
Grant-related loans) owed by the student for attendance in a program,
and as reported under Sec. 668.6(a)(1)(i)(C)(2), any private education
loans or debt obligations arising from institutional financing plans;
(ii) Attributes all the loan debt incurred by the student for
attendance in programs at the institution to the highest credentialed
program subsequently completed by the student at the institution; and
(iii) Does not include any loan debt incurred by the student for
attendance in programs at other institutions. However, the Secretary
may include loan debt incurred by the student for attending other
institutions if the institution and the other institutions are under
common ownership or control, as determined by the Secretary in
accordance with 34 CFR 600.31.
(5) Exclusions. For the FY the Secretary calculates the debt-to-
earnings ratios for a program, a student in the applicable two- or
four-year period that completed the program is excluded from the ratio
calculations if the Secretary determines that--
(i) One or more of the student's loans were in a military-related
deferment status at any time during the calendar year for which the
Secretary obtains earnings information under paragraph (c)(3) of this
section;
(ii) The student died;
(iii) One or more of the student's loans were assigned or
transferred to the Secretary and are being considered for discharge as
a result of the total and permanent disability of the student, or were
discharged by the Secretary on that basis under 34 CFR 682.402(c) or 34
CFR 685.212(b); or
(iv) The student was enrolled in any other eligible program at the
institution or at another institution during the calendar year for
which the Secretary obtains earnings information under paragraph (c)(3)
of this section.
(d) Small numbers. (1) The Secretary calculates the debt measures
for a program with a small number of borrowers or completers by using
the 4YP or the 4YP-R, as applicable, if--
(i) For the loan repayment rate, the corresponding 2YP or the 2YP-R
represents 30 or fewer borrowers whose loans entered repayment after
any of
[[Page 34451]]
those loans are excluded under paragraph (b)(4) of this section; or
(ii) For the debt-to-earnings ratios, the corresponding 2YP or the
2YP-R represents 30 or fewer students who completed the program after
any of those students are excluded under paragraph (c)(5) of this
section.
(2) In lieu of the minimum standards in paragraph (a)(1) of this
section, the program satisfies the debt measures if--
(i)(A) The 4YP or the 4YP-R represents, after any exclusions under
paragraph (b)(4) or (c)(5) of this section, 30 or fewer borrowers whose
loans entered repayment or 30 or fewer students who completed the
program; or
(B) SSA did not provide the mean and median earnings for the
program as provided under paragraph (c)(3) of this section; or
(ii) The median loan debt calculated under paragraph (c)(2)(i) of
this section is zero.
(e) Draft debt measures and data corrections. For each FY beginning
with FY 2012, the Secretary issues draft results of the debt measures
for each program offered by an institution. As provided under this
paragraph, the institution may correct the data used to calculate the
draft results before the Secretary issues final debt measures under
paragraph (f) of this section.
(1) Pre-draft corrections process for the debt-to-earnings ratios.
(i) Before issuing the draft results of the debt-to-earnings ratios for
a program, the Secretary provides to an institution a list of the
students who will be included in the applicable two- or four-year
period for calculating the ratios. No later than 30 days after the date
the Secretary provides the list to the institution, in accordance with
procedures established by the Secretary, the institution may--
(A) Provide evidence showing that a student should be included on
or removed from the list; or
(B) Correct or update the identity information provided for a
student on the list, such as name, social security number, or date of
birth.
(ii) After the 30 day correction period, the institution may no
longer challenge whether students should be included on the list or
update the identity information of those students.
(iii) If the information provided by the institution under
paragraph (e)(1)(i) of this section is accurate, the updated
information is used to create a final list of students that the
Secretary submits to SSA. The Secretary calculates the draft debt-to-
earnings ratios based on the mean and median earnings provided by SSA
for the students on the final list.
(iv) An institution may not challenge the accuracy of the mean or
median annual earnings the Secretary obtained from SSA to calculate the
draft debt-to-earnings ratios for the program.
(2) Post-draft corrections process for the debt measures. No later
than 45 days after the Secretary issues the draft results of the debt-
to-earnings ratios for a program and no later than 45 days after the
Secretary issues the draft results of the loan repayment rate for a
program, respectively, in accordance with procedures established by the
Secretary, an institution--
(i) May challenge the accuracy of the loan data for a borrower that
was used to calculate the draft loan repayment rate, or the median loan
debt for the program that was used for the numerator of the draft debt-
to-earnings ratios, by submitting evidence showing that the borrower
loan data or the program median loan debt is inaccurate; and
(ii) May challenge the accuracy of the list of borrowers included
in the applicable two- or four-year period used to calculate the draft
loan repayment rate by--
(A) Submitting evidence showing that a borrower should be included
on or removed from the list; or
(B) Correcting or updating the identity information provided for a
borrower on the list, such as name, social security number, or date of
birth.
(3) Recalculated results. (i) Debt measures. In general, if the
information provided by an institution under paragraph (e)(2) of this
section is accurate, the Secretary uses the corrected information to
recalculate the debt measures for the program.
(ii) Debt-to-earnings ratios. For a failing program, if SSA is
unable to include in its calculation of the mean and median earnings
for the program one or more students on the list finalized under
paragraph (e)(1)(iii) of this section, the Secretary adjusts the median
loan debt by removing the highest loan debt associated with the number
of students SSA is unable to include in its calculation. For example,
if SSA is unable to include three students in its calculation, the
Secretary removes the loan debt for the same number of students on the
list that had the highest loan debt. The Secretary recalculates the
debt-to-earnings ratios for the program based on the adjusted median
loan debt.
(f) Final debt measures. The Secretary notifies an institution of
any draft results that are not challenged, or are recalculated or
unsuccessfully challenged under paragraph (e) of this section. These
results become the final debt measures for the program.
(g) Alternative earnings. (1) General. An institution may
demonstrate that a failing program, as defined under paragraph (h) of
this section, would meet a debt-to-earnings standard by recalculating
the debt-to-earnings ratios using the median loan debt for the program
as determined under paragraph (c) of this section, and alternative
earnings from: a State-sponsored data system; an institutional survey
conducted in accordance with NCES standards; or, for FYs 2012, 2013,
and 2014, the Bureau of Labor Statistics (BLS).
(2) State data. For final debt-to-earnings ratios calculated by the
Secretary for FY 2012 and any subsequent FY, an institution may use
State data to recalculate those ratios for a failing program only if
the institution--
(i) Obtains earnings data from State-sponsored data systems for
more than 50 percent of the students in the applicable two- or four-
year period, or a comparable two- or four-year period, and that number
of students is more than 30;
(ii) Uses the actual, State-derived mean or median earnings of the
students in the applicable two- or four-year period under paragraph
(g)(2)(i) of this section; and
(iii) Demonstrates that it accurately used the actual State-derived
data to recalculate the ratios.
(3) Survey data. For final debt-to-earnings ratios calculated by
the Secretary for FY 2012 and any subsequent FY, an institution may use
survey data to recalculate those ratios for a failing program only if
the institution--
(i) Uses reported earnings obtained from an institutional survey
conducted of the students in the applicable two- or four-year period,
or a comparable two- or four-year period, and the survey data is for
more than 30 students. The institution may use the mean or median
annual earnings derived from the survey data;
(ii) Submits a copy of the survey and certifies that it was
conducted in accordance with the statistical standards and procedures
established by NCES and available at http://nces.ed.gov; and
(iii) Submits an examination-level attestation by an independent
public accountant or independent governmental auditor, as appropriate,
that the survey was conducted in accordance with the specified NCES
standards and procedures. The attestation must be conducted in
accordance with the general, field work, and reporting standards for
attestation engagements contained in the GAO's
[[Page 34452]]
Government Auditing Standards, and with procedures for attestations
contained in guides developed by and available from the Department of
Education's Office of Inspector General.
(4) BLS data. For the final debt-to-earnings ratios calculated by
the Secretary for FYs 2012, 2013, and 2014, an institution may use BLS
earnings data to recalculate those ratios for a failing program only if
the institution--
(i) Identifies and provides documentation of the occupation by SOC
code, or combination of SOC codes, in which more than 50 percent of the
students in the 2YP or 4YP were placed or found employment, and that
number of students is more than 30. The institution may use placement
records it maintains to satisfy accrediting agency or State
requirements if those records indicate the occupation in which the
student was placed. Otherwise, the institution must submit employment
records or other documentation showing the SOC code or codes in which
the students typically found employment;
(ii) Uses the most current BLS earnings data for the identified SOC
code to calculate the debt-to-earnings ratio. If more than one SOC code
is identified under paragraph (g)(4)(i) of this section, the
institution must calculate the weighted average earnings of those SOC
codes based on BLS employment data or institutional placement data. In
either case, the institution must use BLS earnings at no higher than
the 25th percentile; and
(iii) Submits, upon request, all the placement, employment, and
other records maintained by the institution for the program under
paragraph (g)(4)(i) of this section that the institution examined to
determine whether those records identified the SOC codes for the
students who were placed or found employment.
(5) Alternative earnings process. (i) In accordance with procedures
established by the Secretary, the institution must--
(A) Notify the Secretary of its intent to use alternative earnings
no later than 14 days after the date the institution is notified of its
final debt measures under paragraph (f) of this section; and
(B) Submit all supporting documentation related to recalculating
the debt-to-earnings ratios using alternative earnings no later than 60
days after the date the institution is notified of its final debt
measures under paragraph (f) of this section.
(ii) Pending the Secretary's review of the institution's
submission, the institution is not subject to the requirements arising
from the program's failure to satisfy the debt measures, provided the
submission was complete, timely, and accurate.
(iii)(A) If the Secretary denies the institution's submission, the
Secretary notifies the institution of the reasons for the denial and
the debt measures under paragraph (f) of this section become the final
measures for the FY; or
(B) If the Secretary approves the institution's submission, the
recalculated debt-to-earnings ratios become final for that FY.
(6) Dissemination. After the Secretary calculates the final debt
measures, including the recalculated debt-to-earnings ratios under this
section, and provides those debt measures to an institution--
(i) In accordance with Sec. 668.6(b)(1)(v), the institution must
disclose for each of its programs, the final loan repayment rate under
paragraph (b) of this section, and final debt-to-earnings ratio under
paragraph (c)(1)(ii) of this section; and
(ii) The Secretary may disseminate the final debt measures and
information about, or related to, the debt measures to the public in
any time, manner, and form, including publishing information that will
allow the public to ascertain how well programs perform under the debt
measures and other appropriate objective metrics.
(h) Failing program. Except for the small numbers provisions under
paragraph (d) of this section, starting with the debt measures
calculated for FY 2012, a program fails for a FY if its final debt
measures do not meet any of the minimum standards in paragraph
(a)(1)(i) or (ii) of this section.
(i) Ineligible program. Except as provided under paragraph (k) of
this section, starting with the debt measures calculated for FY 2012, a
failing program becomes ineligible if it does not meet any of the
minimum standards in paragraph (a)(1) of this section for three out of
the four most recent FYs. The Secretary notifies the institution that
the program is ineligible on this basis, and the institution may no
longer disburse title IV, HEA program funds to students enrolled in
that program except as permitted using the procedures in Sec.
668.26(d).
(j) Debt warnings. Whenever the Secretary notifies an institution
under paragraph (h) of this section of a failing program, the
institution must warn in a timely manner currently enrolled and
prospective students of the consequences of that failure.
(1) First year failure. (i) For a failing program that does not
meet the minimum standards in paragraph (a)(1) of this section for a
single FY, the institution must provide to each enrolled and
prospective student a warning prepared in plain language and presented
in an easy to understand format that--
(A) Explains the debt measures and shows the amount by which the
program did not meet the minimum standards; and
(B) Describes any actions the institution plans to take to improve
the program's performance under the debt measures.
(ii) The warning must be delivered orally or in writing directly to
the student in accordance with the procedures established by the
institution. Delivering the debt warning directly to the student
includes communicating with the student face-to-face or telephonically,
communicating with the student along with other affected students as
part of a group presentation, and sending the warning to the student's
e-mail address.
(iii) If an institution opts to deliver the warning orally to a
student, it must maintain documentation of how that information was
provided, including any materials the institution used to deliver that
warning and any documentation of the student's presence at the time of
the warning.
(iv) An institution must continue to provide the debt warning until
it is notified by the Secretary that the failing program now satisfies
one of the minimum standards in paragraph (a)(1) of this section.
(2) Second year failure. (i) For a failing program that does not
meet the minimum standards in paragraph (a)(1) of this section for two
consecutive FYs or for two out of the three most recently completed
FYs, the institution must provide the debt warning under paragraph
(j)(1) of this section in writing in an easy to understand format and
include in that warning--
(A) A plain language explanation of the actions the institution
plans to take in response to the second failure. If the institution
plans to discontinue the program, it must provide the timeline for
doing so, and the options available to the student;
(B) A plain language explanation of the risks associated with
enrolling or continuing in the program, including the potential
consequences for, and options available to, the student if the program
becomes ineligible for title IV, HEA program funds;
(C) A plain language explanation of the resources available,
including http://www.collegenavigator.gov, that the student may use to
research other educational options and compare program costs; and
(D) A clear and conspicuous statement that a student who enrolls or
[[Page 34453]]
continues in the program should expect to have difficulty repaying his
or her student loans.
(ii) An institution must continue to provide this warning to
enrolled and prospective students until the program has met one of the
minimum standards for two of the last three FYs.
(3) Timely warnings. An institution must provide the warnings
described in this paragraph to--
(i) An enrolled student, as soon as administratively feasible but
no later than 30 days after the date the Secretary notifies the
institution that the program failed; and
(ii) A prospective student at the time the student first contacts
the institution requesting information about the program. If the
prospective student intends to use title IV, HEA program funds to
attend the program--
(A) The institution may not enroll the student until three days
after the debt warnings are first provided to the student under this
paragraph; and
(B) If more than 30 days pass from the date the debt warnings are
first provided to the student under this paragraph and the date the
student seeks to enroll in the program, the institution must provide
the debt warnings again and may not enroll the student until three days
after the debt warnings are most recently provided to the student under
this paragraph.
(4) Web site and promotional materials. For the second-year debt
warning in paragraph (j)(2) of this section, an institution must
prominently display the debt warning on the program home page of its
Web site and include the debt warning in all promotional materials it
makes available to prospective students. These debt warnings may be
provided in conjunction with the disclosures required under Sec.
668.6(b)(2).
(5) Voluntarily discontinued failing program. An institution that
voluntarily discontinues a failing program under paragraph (l)(1) of
this section, must notify enrolled students at the same time that it
provides the written notice to the Secretary that it relinquishes the
program's title IV, HEA program eligibility.
(6) Alternative language. To the extent practicable, the
institution must provide alternatives to English-language warnings for
those students for whom English is not their first language.
(k) Transition year. For programs that become ineligible under
paragraph (i) of this section based on final debt measures for FYs
2012, 2013, and 2014, the Secretary caps the number of those ineligible
programs by--
(1) Sorting all programs by category of institution (public,
private nonprofit, and proprietary) and then by loan repayment rate,
from the lowest rate to the highest rate; and
(2) For each category of institution, beginning with the ineligible
program with the lowest loan repayment rate, identifying the ineligible
programs that account for a combined number of students who completed
the programs during FY 2014 that do not exceed 5 percent of the total
number of students who completed programs in that category. For
example, the Secretary does not designate as ineligible a program, or
two or more programs that have the same loan repayment rate, if the
total number of students who completed that program or programs would
exceed the 5 percent cap for an institutional category.
(l) Restrictions for ineligible and voluntarily discontinued
failing programs. (1) General. An ineligible program, or a failing
program that an institution voluntarily discontinues, remains
ineligible until the institution reestablishes the eligibility of that
program under the provisions in 34 CFR 600.20(d). For this purpose, an
institution voluntarily discontinues a failing program on the date the
institution provides written notice to the Secretary that it
relinquishes the title IV, HEA program eligibility of that program.
(2) Periods of ineligibility. (i) Voluntarily discontinued failing
programs. An institution may not seek under 34 CFR 600.20(d) to
reestablish the eligibility of a failing program that it voluntarily
discontinued until--
(A) The end of the second FY following the FY the program was
voluntarily discontinued if the institution voluntarily discontinued
the program at any time after the program is determined to be a failing
program, but no later than 90 days after the date the Secretary
notified the institution that it must provide the second year debt
warnings under paragraph (j)(2) of this section; or
(B) The end of the third FY following the FY the program was
voluntarily discontinued if the institution voluntarily discontinued
the program more than 90 days after the date the Secretary notified the
institution that it must provide the second year debt warnings under
paragraph (j)(2) of this section.
(ii) Ineligible programs. An institution may not seek under 34 CFR
600.20(d) to reestablish the eligibility of an ineligible program, or
to establish the eligibility of a program that is substantially similar
to the ineligible program, until the end of the third FY following the
FY the program became ineligible. A program is substantially similar to
the ineligible program if it has the same credential level and the same
first four digits of the CIP code as that of the ineligible program.
(Approved by the Office of Management and Budget under control
number 1845-0109)
(Authority: 20 U.S.C. 1001(b), 1002(b) and (c))
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendix A--Regulatory Impact Analysis
Introduction
Institutions providing gainful employment programs offer
important opportunities to Americans seeking to expand their skills
and earn postsecondary degrees and certificates. In too many
instances, however, programs leave large numbers of students with
unaffordable debts and poor employment prospects. The Department of
Education (the Department) has a particularly strong interest in
ensuring that institutions that are heavily reliant on Federal
funding promote successful student academic and career
opportunities. When colleges earn profits, they should do so in the
process of helping their students achieve success.
These final gainful employment regulations include a number of
changes from the proposed regulations published on July 26, 2010,
reflecting the extensive public input received by the Department.
The changes are intended to give failing programs an opportunity to
improve, rather than immediately removing their eligibility, and to
identify accurately the worst-performing gainful employment
programs. However, the final regulations require that all federally
funded gainful employment programs meet minimal standards because
students and taxpayers have too much at stake.
This Regulatory Impact Analysis is divided into nine sections.
In Need for Regulatory Action, the Department discusses the problems
of high debt and poor employment prospects at some postsecondary
programs. This information complements the analysis presented in the
notice of proposed rulemaking (NPRM) and the preamble to these final
regulations. This section also provides an overview of the
Department's efforts to improve the functioning of the market for
postsecondary training by informing student choices, collecting new
information and setting minimum performance standards.
The section titled Summary of Changes From the NPRM summarizes
the most important revisions the Department made in these final
regulations. These changes were informed by the Department's
consideration of over 90,000 public comments. The changes are
intended to give failing programs an opportunity to improve, target
the worst performing programs, improve the repayment rate and debt-
to-earnings measurements, and improve the information available to
students. At the time the Department
[[Page 34454]]
released the NPRM, it estimated that approximately 5 percent of
programs would lose student aid eligibility. Because the final
regulations give programs an opportunity to improve, only 2 percent
of programs are expected to lose eligibility (based upon the revised
model described in this document and excluding programs that are too
small to measure accurately). Under the final regulations, 8 percent
of programs subject to the debt measures would fail them at least
once.
Under NPRM Comment Review, the Department presents its
statistical analysis of one claim heard frequently in the comments:
That the NPRM would have threatened access to education for low-
income students and members of racial and ethnic minorities. The
Department does not believe that enrolling large numbers of
disadvantaged students justifies leaving those students with debts
they cannot afford. We also present data demonstrating that student
body characteristics explain a small amount of the variation in
performance on the debt measures, and many programs perform well
even if a large percentage of their students come from disadvantaged
backgrounds--suggesting that certain programs do a better job than
others of working with these populations. Under this section, the
Department also discusses two economic analyses submitted as
comments on the NPRM.
In Analysis of Final Regulations, the Department first describes
the data and analytic tools it developed to estimate the impact of
these regulations. It then presents the estimated impact on
programs, students, and revenues under two sets of assumptions.
The Discussion of Costs and Benefits section considers the
implications of these estimates for students, businesses, the
Federal Government, and State and local governments. In some cases,
these costs and benefits are difficult to quantify. The benefits of
the final regulations for students that are discussed in this
section include:
Improved market information and development of measures
linking programs to labor market outcomes;
Improved retention, graduation and default rates; and
Better return on money spent on education.
The overall costs of the rule fall into three categories: An
increase in educational expenses when students transfer from failing
programs to succeeding programs, paperwork costs associated with
complying with the regulations, and other compliance costs that may
be incurred by institutions as they attempt to improve their
programs to avoid losing their eligibility for title iv Higher
Education Act funds.
We also looked at distributional issues associated with the
impact of this regulation. For institutions, the impact of the final
regulations is mixed. Institutions with failing programs, including
programs that lose eligibility, are likely to see lower revenues. On
the other hand, institutions with high-performing programs are
likely to see growing enrollment and revenue and to benefit from
additional market information that permits institutions to
demonstrate the value of their programs.
The impact of the regulations on Federal, State, and local tax
revenue is difficult to estimate reliably. Tax revenues could fall
to the extent that companies that provide postsecondary education
and training pay less in corporate taxes and lay off employees and
fewer students earn credentials. On the other hand, tax revenues
could rise due to growth in programs with higher completion rates
that offer credentials that carry greater economic benefits.
Overall, however, as discussed further in the Net Budget Impacts
section, we estimate that the final regulations will save the
Federal Government between $23 million and $51 million on an
annualized basis.
Under Paperwork Burden Costs, the Department estimates the
paperwork burden of these regulations on institutions and students.
Under Net Budget Impacts, the Department presents its estimate
that the final regulations will save the Federal Government between
$23 million and $51 million per year. The largest factor in these
savings is a reduced expenditure on Pell Grants.
The Alternatives Considered section describes different
approaches for defining ``gainful employment'' proposed by
commenters. Some of these approaches, including graduation and
placement rates, a higher repayment rate threshold, an index,
alternative debt measures, and default rates, were previously
discussed by the Department in the negotiated rulemaking process,
the NPRM, or both.
Finally, the Final Regulatory Flexibility Analysis considers
issues relevant to small businesses and nonprofit institutions.
Pursuant to the terms of the Executive Order 12866, issued on
September 30, 1993, we have determined that this regulatory action
will have an annual effect on the economy of more than $100 million.
Notwithstanding this determination, we have assessed the potential
costs and benefits--both quantitative and qualitative--of this
regulatory action. The agency believes that the benefits justify the
costs.
The Department has also reviewed these regulations pursuant to
Executive Order 13563, issued on January 18, 2011. Executive Order
13563 is supplemental to and explicitly reaffirms the principles,
structures, and definitions governing regulatory review established
in Executive Order 12866. To the extent permitted by law, agencies
are required by Executive Order 13563 to: (1) Propose or adopt
regulations only upon a reasoned determination that their benefits
justify their costs (recognizing that some benefits and costs are
difficult to quantify); (2) tailor their regulations to impose the
least burden on society, consistent with obtaining regulatory
objectives, taking into account, among other things, and to the
extent practicable, the costs of cumulative regulations; (3) select,
in choosing among alternative regulatory approaches, those
approaches that maximize net benefits (including potential economic,
environmental, public health and safety, and other advantages;
distributive impacts; and equity); (4) the extent feasible, specify
performance objectives, rather than specifying the behavior or
manner of compliance that regulated entities must adopt; and (5)
identify and assess available alternatives to direct regulation,
including providing economic incentives to encourage the desired
behavior, such as user fees or marketable permits, or providing
information upon which choices can be made by the public.
We emphasize as well that Executive Order 13563 requires
agencies ``to use the best available techniques to quantify
anticipated present and future benefits and costs as accurately as
possible.'' In its February 2, 2011, memorandum (M-11-10) on
Executive Order 13563, the Office of Information and Regulatory
Affairs within the Office of Management and Budget emphasized that
such techniques may include ``identifying changing future compliance
costs that might result from technological innovation or anticipated
behavioral changes.''
We are issuing these regulations only upon a reasoned
determination that their benefits justify their costs and that we
selected, in choosing among alternative regulatory approaches, those
approaches that maximize net benefits. Based on the analysis below,
the Department believes that these final regulations are consistent
with the principles in Executive Order 13563.
I. Need for Regulatory Action
Executive Order 12866 emphasizes that ``Federal agencies should
promulgate only such regulations as are required by law, are
necessary to interpret the law, or are made necessary by compelling
public need, such as material failures of private markets to protect
or improve the health and safety of the public, the environment, or
the well-being of the American people.'' In this case, there is
indeed a compelling public need for regulation. The Department's
goal in regulating is to ensure that programs eligible for funding
under title IV of the Higher Education Act of 1965, as amended
(HEA), are preparing students for gainful employment, students
seeking postsecondary training are not left with unaffordable debts
and poor employment prospects, and the Federal investment of student
aid dollars is well spent. Existing Federal law attempts to meet
these aims through the required disclosure by institutions of
information to prospective and current students on a range of issues
including: cost of attendance, net price, graduation rates, and
student financial aid (HEA Sec. 485 and Sec. 132). Nonetheless,
there is evidence that students have significant misperceptions
about the economic returns of pursuing a college education, tending
to significantly overestimate their expected earnings as a college
graduate.\1\ Students and their families also lack access to
critical information needed to navigate a nuanced higher education
marketplace in order to make more optimal choices about where to
pursue a postsecondary education.\2\ Additionally,
[[Page 34455]]
limitations exist on the availability of comparison indicators for
educational quality that help families balance the increased risks
associated with financing college.
---------------------------------------------------------------------------
\1\ Christopher Avery and Thomas Kane, ``Student Perceptions of
College Opportunities,'' http://www.nber.org/chapters/c10104.pdf.
\2\ C. Anthony Broh and Dana Ansel, ``Planning for College: A
Consumer Approach to the Higher Education Marketplace,'' Mass INC,
February 2010, http://www.massinc.org/~/media/Files/Mass%20Inc/
Research/Executive%20Summary%20PDF%20files/report--ES.ashx.
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Though the HEA does not enumerate individual educational quality
indicators that students and families would need in order to
properly assess the value of college, it does stipulate that
vocationally oriented programs must prepare students for ``gainful
employment in a recognized occupation.'' While institutions in all
sectors offer programs that are subject to this requirement, for-
profit institutions represent a disproportionately large share of
programs that must meet this standard, as it appears in the HEA.
According to the Department's analysis of data from the Integrated
Postsecondary Education Data System (IPEDS), for-profit institutions
represent 7 percent of higher education programs nationally and 12
percent of students enrolled in postsecondary education. But for-
profit institutions account for 46 percent of students enrolled in
programs that would be subject to the final debt measures and for 38
percent of programs that would be subject to the final debt
measures. Moreover, data collected by the Department and other
organizations, which are detailed below, highlight a number of
issues that suggest many programs at for-profit institutions are not
providing students with training leading to gainful employment in a
recognized occupation, leaving them with debts they cannot afford
and poor employment prospects. These issues include: Greater
relative costs; high default rates that lead to significantly
deleterious effects on borrowers; low completion and retention
rates; and high-pressure sales and marketing tactics and a lack of
access to information that deprive potential students of the
opportunity to make thoughtful decisions.
Though for-profit institutions are a diverse, innovative, and
fast-growing group of institutions that typically offer flexible
course schedules and online programs that serve nontraditional
students, they generally charge higher tuitions than their public
and private nonprofit counterparts. According to the College Board's
2010 Trends in College Pricing report, students attending for-profit
institutions faced an average tuition and fee charge of $13,935--
more than $6,300 higher than the average cost of tuition and fees at
a public 4-year institution and over five times the cost of a public
2-year institution.\3\ And even though for-profit institutions do
not have to contend with the loss of tax revenue and growing budget
deficits that have caused States to reduce support for public higher
education and raise tuition, the average cost to attend a for-profit
institution increased by $524 and $124 more than public 2- and 4-
year institutions, respectively, from 2009-10 to 2010-11.
---------------------------------------------------------------------------
\3\ College Board, ``Tuition and Fee and Room and Board Charges,
2010-11,'' available at http://trends.collegeboard.org/college_pricing/report_findings/indicator/Tuition_and_Fee_and_Room_and_Board_Charges_2010_11.
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Not only do students attending for-profit institutions face
higher tuition and fee charges, but on average they receive less
grant assistance to lower their expenses. According to an analysis
of the 2007-08 National Postsecondary Student Aid Study (NPSAS 2008)
conducted by the National Center for Education Statistics (NCES),
students attending for-profit institutions received on average just
$3,200 in total grant aid, which includes Federal, State, local,
institutional, and all other sources.\4\ By contrast, students at 4-
year public and private, nonprofit institutions on average received
$5,200 and $10,200, respectively.
---------------------------------------------------------------------------
\4\ National Center for Education Statistics, ``Trends in
Student Financing of Undergraduate Education: Selected Years, 1995-
96 to 2007-08,'' available at http://nces.ed.gov/pubs2011/2011218.pdf, Page 17.
---------------------------------------------------------------------------
As a result of higher tuition and lower grant assistance,
students are significantly more likely to assume debt in order to
attend a for-profit institution than any other type of college or
university. According to NPSAS, 91.6 percent of students at for-
profit institutions borrowed to finance their education in 2007-08.
By contrast, the sector with the next highest borrowing rate was at
4-year private nonprofit institutions, where 58.9 percent of
students borrowed. At public 2- and 4-year institutions just 13.2
percent and 46.2 percent, respectively, of students borrowed. Not
only do students at for-profit institutions borrow at a greater rate
than their peers, on average, the amount they borrow is greater than
all but one sector. Students at for-profit institutions on average
borrowed $8,100 compared to $6,600 for students at public 4-year
institutions and $4,100 for students at public 2-year institutions.
That said, students attending private nonprofit 4-year institutions
did borrow $1,000 more on average, but this fails to capture the
fact that the most popular programs at proprietary institutions are
typically closer in length to those offered at community colleges,
rather than at 4-year universities.
Burdened with higher borrowing rates and larger debt levels,
borrowers at for-profit institutions have worse repayment outcomes
than their peers at other institutions. For the 2008 cohort year, 46
percent of the student loans (weighted in dollars) that are borrowed
by students at 2-year for-profit institutions are expected to
default over the life of the loan, compared to 16 percent across all
types of institutions. Similarly, the Department's cohort default
rate shows that for-profit institutions account for a
disproportionate share of defaults. In the 2008 cohort, students at
for-profit institutions represented just 12 percent of students, but
they accounted for 26 percent of borrowers and over 46 percent of
students who defaulted within three years of leaving school.\5\ In
fact, for-profit institutions produced a larger share of students
who defaulted on their loans than the entire public sector of higher
education combined.
---------------------------------------------------------------------------
\5\ Department analysis of unduplicated headcount data from
IPEDS and three-year cohort default rate information from the Office
of Federal Student Aid.
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Former students who cannot afford to repay their loans face very
serious challenges. Discharging Federal student loans in bankruptcy
is very rare, and the common consequences of default include large
fees and interest charges; struggles to rent or buy a home, buy a
car, or get a job; aggressive actions by collection agencies,
including lawsuits and garnishment of wages; and the loss of tax
refunds and even Social Security benefits. Collection costs can add
25 percent to the outstanding loan balance, borrowers are no longer
entitled to any deferments or forbearances, and students may be
ineligible for any additional student aid until they have
reestablished a good repayment history.
Retention and graduation rates vary considerably among
institutions and types of institutions. According to NPSAS data,
just 27.8 percent of students at for-profit institutions who entered
a bachelor's degree program in the 2003-04 academic year attained
that credential by 2009; the figures at public and private nonprofit
institutions were 62.3 percent and 69.0 percent, respectively.\6\
Though students entering associate's degree programs at for-profit
institutions earned that credential at a rate slightly above their
peers at public sector institutions, even then, for every student
who began at an associate's degree program at a for-profit
institution and earned that credential, there were almost two others
who had left with no degree to show for their time. As discussed
more fully under the Discussion of Costs and Benefits heading,
institutions with low repayment rates also have lower retention and
graduation rates and higher default rates. These results are not
surprising, as multiple research studies have demonstrated that
program completion is one of the most predictive factors of whether
or not a student will default on his or her loans.\7\ This finding
suggests that students who enrolled but did not graduate have lower
income prospects than those who do. There are also a number of
studies that have also found that borrowers with lower incomes are
more likely to default than those with higher incomes.\8\
---------------------------------------------------------------------------
\6\ Analysis of NPSAS data using the PowerStats data analysis
tool at http://nces.ed.gov/datalab/powerstats/output.aspx.
\7\ For a review of research on the connection between program
completion and default, see Jacob P.K. Gross, Osman Cekic, Don
Hossler, and Nick Hillman, ``What Matters in Student Loan Default: A
Review of the Research Literature,'' Journal of Student Aid, Volume
39, No. 1, http://www.nasfaa.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=1312, Page 7.
\8\ Lance Lochner & Alexander Monge-Naranjo, Education and
Default Incentives with Government Student Loan Programs, 2002;
Robin McMillion, ``Student Loan Default Literature Review,'' Texas
Guaranty Agency, 2004.
---------------------------------------------------------------------------
There is also evidence that for-profit institutions have engaged
in high-pressure or deceptive sales tactics. In recent years,
evidence surfaced about some for-profit institutions illegally
paying their representatives bonuses or commissions based upon the
number of students they recruit or enroll. The Government
Accountability Office and other investigators have also found
evidence of high-pressure
[[Page 34456]]
and deceptive recruiting practices at for-profit institutions.\9\
---------------------------------------------------------------------------
\9\ U.S. Government Accountability Office, ``For-Profit
Colleges: Undercover Testing Finds Colleges Encouraged Fraud and
Engaged in Deceptive and Questionable Marketing Practices,'' GAO-10-
948T, available at http://www.gao.gov/products/GAO-10-948T.
---------------------------------------------------------------------------
Students enrolling in a postsecondary program often have limited
information, little or no experience choosing among postsecondary
programs, and asymmetric information relative to the educational
institution. Studies indicate that these gaps in information
sometimes lead to students and their families making suboptimal
choices in their educational pursuits, including what institution to
attend, how to weigh the costs and benefits of attending, and how to
finance their postsecondary education.\10\ The complexity of the
choice structure falls short of allowing students and their families
to appropriately weigh the costs and benefits of their educational
decisions. In this environment, straightforward measures of a
student's educational pursuits in relation to their educational
outcomes would promote more optimal choices.
---------------------------------------------------------------------------
\10\ Bridget Terry Long, ``Grading Higher Education,'' Center
for American Progress, December 2010, http://www.americanprogress.org/issues/2010/12/pdf/longpaper.pdf.
---------------------------------------------------------------------------
Executive Order 13563, Section 4, notes that ``Where relevant,
feasible, and consistent with regulatory objectives, and to the
extent permitted by law, each agency shall identify and consider
regulatory approaches that reduce burdens and maintain flexibility
and freedom of choice for the public. These approaches include
warnings, appropriate default rules, and disclosure requirements as
well as provision of information to the public in a form that is
clear and intelligible.'' Consistent with this section of the
Executive Order the Department is enhancing the information
available to prospective and enrolled students through both these
final regulations and earlier regulations released last year. The
Department began with efforts to help students make good choices,
including disclosure requirements, the provision of information, and
warnings. On October 29, 2010, the Department published regulations
(75 FR 66832) (Program Integrity Issues final regulations) requiring
institutions with programs that prepare students for gainful
employment in a recognized occupation to disclose key performance
information on their Web site and in promotional materials to
prospective students. The required elements include the on-time
completion rate, placement rate, median loan debt, program cost, and
other information. The Department is developing a disclosure form
with the benefit of public comment.
In addition, subject to Sec. 668.7(g)(6) as established by
these regulations, the Secretary may disseminate the final debt
measures calculated under these regulations at any time and in any
manner and form. The information provided in the repayment rate,
graduate earnings, and the debt-to-earnings ratio is currently
unavailable to most students from any source. The Department is
considering steps to provide these metrics and other key indicators
to facilitate access to the information and the comparison of
programs.
Another strategy to improve decision-making is the requirement
that failing programs provide debt warnings to prospective and
enrolled students under Sec. 668.7(j) of these final regulations.
After a program fails the minimum standards one time, the
institution must alert prospective and enrolled students that the
program has failed, explain the debt measures, show the amount by
which the program did not meet the minimum standards, and describe
any steps the institution plans to take to improve the program's
performance under the debt measures. After a program fails the
minimum standards in two consecutive fiscal years (FY) or in two of
the three most recent FYs--and thus is one year away from a
potential loss of eligibility--the institution must provide
prospective and enrolled students with the same information as well
as its plans in response to the second failure, including any plans
to discontinue the program, the risks for students if the program
loses title IV, HEA eligibility, the resources available to students
to research other educational options, and a clear and conspicuous
statement that a student who enrolls or continues to enroll in the
program should expect to have difficulty repaying his or her student
loans.
Despite the efforts described above, the Department recognizes
that information alone is insufficient to ensure that students are
well served by their educational programs. Exacerbating these
challenges is a failure to align institutional incentives with
student success because the amount of aid students receive is based
upon their enrollment. While loan defaults cost students and
taxpayers, generally there are no consequences for institutions
(except in the rare instances where at least 25 percent of their
students default within two years of entering repayment for three
consecutive years).\11\ Recognizing students' challenges in choosing
among available programs and the poor alignment of incentives, the
Department is setting minimum performance standards for gainful
employment programs receiving Federal funding.
---------------------------------------------------------------------------
\11\ In 2014, the two-year cohort default rate will be replaced
with a three-year cohort default rate.
---------------------------------------------------------------------------
To provide an additional layer of protection for students and
taxpayers and ensure that institutions consider the affordability of
the loans provided to their students, the Department is defining a
set of measures that identifies the lowest performing programs in
terms of the ability of students to repay their student loan debt.
The repayment rate threshold and the debt-to-earnings ratios set
minimum standards and are designed to allow programs an opportunity
to improve before losing title IV, HEA eligibility.
II. Summary of Changes From the NPRM
Definition of a Program
In response to uncertainty concerning the definition of a
program, the Department has clarified that a program would be
defined by the combination of the six-digit Office of Postsecondary
Education ID (OPEID), six-digit Classification of Instructional
Programs (CIP) code, and credential level. A program offered at
multiple locations reporting under the same six-digit OPEID would be
evaluated as one program, and the credential levels to be considered
are undergraduate certificate, associate's degree, bachelor's
degree, post-baccalaureate certificate, master's degree, doctoral
degree, and first-professional degree.
To estimate the number of programs for this analysis, the
Department identified the six-digit CIP code and credential
combinations for which awards were granted at each institution in
the IPEDS data set generated for the final regulations. For the
approximately 92 institutions that did not have program information
available, the average number of regulated programs per institution
for their sector was applied.
Small Numbers Provision
The small numbers provision finalized in Sec. 668.7(d) requires
at least 30 completers in the evaluation pool for the debt-to-
earnings measure and at least 30 borrowers entering repayment in the
evaluation period for calculation of the repayment rate in order to
determine whether a program satisfies the debt measures. Under the
NPRM, the treatment of programs with a small number of completers
was not fully determined. Under the final regulations, programs that
do not meet the minimum threshold of 30 completers in the 2YP or the
2YP-R will be evaluated for a four-year period consisting of years
three to six in repayment (4YP) or years six to nine in repayment
(4YP-R). Programs that do not meet the 30 completer or borrower
requirement in the 4YP or 4YP-R will not be evaluated for
ineligibility. Ultimately, if there are insufficient observations,
we will not assess an institution's performance against the debt
measures. Table 1 summarizes the estimated number of total and
regulated programs by sector and the application of the small
numbers provision.
[[Page 34457]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.023
This small numbers provision is designed to address the greater
risk of statistical fluctuation in measuring the performance of
programs with small numbers of borrowers or completers, the reduced
risk to students or taxpayers posed by these programs, and the need
to protect the privacy of individual student borrowers. While the 30
completer and borrower standards remove a number of programs from
possible ineligibility under the debt measures, they reduce the
chance that the performance of one or two borrowers could result in
large variability in a program's performance on the debt measures
from year to year. Additionally, while the percentage of programs
affected by the small numbers provision is high, especially at 4-
year institutions, the remaining regulated programs still represent
approximately 92 percent of all students enrolled in gainful
employment programs.
Program Eligibility for Continued Funding
Under Sec. 668.7(i), a failing program becomes ineligible after
failing the minimum standards for three out of the last four most
recently completed FYs--a change from the proposed regulations in
which a program became ineligible after failing the minimum
standards in one year. Whenever that occurs, the Department notifies
the institution that the program is ineligible and that the
institution may no longer disburse title IV, HEA program funds to
students enrolled in or attending that program for any payment
period that begins after the date of the Department's notice, except
as permitted using the procedures in 34 CFR 668.26(d). This is a
change from the proposed regulations, which allowed institutions to
disburse title IV, HEA program funds to students already enrolled in
programs for an additional year beyond the payment period in which
the notice was received.
Repayment Rate Thresholds
Instead of the three-tiered approach proposed in the NPRM that
would have established a restricted zone for programs with repayment
rates of at least 35 percent but less than 45 percent, the
regulations establish a single, 35 percent repayment rate threshold
for eligibility.
Repayment Rate Evaluated Cohorts
The repayment rate calculated for the NPRM evaluated borrowers
one to four years into repayment. For most programs, the final
regulations will evaluate borrowers three to four years into
repayment, so the rate calculated with FY 2012 data and released in
2013 will be based on borrowers who entered repayment in FYs 2008
and 2009. For a program whose students are required to complete a
medical or dental internship or residency, a two-year period is the
sixth and seventh FYs (2YP-R) prior to the most recently completed
FY for which the repayment rates are calculated. For example, if the
most recently completed FY is 2012, the 2YP-R is FYs 2005 and 2006.
Finally, to provide an alternative for institutions that take
immediate steps to improve a program's loan repayment rate, we will
calculate the repayment rate based on a two-year period (2YP-A) that
includes loans for borrowers who entered repayment during the first
and second FYs prior to the current FY. These programs will be
evaluated based on the repayment rate from the 2YP or 2YP-A,
whichever is higher.
Repayment Rate Balance Comparison
The total balance (principal plus interest) of a borrower's
loans associated with a program will be evaluated for the borrower's
inclusion in the numerator of the repayment rate calculation instead
of the approach described in the NPRM of using only the principal
balance.
Borrowers in Alternative Repayment Plans
The final regulations limit the dollar amount of loans in
negative amortization or for which the borrower is paying accrued
interest only that will be included in the numerator as Original
Outstanding Principal Balance (OOPB) of Payments-Made Loans (PML) to
no more than 3 percent of the total
[[Page 34458]]
amount of OOPB in the denominator of the ratio, instead of the
approach described in the NPRM. For the loans associated with a
particular program at an institution for which the Department has
actual data on borrower repayment plans and scheduled payment
amounts, that data will be used to calculate the amount to be
included in the OOPB of PML. For programs at institutions for which
the Department does not yet have sufficient actual institutional
data on a program's borrowers because the loans are not held and
serviced by the Department, 3 percent of the OOPB of PML will be
included in the numerator. The Department may increase the 3 percent
limitation through a notice published in the Federal Register if
borrowers increase their reliance on interest-only or negative
amortization loans over time, except that the limitation may not
exceed the estimated percent of all outstanding Federal student loan
dollars that are interest-only or negative amortization loans.
Consolidation Loans of Students at Post-Baccalaureate Programs
When calculating the repayment rate for post-baccalaureate
programs, we will consider a borrower with a consolidation loan to
be successfully repaying his or her loans if the outstanding balance
does not increase over the course of the most recently completed FY.
Data Corrections for Repayment Rates
No later than 45 days after the Secretary issues the draft loan
repayment rate for a program, in accordance with procedures
established by the Secretary, an institution may challenge the
accuracy of the loan data for a borrower that was used to calculate
the draft loan repayment rate by submitting evidence showing that
the borrower loan data is inaccurate. An institution may also
challenge the accuracy of the list of borrowers included in the
applicable two- or four-year period used to calculate the draft loan
prepayment rate by submitting evidence showing that a borrower
should be included on or removed from the list or correcting or
updating the identity information provided for a borrower on the
list, such as name, Social Security Number, or date of birth. If the
information provided by the institution through the data correction
process is accurate, the Secretary will use the corrected
information to recalculate the repayment rate for the program. The
Secretary notifies an institution of any draft results that are not
challenged, are recalculated, or are unsuccessfully challenged under
the data correction process described above. These results become
the final repayment rates for the program.
Debt-to-Earnings Ratios Evaluated Cohorts
The debt-to-earnings ratios will now be calculated based on
program completers three to four years after completion. For
example, if the most recently completed FY is 2012, the 2YP is FYs
2008 and 2009. For a program whose students are required to complete
a medical or dental internship or residency, a two-year period is
the sixth and seventh FYs (2YP-R) prior to the most recently
completed FY for which the debt measures are calculated. For
example, if the most recently completed FY is 2012, the 2YP-R is FYs
2005 and 2006.
Payment Amortization
Under the proposed regulations, a 10-year amortization schedule
would be used to calculate the payment associated with the program's
median debt. Under the final regulations, the amortization schedule
will be 10 years for certificates and associate's degrees, 15 years
for bachelor's and master's degrees, and 20 years for first-
professional and doctoral degrees.
Mean or Median Earnings
Both measures will be obtained for programs' pools of completers
and the higher figure will be used in evaluation of the program.
Debt Limited to Tuition and Fees
Institutions will have the option to submit the tuition and fees
charged for each student in a gainful employment program. Student
debt included in the calculation of the program's median debt will
be limited to that used to pay tuition and fees.
Data Corrections and Challenges for Debt-to-Earnings Ratios
Before issuing the draft results of the debt-to-earnings ratios
for a program, the Secretary provides a list to an institution of
the students that will be included in the applicable two- or four-
year period for calculating the ratios. No later than 30 days after
the date the Secretary provides the list to the institution, in
accordance with procedures established by the Secretary, the
institution may provide evidence showing that a student should be
included on or removed from the list, or correct or update the
identity information provided for a student on the list, such as
name, Social Security Number, or date of birth. After the 30-day
correction period, the institution may no longer challenge the
accuracy of the students included on the list or update the identity
information of those students. If the updated information is
accurate, it is used to create a final list of students that the
Secretary submits to SSA. The Secretary calculates the draft debt-
to-earnings ratios based on the mean and median earnings provided by
SSA for the students on the final list.
No later than 45 days after the draft debt-to-earnings results
have been issued, an institution may challenge the accuracy of the
median loan debt for the program that was used for the numerator of
the draft debt-to-earnings ratios by submitting evidence showing the
program's median loan debt is inaccurate. An institution may not
challenge the accuracy of the mean or median annual earnings the
Secretary obtained from SSA to calculate the draft debt-to-earnings
ratios for the program. This limitation is a practical implication
of using privacy-protected SSA data, as the Department will not
receive individual student earnings data. But institutions will have
the ability to challenge the list of students sent over to SSA for
earnings information and may also use alternative reliable earnings
information, including use of state data, survey data, or, during a
transition period, Bureau of Labor Statistics (BLS) data so long as
the measures chosen meet the requirements outlined in Sec.
668.7(g).
In general, the Secretary uses the corrected information
obtained through the challenges to the draft results to recalculate
the debt-to-earnings ratios for the program. For a failing program,
if SSA is unable to include in its calculation of the mean and
median earnings for the program one or more students on the list
finalized under the 30-day data correction process, the Secretary
adjusts the median loan debt by removing the highest loan debt
associated with the corresponding number of students on the list.
For example, if SSA is unable to include three students in its
calculations, the Secretary removes the loan debt for the same
number of students on the list that had the highest loan debt. The
Secretary recalculates the debt-to-earnings ratios for the program
based on the adjusted median loan debt.
The Secretary notifies an institution of any draft results that
are not challenged, are recalculated, or are unsuccessfully
challenged under the challenge process described above. These
results become the final debt-to-earnings ratios for the program.
Proprietary Institutions Under Common Ownership or Control
Loan debt does not include any loan debt incurred by the student
for attendance in programs at other institutions, except if the
current institution and the other institutions share common
ownership or control. For these final regulations, we clarify that
the exception is limited to proprietary institutions, which have
different ownership structures than either private nonprofit
institutions or public institutions. We generally do not include
educational loan debt from institutions students previously attended
because those students made individual decisions to enroll at other
institutions where they completed a program. Companies that own more
than one institution offering similar programs might have an
incentive under these regulations to shift students between those
institutions to shield some portion of the educational loan debt
from the debt included in the debt measures under these final
regulations. This provision will negate that incentive by permitting
the Department to include debt from institutions under common
ownership in the analysis. These regulations provide that a
determination of common ownership or control will be made using the
definitions and concepts that the Department routinely uses to
review changes of ownership, financial responsibility
determinations, and identifying past performance liabilities at
institutions.
Summary of Results for the Final Regulations
Table 2 represents estimated changes to the number of ineligible
programs and the number of students in ineligible programs. Under
the final regulations, we allow institutions an opportunity to
improve after initially failing both measures. As a result, when
combined with the small numbers provision, results in approximately
8 percent of programs initially failing both measures,
[[Page 34459]]
but not losing Title IV, HEA eligibility. Ultimately, under the
final regulations we estimate that approximately 2 percent of
programs will be deemed ineligible and approximately 1.3 percent of
students will be in those ineligible programs. The information
presented below for the final regulations represents the results at
the end of a four-year period and the percent of students in
ineligible programs described below are net of those who dropped out
or transferred the first two times the program failed the debt
measures.
[GRAPHIC] [TIFF OMITTED] TR13JN11.024
III. NPRM Comment Review
Student Demographics
Several commenters discussed the potential effect of the
regulations on low-income, minority, female, and first-generation
students. As indicated in the NPRM and the submitted comments, the
average share of Pell Grant recipients and minority students is
higher in the for-profit sector than the public and private
nonprofit sectors. Many supporters of the regulations point to the
high concentration of disadvantaged students in gainful employment
programs in certain sectors as a reason the regulations are needed
to protect disadvantaged students. Conversely, many opponents of the
regulations believe access to education for disadvantaged students
would be threatened by the loss of eligibility of programs serving
them.
Several commenters observed a link between the demographics of
an institution's student population and either its repayment rate or
debt-to-earnings ratios. Some commenters believed that the debt
measures are primarily determined by the characteristics of a
program's student body, rather than the program's performance.
Others said the debt-to-earnings ratio penalizes programs serving
disadvantaged students because these individuals--particularly
minority and female students--earn less than their white and male
counterparts. They argued that access would be negatively affected
because the proposed thresholds would act as a disincentive to
admitting disadvantaged students. Other commenters acknowledged that
other factors contribute to institutions' repayment rate
performance, but urged the Department to review the effect of the
regulations on low-income, first-generation, and minority students.
The Department does not believe that enrolling large numbers of
students from disadvantaged backgrounds legitimizes leaving those
students with unaffordable debts and poor employment prospects. As
described in the preamble, the debt measures identify programs where
(1) typical student debt service exceeds recommended levels by more
than 50 percent, and (2) fewer than 35 percent of students are
paying down the balance of their loans (with consideration given to
the variation in amounts borrowed). Programs that help disadvantaged
students earn credentials and well-paying jobs are performing a
valuable service, but programs that routinely leave their students
with debts they cannot afford to repay are not.
Moreover, many programs across the country succeed in serving
students from the most challenging backgrounds. As explained in
further detail below, student body characteristics explain a small
share of the variation in repayment rates among institutions. Even
among programs serving the highest proportions of disadvantaged
students, many have repayment rates above 35 percent. As a result,
all students have choices among many programs that are capable of
serving them well. The following paragraphs provide greater detail
on the interaction between demographics and institutions' repayment
rates and debt-to-earnings ratios.
Repayment Rates and Demographics
Some commenters described very high correlations between student
body demographics and repayment rates. In particular, several
commenters cited one analysis of the NPRM, which suggested that the
repayment rate specified in the NPRM was highly correlated with the
percentage of students receiving Pell Grants.
This analysis, which used a regression model based on the
repayment rate specified in the NPRM, demonstrated a nearly linear
relationship between the make-up of an institution's student body
and its repayment rate. However, because this analysis reduces the
data for thousands of institutions into quintiles, it failed to
capture the amount of variation in repayment rates among
institutions serving a similar group of students. As described
below, when this variation is taken into account, the data
[[Page 34460]]
reveal a much lower correlation between an institution's
concentration of students receiving Pell Grants and its repayment
rate. Moreover, Table 3 demonstrates that most institutions have
repayment rates that exceed 35 percent, including many serving large
numbers of Pell Grant recipients.
[GRAPHIC] [TIFF OMITTED] TR13JN11.025
To examine the relationship between repayment rates and student
body demographics more carefully, the Department performed a series
of multivariate regression analyses, analyzing each institutional
sector separately. The dependent (predicted) variable in each
analysis was repayment rate. The independent (predictive) variables
in each analysis were informed by comments received through the
rule-making process, and included:
Student Body Characteristics
(1) Percent of student body identified as racial/ethnic
minorities,
(2) Percent of student body receiving Pell Grants,
(3) Percent of student body identified as female,
(4) Percent of student body identified as being under 25 years
of age.
Institutional Characteristics--Resources
(5) Per capita instructional expenses,
(6) Per capital core expenses,
(7) Growth rate, 2006 to 2009.
Institutional Characteristics--Graduation Rate
(8) Graduation rate.
Because of the variables selected, only institutions identified
as enrolling undergraduate students were included in the regression
analyses. Other factors, such as missing data on predictors, also
excluded some institutions from analysis.
Summary of Results of Regression
As noted above nine separate, sector-wise models were run to
explore the relationship between repayment rates and student- and
institution-level factors. Models ran from being wholly non-
predictive (i.e., less-than-2-year public institutions) to
explaining more than half of the potential variance in repayment
rates (i.e., 72 percent for 4-year public institutions; 57 percent
for 2-year nonprofit institutions; and 56 percent for 4-year
nonprofit institutions). The modeling is summarized below. For each
sector, three facets of the modeling is detailed: (1) Whether the
full model was statistically significant overall and the proportion
of variance in repayment rate the model could explain; (2) the
proportion of variance explained by the percent of an institution's
student body receiving Pell Grants when that variable was the sole
predictor in the model; and (3) the proportion of variance explained
by the percent of an institution's student body identified as a
racial/ethnic minority, when that variable was the sole predictor in
the model.
[[Page 34461]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.026
For the nine models, the findings suggest that the relationship
between repayment, racial/ethnic composition, and Pell Grant receipt
varies considerably from sector to sector. For example, the
predictive power of Pell Grants varied widely when entered as the
sole variable in the model, from 3.3 percent (2-year public
institutions) to 49.2 percent (4-year public institutions).
Similarly, in four of the nine models, the proportion of an
institution's student body that was represented by students
identified as racial/ethnic minorities was a statistically
significant predictor. However, in no case did it explain more than
approximately 13 percent of variance in repayment rates.
Additional context for the results detailed below comes from
considering the ``scope'' of the proposed regulations, in particular
the types of institutions likely to offer gainful employment
programs. For example, although Pell Grant receipt explained
approximately 26 percent of the variance in repayment rates at 2-
year private for-profit institutions, that sector enrolled only 3
percent of all students in postsecondary education in 2008-09.\12\
Student indebtedness at exit, another key component to the proposed
regulation, is discussed in more detail in the next section of this
filing (see Debt-to-Earnings Ratios and Demographics).
---------------------------------------------------------------------------
\12\ Enrollment figures here and in the following sections
describing the model can be found in See Table 10 in Knapp, L.
(2010). Postsecondary Institutions and Price of Attendance in the
United States: Fall 2009 and Degrees and Other Awards Conferred:
2008-09, and 12-Month Enrollment 2008-09 (NCES 2010-161).
Washington, DC: U.S. Department of Education, Institute of Education
Sciences, National Center for Education Statistics.
---------------------------------------------------------------------------
Results for 4-Year Public Institutions
In academic year 2008-09, four-year public institutions enrolled
9.0 million students, approximately 33 percent of all students
enrolled in postsecondary education (46 percent of all students
enrolled in public institutions). The full regression model
explained 72 percent of the variance in repayment rate, with the
strongest single predictor being the percentage of students enrolled
who received a Pell Grant.\13\ When used as a sole predictor, the
percentage of Pell Grant recipients explained 49 percent of the
variance in repayment rate. However, when used as a sole predictor,
the percentage of Pell Grant recipients was not a statistically
significant predictor.
---------------------------------------------------------------------------
\13\ Based upon the standardized metric (i.e., beta) regression
coefficient.
---------------------------------------------------------------------------
Results for 4-Year Private Nonprofit Institutions
In academic year 2008-09, 4-year private nonprofit institutions
enrolled 4.5 million students, approximately 16 percent of all
students enrolled in postsecondary education (98 percent of all
students enrolled in private nonprofit institutions). The full
regression model explained 56 percent of the variance in repayment
rate, and, as was the case among 4-year public institutions, the
strongest single predictor in the model was the percentage of
students who received a Pell Grant (which explained 41 percent of
the variance in repayment rates when used as a standalone
predictor). Similarly, the racial/ethnic composition of an
institution's student body was predictive of repayment rates for 4-
year nonprofit institutions, but as a sole predictor it explained
less than 2 percent of variance in repayment rates.
Results for 4-Year Private For-Profit Institutions
In academic year 2008-09, 4-year private for-profit institutions
enrolled 2.1 million students, approximately 8 percent of all
students enrolled in postsecondary education (82 percent of all
students enrolled in for-profit institutions). Approximately 22
percent of the variance in repayment rates among 4-year private for-
profit institutions was explained by the full regression model.
Unlike other 4-year institutions, the most predictive variable in
the model was the percentage of undergraduate enrollees who were
under 25 years of age. The racial/ethnic composition of an
institution's student body was not a statistically significant
predictor when used alone to model repayment rates, and, although
the percentage of students receiving Pell Grants was predictive, it
explained only 7 percent of the variance in repayment rates.
Results for 2-Year Public Institutions
In academic year 2008-09, 2-year public institutions enrolled
10.5 million students, approximately 38 percent of all students
enrolled in postsecondary education. Our model predicted 13 percent
of the variance in repayment rates found at 2-year public
institutions. While the share of racial/ethnic minority enrollment
and Pell Grant receipt were both predictive when entered in their
own models, both explained relatively little variance (around 1
percent and 3 percent, respectively).
[[Page 34462]]
Results for 2-year private nonprofit institutions
In academic year 2008-09, 2-year private nonprofit institutions
enrolled 59,000 students, less than 1 percent of all students
enrolled in postsecondary education. About 57 percent of the
variance in repayment rates at 2-year private nonprofit institutions
was explained by our model. Net of other variables in the model, the
percentage of students receiving Pell Grants was the strongest
single predictor of repayment rates. When used as the only predictor
of repayment rates, racial/ethnic minority share of enrollment
predicted approximately 13 percent of the potential variance. The
percentage of the student body receiving Pell Grants explained 39
percent of the variance in repayment rates when used as the sole
predictor.
Results for 2-year private for-profit institutions
In academic year 2008-09, 2-year private for-profit institutions
enrolled 674,000 students, approximately 3 percent of all students
enrolled in postsecondary education. Our regression model explained
44 percent of the variance found in repayment rates at 2-year
private for-profit institutions. Pell Grant receipt was the single
strongest predictor in the full model and, when used as a sole
predictor, explained 26 percent of the variance in repayment rates.
Share of racial/ethnic minority enrollment was not a statistically
significant predictor when used in its own model to predict
repayment rates.
Results for less-than-2-year public institutions
In academic year 2008-09, less-than-2-year public institutions
enrolled 107,000 students, less than 1 percent of all students
enrolled in postsecondary education. Overall, our regression model
was not statistically significant for less-than-2-year public
institutions. When used as the only predictor of repayment rates,
share of racial/ethnic minority enrollment was statistically
significant, explaining approximately 4 percent of the potential
variance. The share of students receiving Pell grants was not
statistically significant in its stand alone model.
Results for less-than-2-year private nonprofit institutions
In academic year 2008-09, less-than-2-year private nonprofit
institutions enrolled 24,000 students, less than 1 percent of all
students enrolled in postsecondary education.\2\ Our regression
model explained 39 percent of the variance in repayment rates, with
the share of students receiving Pell Grants being the single
strongest predictor in the full model. When used as the sole
predictor of repayment rates, the percentage of students receiving
Pell Grants explained approximately 29 percent of the potential
variance. Share of racial/ethnic minority enrollment was not a
statistically significant predictor.
Results for Less-Than-2-Year Private For-Profit Institutions
In academic year 2008-09, less-than-2-year private for-profit
institutions enrolled 466,000 students, approximately 2 percent of
all students enrolled in postsecondary education. Approximately 27
percent of the variance noted in the repayment rates of less-than-2-
year private for-profit institutions could be explained by our
model. The strongest single predictor was the percentage of students
receiving Pell Grants. In its stand alone model, the percentage of
students receiving Pell Grants predicted 16 percent of the
variability in repayment rates among these institutions. The
percentage of students identified as racial/ethnic minorities was
not statistically significant.
A visual representation, as seen in Chart A, more clearly
illustrates that there is only a modest relationship between
repayment rates and an institution's student demographics. As noted
above, the percentage of students receiving Pell Grants explains 23
percent of the total variance in repayment rates. Chart B presents
similar data on the relationship between the percentage of the
students that are members of a minority group at an institution and
its repayment rate. The percentage of the students that are members
of a minority group explains 1 percent of the total variance in
repayment rates.
[[Page 34463]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.027
[[Page 34464]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.028
Debt-to-Earnings Ratios and Demographics
The Department also examined the implications of the debt-to-
earnings ratio on students. Programs fail the debt-to-earnings ratio
if the debts for the majority of students exceed both measures of
affordability by at least 50 percent. While the Department
recognizes that some groups may face greater obstacles in the labor
market than others, we do not agree that the appropriate response to
those obstacles is to accept that disadvantaged students will bear
even higher debt burdens.
Moreover, similar to the repayment rate, earnings and debt data
from the Missouri Department of Higher Education reveal a wide
variation in performance on the debt-to-earnings ratio among
programs serving similar groups of students. As shown in Chart C,
many programs serving large numbers of Pell Grant recipients have
debt-to-earnings ratios below 12 percent of total income or 30
percent of discretionary income. Each circle in the chart represents
a program.
[[Page 34465]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.029
Nor is it true that all low-income students will face higher
debt-to-earnings ratios after graduation. While low-income students
are more likely to borrow money for college, the amount of those
loans is similar to those borrowed by their higher-income peers. As
shown in Table 5, students who received a Pell Grant and those who
did not typically graduate with similar levels of debt.
[[Page 34466]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.030
Review of Submitted Analyses
Two comments written by economists included detailed alternative
estimates of the impact of the regulations proposed in the NPRM. The
first, submitted by Jonathan Guryan and Matthew Thompson of Charles
River Associates, questioned whether the proposed regulations
properly addressed problems they are attempting to solve and
presented other ways to measure the returns to education.\14\ The
report also critiqued the cost estimates proposed in the NPRM,
provided alternative numbers of the number of students and programs
that would be affected, and provided some suggestions for how the
regulations should be changed.
---------------------------------------------------------------------------
\14\ The Charles River Associates report may be found at: http://www.regulations.gov/#!documentDetail;D=ED-2010-OPE-0012-13610.1.
---------------------------------------------------------------------------
The Charles River Associates report argued that an analysis of
earnings should focus on income gains over a longer time period
because students take this into consideration when making cost/
benefit decisions about whether to enroll in postsecondary education
and whether to use loans to finance its cost. The report argues that
it is appropriate to use longer periods to measure the benefits from
schooling because research shows that the annual earnings benefit
for each year of schooling is between 7 and 15 percent, meaning that
a student could recapture the value of his or her education debt
over time because of the greater earning power associated with each
year of higher education. These alternative measurements are
discussed in the Alternatives Considered section of this RIA.
The Charles River Associates report included its own estimate of
the effects of the NPRM using data from member institutions from the
Association of Private Sector Colleges and Universities (then known
as the Career College Association), representing 308 institutions,
450 campuses, 10,000 programs, and 600,000 students. Student and
loan level information was available based on the population
included in the 2006, 2007, and 2008 Cohort Default Rate
calculations. Adjustments were made based on IPEDS and data from the
2008 NPSAS, both conducted by the NCES, for students who did not
take out any loans and for students who borrowed private loans in
addition to Federal loans. The Charles River Associates report
approximated the debt-to-earnings tests by using information on
specific occupations from the Current Population Survey. It
calculated repayment rates by using information about loans in
repayment from the cohort default rate files provided by surveyed
institutions.
The report's initial results found that 7.1 percent of the
programs for which data were available would be ineligible under the
proposed regulations, a designation that would affect 7.5 percent of
students in the report's sample. After making some adjustments to
estimated repayment rates so that they conformed more to the
repayment rates released by the Department, the report revised its
estimate to say that 8.8 percent of programs in its sample would be
ineligible, affecting 13.0 percent of students. These findings are
similar to the Department's estimates that under the proposed
regulations 16 percent of for-profit programs would lose
eligibility.
The report questioned the Department's estimates of the number
of students that would leave postsecondary education altogether as a
result of the regulations, without providing any data that would
support alternative assumptions. Using different assumptions about
the percentage of students that would drop out and whether any
programs in the then-proposed restricted category would shut down,
the report estimated that between 1.1 million and 2.4 million
students would be impacted by the regulations over a 10-year period.
The Department carefully considered the likely behavior of students
enrolled in failing and ineligible program and is confident that it
has adopted a reasonable set of assumptions. We have described the
data and analysis we relied upon in the section of this RIA titled
Estimation of Effects on Students under Analysis of Final
Regulations.
Finally, the Charles River Associates report discussed the
implications of ``restricted'' status, the regulations' impact on
new programs, the regulations' potential impact on low-income
students and members of racial and ethnic minorities, and several
concerns about the implementation of the regulations. These comments
are discussed in the Analysis of Comments and Changes section of the
preamble and the section of this RIA titled Student Demographics.
In a second analysis, Roger Brinner of the Parthenon Group
argued that the Department should have adjusted the Missouri sample
data to account for debt level, income level, and repayment
rate.\15\ Using those adjustments, the study estimates that 30
percent of all students enrolled in programs subject to gainful
employment regulations would be in ineligible programs, compared to
the Department's estimate of 8 percent. The Parthenon Group study
attributed the difference between its estimate and the Department's
estimate to the Parthenon Group's inclusion of private student loan
debt and students without any earnings in the debt-to-earnings
calculation. The study relied upon a BLS estimate that 17 percent of
students were out of the workforce the whole year and therefore had
zero income, apparently based on the assumption that
[[Page 34467]]
students completing career education programs were no more likely to
be employed than other young adults.
---------------------------------------------------------------------------
\15\ Roger Brinner, The Parthenon Group, Assessment of Missouri
Estimate of Impact, September 9, 2010, available at http://www.regulations.gov/#!documentDetail;D=ED-2010-OPE-0012-12859.1.
---------------------------------------------------------------------------
In its analysis of the final regulations, the Department revised
its estimation methodology to account for private student loan debt
and graduates without earnings. The Federal debt in the data was
adjusted to an estimated total debt for a program, including private
loans, using NPSAS information by institutional sector for the 2007-
08 year. The earnings amounts were adjusted to include 25 percent of
exiters with zero earnings and to represent earnings three to four
years into employment. These adjustments are also described in the
section of this RIA titled Analysis of Final Regulations.
The Parthenon Group study also questioned the Department's
estimates of the number of students who would decide to transfer or
drop out after their program lost eligibility, asserting that for-
profit and public institutions would face capacity constraints that
would prevent more than about 60 percent (or 600,000) of the 1
million displaced students from reenrolling elsewhere. The
Department does not agree with these pessimistic projections. For-
profit institutions are capable of rapid growth. The sector has
recently grown by hundreds of thousands of students a year, and its
total enrollment continued to grow in the mid-1990s, even as
hundreds of institutions lost student aid eligibility due to their
cohort default rates. The Parthenon Group's conclusion that access
would be constrained is dependent on its belief that a large number
of students will leave their current program. Its estimate that
existing programs could accommodate 600,000 additional students in a
year, for example, would appear to support a conclusion that large
numbers of students could switch programs before limits are reached.
Finally, the Parthenon Group study estimated that these 400,000
students would experience 15 percent lower income levels due to not
having a postsecondary education, which would decrease government
tax revenues by $400 million. Looking at student-to-employee ratios
and economic modeling multipliers, the study further estimated that
95,000 employees would lose their jobs due to the 400,000 students
leaving postsecondary education, and that those lost jobs would
decrease government tax revenues by $2.9 billion. For students who
would continue their educations at public and nonprofit schools, the
study argued that it costs taxpayers more for students to attend
public and private nonprofit schools than for-profit institutions.
The study estimated that students transferring to the public and
private nonprofit sectors would cost taxpayers $2 billion based upon
other projected adjustments. While the final regulations differ in a
number of significant respects from the proposal analyzed by the
Parthenon Group, the Department has considered the approach and
estimates in the study when formulating its own estimates of the
impact of the final regulations on the number of college graduates,
jobs, and government budgets. The economic consequences outlined in
the analysis are dependent on the Parthenon Group's estimates of the
number of programs that will lose eligibility and the number of
students who will leave postsecondary education. Moreover, the
analysis fails to consider the benefits to students, taxpayers, and
the economy as a whole from better performing programs that are tied
more closely to labor market demands, lead to lower debt levels, and
typically achieve higher retention and graduation rates. The
Department presents its view of the costs and benefits of the final
regulations in the Discussion of Costs and Benefits section of this
RIA.
IV. Analysis of Final Regulations
Data and Methodological Changes
The Department developed a set of data analysis tools to assist
in developing the debt measures used in these regulations to define
compliance with the gainful employment requirements for covered
postsecondary education and training programs. Briefly, the
Department examined two internal data sets that it controls-- NSLDS,
maintained by the Office of Federal Student Aid (FSA), and IPEDS,
maintained by NCES. Additionally, the Department entered into a data
sharing agreement with the Missouri Department of Higher Education
(MDHE) that provided us with critical information aggregated at the
program level--including work income--for certain persons who
participated in identified postsecondary education and training
programs in public and for-profit institutions in Missouri between
2006 and 2008.
The Department obtained from NSLDS the total number of borrowers
who attended a particular institution and entered repayment in FY
2006 or 2007, and identified the borrowers in each group who had
paid their loans in full or had made payments sufficient to reduce
the outstanding balance on their loans through FY 2010.\16\ We
retrieved, for these borrowers, the school-level total loan balance
upon entering repayment, and the school-level total balance of loans
upon entering repayment for borrowers who paid their loans in full
or made payments sufficient to reduce principal. We also retrieved
information regarding borrowers who were repaying their loans under
one of the income-sensitive repayment plans (e.g., income-contingent
repayment (ICR), income-based repayment (IBR), and graduated plans).
The Department conducted further analysis of the consolidation loans
taken by those borrowers to attribute the loans that were
consolidated to the respective institutions the borrower attended
when the loans were made.
---------------------------------------------------------------------------
\16\ For an explanation of the NSLDS repayment rate query,
please see the repayment rate calculation file available on the
Department's gainful employment Web site, http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity-analysis.html.
---------------------------------------------------------------------------
The Department extracted a series of data elements from IPEDS
for use in the gainful employment analysis. Owing to the nature of
IPEDS, all information was developed at the institutional level from
data reported by the institutions themselves. The institution-
specific information included enrollment, the number of Pell Grant
recipients, identification of institutions that offered a single
program of study (mono-line institutions), certain programmatic
(based on CIP code) information, revenues, expenses, and graduation
rates. The Department merged these two data sets to produce a
single, institution-by-institution analysis file comprised of the
data elements described in the preceding paragraph.
The MDHE provided information on individuals who exited
education and training programs at public and private for-profit
postsecondary institutions in the State between 2006 and 2008. These
data were aggregated by program of study within institutions and
include both education-related and wage data. Additional education-
related data--provided by the Department from NSLDS--include the
number of program exiters who had Federal student loan debt, were in
repayment or default, and were Pell Grant recipients. These data
also included mean and median student loan debt and Pell Grant
amount for program exiters. Wage data included the number of exiters
captured in the Missouri Department of Labor and Industrial
Relations' Unemployment Insurance program (UI) database, and average
annual wage and quartile distribution of annual wages for these
exiters. In constructing this analysis file for the Department's
use, MDHE employed a protocol that appropriately shielded personally
identifiable information.
The characteristics of the individuals represented in the MDHE-
developed database were generally comparable to the same
characteristics of the U.S. population across several dimensions,
including population demographics such as age; race/ethnicity; and
enrollment in elementary, secondary, and postsecondary education; as
well as income and race/ethnicity of persons attending public and
for-profit postsecondary institutions. These comparisons can be
found in Table F of the Regulatory Impact Analysis published with
the NPRM. The comparisons, as well as other details regarding the
MDHE-provided data set, can also be found in the document entitled,
``Gainful Employment Analysis--Missouri Methodological Notes''
available on the Department's Web site.\17\
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\17\ http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity-analysis.html
---------------------------------------------------------------------------
The primary data set used to analyze the regulations consists of
5,474 institutions defined by a six-digit OPEID taken from IPEDS and
available at the gainful employment Web site.\18\ Key information
available in this file includes enrollment, revenues, expenses,
graduation rates, percentage of undergraduates with a Pell Grant,
and other characteristics. Repayment rate information calculated
from NSLDS was added to the IPEDS information through the OPEID and
allowed institutions to be classified according to an initial year
of repayment rate performance.
---------------------------------------------------------------------------
\18\ http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity-analysis.html.
---------------------------------------------------------------------------
In matching the data sets, there were approximately 710
institutions where no repayment rate was generated, of which a
little over 30 percent came from the private
[[Page 34468]]
for-profit less-than-2-year sector and another 29 percent came from
public 2-year institutions. Many of these institutions did not
participate in the loan programs during the period covered for this
repayment rate calculation, and others may represent newer
institutions in the IPEDS data or branches whose information has
been captured under an aggregated OPEID. For the analysis,
institutions with no repayment rate have been treated as eligible as
they will not fail under the regulations. A second set of
approximately 1,115 institutions appeared in the repayment rate file
but not in the IPEDS data set. After accounting for foreign
institutions, closed schools, and schools with changes in
affiliation, approximately 145 institutions remained, of which 78
percent would have a repayment rate borrower count too small to be
evaluated and thus could not fail under the regulations. The
matching of repayment rates and IPEDS data was necessary for this
analysis, but will not be required when program-level data is
available as the regulations are implemented.
Adjustments to Missouri Data
In response to comments and changes in the regulations, the
Department made some adjustments to the Missouri data that was used
to provide some information on the relationship between a program's
debt-to-earnings performance and the school's repayment rate
performance. Specific adjustments were made to the data to better
represent the regulations and are included in the data file
available on the Department's gainful employment Web site.\19\ The
earnings amounts were adjusted to include 25 percent of exiters with
zero earnings and to represent earnings three to four years into
employment. The Federal debt in the data was adjusted to an
estimated total debt for a program, including private loans, using
sector-level information from NPSAS 2008. Data from NPSAS 2008 were
also used to limit the debt to tuition and fees only. Finally,
depending upon the award level associated with the program, a 10-,
15-, or 20-year amortization period was applied to calculate the
payment to be evaluated. The relationship between repayment rates
and debt performance in the Missouri data provides guidelines for
the debt performance distribution described under the heading
Summary of the Model of this RIA. The model, however, assigned a
greater share of schools, programs, and students to the failing debt
categories to take into account the unavailability of data for some
sectors and possible differences in performance between programs in
Missouri and elsewhere.
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\19\ http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity-analysis.html.
---------------------------------------------------------------------------
Estimated Number of Affected Students
In the analysis for the NPRM, the number of students subject to
the regulations was estimated using the applicable percentage for
each sector, with the percentage of certificates awarded providing a
guideline for the public and private nonprofit sectors. For the NPRM
analysis, the estimated 3.2 million students affected was based on
the 12-month full-time equivalent (FTE) enrollment, and in this
analysis those data have been updated to the 12-month headcount
enrollment to better represent the number of students potentially
subject to the regulations. In the base data set with IPEDS
information for 2008-09, the total 12-month enrollment is
approximately 27.4 million students, of whom 7.3 million are
estimated to attend programs subject to the regulations. When
inflated by the estimated enrollment growth specified in the RIA
Appendix for each scenario (RIA Appendix A-1, RIA Appendix A-2, and
RIA Appendix A-3) to represent the first calculation in FY 2012, the
number of students subject to the regulations is approximately 8.4
million. As observed by some of the analysts that commented on the
data used to estimate the effect of the proposed regulation, the
change to head count enrollment better describes the potential
impact of the final regulation. This number is derived from the
percentage of credentials granted in regulated programs compared to
the total credentials granted at an institution. If program
information was not available for an institution, the average
percentage for that sector was used.
Summary of the Model
Significant changes were made to the analysis done for the NPRM
to estimate the effects of the requirement that a program fail three
out of four FYs to be ineligible. These changes are described below.
The assumptions and results related to each scenario are presented
in the RIA Appendix A-1, RIA Appendix A-2, and RIA Appendix A-3.
Data and Model Limitations
NSLDS has sufficient data to support the calculation of a
repayment rate for each school participating in the Federal student
loan programs. NSLDS does not currently collect enough data to allow
this calculation by program at an institution. The model starts with
school-level data, aggregates to the sector level, and tracks
numbers of schools, programs, and students. The Department has
estimated debt-to-earnings ratios for programs from the Missouri
data set. The model combines the Missouri debt-to-earnings data with
the national repayment rate data with assumptions about the
relationship between the two measures grounded in data from
Missouri, where available. Repayment rate data are available for a
single year. The model calculates transitions from year to year
based on rates specified by the user that are informed by the
distribution of available repayment rate data. Detailed tables of
the assumptions for each scenario are available in the Appendix for
each scenario.
There are several aspects of the regulations that could not be
incorporated into the analysis. In particular, while the model does
allow students to transfer from failing programs and separately
allows programs to shift between repayment categories, it does not
model an interaction between those transitions and does not attempt
to predict the effect of the transferring students on the receiving
programs' performance on the gainful employment measures in
subsequent years. Other items that cannot be fully analyzed should
only improve a program's performance and reduce the effects
estimated in this RIA. One item is the option to calculate the
repayment rate for FYs 2012, 2013, and 2014 using borrowers one to
two years in repayment. This option would allow institutions to
demonstrate program improvements more quickly. In general, our data
suggest that the repayment rates calculated with borrowers three to
four years into repayment are higher, but under this option, the
Department would calculate the rate using both sets of borrowers and
use the higher one, which could only help programs. The Department
does not have any repayment rate data for borrowers in the first two
years of repayment that reflects any potential improvements in
performance as a result of the regulations and decided to describe
this factor that may reduce the effects of the regulations instead
of quantifying it. Additionally, the repayment rates used for
modeling the effects of these regulations do not include in the
numerator of the repayment rate the consolidation loans with a
balance that remained the same in the most recent fiscal year of
borrowers in a post-baccalaureate degree or certificate program.
The results presented below also do not take into account the 5
percent cap on ineligibility for the first year programs could lose
eligibility. The Secretary will cap the number of ineligible
programs by first sorting institutions by category of institutions
(public, private nonprofit, and for-profit), then by loan repayment
rate within that category, and finally, starting with the lowest
repayment rate, by determining ineligible programs accounting for a
combined number of program completers during FY 2014 that does not
exceed 5 percent of the total number of program completers in that
category. Finally, the limited availability of data related to
repayment plans did not allow us to determine the effect of the
provision treating all borrowers eligible for Public Service Loan
Forgiveness as successfully in repayment or the revised policy
allowing the OOPB of up to 3 percent of borrowers' balances in
alternative repayment plans and not paying down principal to be
included in the numerator of the repayment rate calculation. To
account for the treatment of loans in interest-only and negative
amortization repayment plans, graduate student consolidation loans
with a balance that remains the same, the loans eligible for Public
Service Loan Forgiveness, and the ability of schools to take action
to increase their repayment rates before the first official
calculation with FY 2012 data, the model boosts the rates calculated
from NSLDS by 5 percentage points. We believe this adjustment is
conservative in light of the fact that up to 3 percent of OOPB will
receive adjustments for interest-only or negative amortization
status, the potentially large numbers of borrowers eligible for
Public Service Loan Forgiveness, and a published estimate that
improved debt counseling could boost repayment rates by 2 to 5
percentage points.\20\
---------------------------------------------------------------------------
\20\ Paul Ginocchio and Adrienne Colby, Deutsche Bank, ``Post 3Q
Update on PE Drivers and Gainful Employment,'' November 12, 2010.
---------------------------------------------------------------------------
[[Page 34469]]
Initial Model State
The model starts with data for schools that have programs
subject to the gainful employment regulations. These data include
the repayment rate calculated from NSLDS, the estimated number of
programs subject to the regulations, and the number of students
enrolled in these programs. The repayment rate is classified into
three levels: Passing, Near Failing, and Failing based on the 35
percent and 45 percent thresholds used in the NPRM. School, program,
and student counts are then grouped by school sector and repayment
rate category.
Year One School Assessment
The outcome for each year depends upon both repayment rate and
debt-to-earnings ratios. The latter is imputed using a specified
relationship between the two measures. This relationship is assumed
to vary by sector, and to be static across years. The specification
is informed by schools from the Missouri data for which both
measures are available.
The imputation process returns the debt-to-earnings ratios
classified into three levels, similar to the repayment rate. The
relationship is specified by loading rates into a three-dimensional
array indexed by sector, repayment category, and debt category.
These rates indicate the relative likelihood that a school in a
given sector with a given repayment category will exhibit a debt
ratio falling into each of the three categories. The model allocates
schools, programs, and students to the debt categories according to
the specified rates.
Schools for which both measures are in the third (Failing)
category are classified as failing to provide gainful employment.
The others are classified as passing.
Baseline Enrollment Growth Year One to Year Two
The user specifies baseline enrollment growth factors for each
sector. These are stored in a one-dimensional array indexed by
sector. The model applies the appropriate factor to the student
counts recorded for the end of Year One to yield projected
enrollment by sector for Year Two. These projections do not consider
behavioral changes associated with the students' reactions to the
Year One outcomes.
Year Two Student Reaction to Year One Assessment
The user specifies transition rates for Year Two students who
would have attended failing schools, but transfer to passing schools
or forego enrollment in reaction to the Year One outcome. The rates
are stored in a two-dimensional array indexed by starting school
sector and student choice. The students who would have attended a
school with a history of failure are assumed to choose among 11
different options. The assumed choices consist of enrolling in a
school with no prior failures in one of the nine sectors, foregoing
enrollment, or ignoring the prior year outcomes and enrolling in a
school in the same sector and with the same outcomes. The model re-
allocates Year Two students to new sectors and Year One outcomes
according to the specified rates.
School Transition and Year Two Assessment
The user specifies transition rates among repayment categories
for Year Two schools. The rates are stored in a two-dimensional
array indexed by Year One repayment category and projected Year Two
repayment category. The model re-allocates schools, programs, and
students among new repayment categories according to the specified
rates.
The model then invokes a user-specified debt imputation array to
assign a debt category for Year Four according to the school's
sector, repayment category, and prior year's performance on the
debt-to-earnings ratios. The model allocates schools, programs, and
students to the Year Two debt categories according to the specified
rates. Schools for which both measures are in the third (Failing)
category are classified as failing for Year Two, and the others are
classified as passing for Year Two.
Baseline Enrollment Growth Year Two to Year Three
The user specifies baseline enrollment growth factors for each
sector. These are stored in a one-dimensional array indexed by
sector. The model applies the appropriate factor to the student
counts recorded for the end of Year Two to yield projected
enrollment by sector for Year Three. These projections do not
consider behavioral changes associated with the students' reactions
to the prior year outcomes.
School Transition and Year Three Assessment
The user specifies transition rates among repayment categories
for Year Three schools. The rates are stored in a three-dimensional
array indexed by Year One repayment category, imputed Year Two
repayment category, and projected Year Three repayment category. The
model re-allocates schools, programs, and students among new
repayment categories according to the specified rates.
The model then invokes a user-specified debt imputation array to
assign a debt category for Year Four according to the school's
sector, repayment category, and prior year's performance on the
debt-to-earnings tests. The model allocates schools, programs, and
students to the Year Three debt categories according to the
specified rates. Schools for which both measures are in the third
(Failing) category are classified as failing for Year Three, and the
others are classified as passing for Year Three. Schools that failed
in each of the three years are classified as ineligible after Year
Three.
Baseline Enrollment Growth Year Three to Year Four
The user specifies baseline enrollment growth factors for each
sector. These are stored in a one dimensional array indexed by
sector. The model applies the appropriate factor to the student
counts recorded for the end of Year Three to yield projected
enrollment by sector for Year Four. These projections do not
consider behavioral changes associated with the students' reactions
to the prior year outcomes.
Year Four Student Reaction to Prior Year's Assessment
The user specifies transition rates for Year Four students who
would have attended failing schools, but transfer to better-
performing schools or forego enrollment in reaction to the Year One,
Year Two, and Year Three outcomes. The rates are stored in a three-
dimensional array indexed by the school's prior year outcomes
(failed once, twice, or three times), starting sector, and student
choice. The students who would have attended a school with a history
of failure are assumed to choose among 20 different options. The
assumed choices consist of enrolling in a school with no prior
failures in one of the nine sectors, foregoing enrollment, enrolling
in a school with one prior failure in one of the nine sectors, or
ignoring the prior year outcomes and enrolling in a school in the
same sector and with the same outcomes. The model re-allocates Year
Four students to new sectors and prior year outcomes according to
the specified rates.
School Transition and Year Four Assessment
The user specifies transition rates among repayment categories
for Year Four schools. The rates are stored in a four-dimensional
array indexed by Year One repayment category, imputed Year Two
repayment category, imputed Year Three repayment category, and
projected Year Three repayment category. The model re-allocates
schools, programs, and students among new repayment categories
according to the specified rates.
The model then invokes a user-specified debt imputation array to
assign a debt category for Year Four according to the school's
sector, repayment category, and prior year's performance on the
debt-to-earnings tests. The model allocates schools, programs, and
students to the Year Four debt categories according to the specified
rates. Schools for which both measures are in the third (Failing)
category are classified as failing for Year Four, and the others are
classified as passing for Year Four. Schools that failed in Years
One, Two, and Four are classified as ineligible after Year Four.
Baseline Enrollment Growth Year Four to Year Five
The user specifies baseline enrollment growth factors for each
sector. These are stored in a one-dimensional array indexed by
sector. The model applies the appropriate factor to the student
counts recorded for the end of Year Four to yield projected
enrollment by sector for Year Five. These projections do not
consider behavioral changes associated with the students' reactions
to the prior year outcomes.
Year Five Student Reaction to Prior Year's Assessment
The user specifies transition rates for Year Five students who
would have attended failing schools, but transfer to better-
performing schools or forego enrollment in reaction to the Year One,
Year Two, Year Three, and Year Four outcomes. The rates are stored
in a three-dimensional array indexed by the school's prior year
outcomes (failed
[[Page 34470]]
once, failed twice, ineligible after Year Three, and ineligible
after Year Four), starting sector and student choice. The students
who would have attended a school with a history of failure are
assumed to choose among 20 different options. The assumed choices
consist of enrolling in a school with no prior failures in one of
the nine sectors, foregoing enrollment, enrolling in a school with
one prior failure in one of the nine sectors, or ignoring the prior
year outcomes and enrolling in a school in the same sector and with
the same outcomes. The model re-allocates Year Five students to new
sectors and prior year outcomes according to the specified rates.
Estimation of Effects on Students
In developing the gainful employment regulations, we established
a model to estimate the number of programs and students that would
be affected. As part of that analysis, we considered whether
students enrolled at programs that were failing or lost eligibility
would transfer to another institution, leave postsecondary education
entirely, or (if the program was failing but remained eligible)
remain enrolled.
Before we could estimate these responses, we first had to
account for the high degree of turnover that already occurs within
the various higher education sectors. For example, data from the
latest BPS show that over 36 percent of students who begin at 2-year
for-profit institutions leave without completing or transferring
within one year. An additional 13.6 percent of students at those
institutions transfer within one year. Applying our estimates of
student behavior before accounting for this significant egress from
institutions would overstate the effects of the regulations and
obscure some of the very problems that they target.
Therefore, our estimates of the effects of the regulations in
terms of student transfer, retention, and drop out are applied after
taking into account the movement that would have occurred anyway. In
other words, we sought to ascertain what effect our regulations
would have on students who would not have transferred out, already
completed, or dropped out. Below we discuss some of the ways we
modeled this initial student movement.
We used BPS data to estimate the number of students who would
have transferred regardless of the regulations. BPS is the best data
source for this purpose because it is student-based, allowing us to
track individuals across multiple types of institutions. As a
result, we can better see the movement of transfer students within
and between sectors. By contrast, information reported in other
databases like IPEDS come from institutions and provide selective
information on the rate at which students transfer out, but contain
no data on the type of institution at which they end up. The BPS
survey also considers a more expansive set of students, including
those who attend part time or enroll at times other than the fall
semester, that are excluded from other national databases.
To create our estimate for transfer rates, we first looked at
the percentage of students who first enrolled in 2003-04, stayed for
at least four months, and had transferred by the 2004-05 academic
year, broken down by institution control. This information gave us
an estimate for what percentage of students would have transferred
regardless of our regulations and was used for contextualizing our
transfer rates for one year of failure. The rates of those who
entered in 2003-04 and transferred by 2005-06 and 2006-07 were used
to contextualize our estimates of those who transferred after two
failures and ineligibility, respectively.
These data also provided guidance for our estimates of how
students would transfer between and within sectors in response to
the regulations. To do this, we selected only those students who had
stayed for at least four months and had transferred by July 2004 to
determine their first institution type and the type of institution
they transferred in to. These results, which are depicted in Table
6, showed us the dispersion pattern of students who did transfer and
demonstrated the importance of public institutions as receiving
entities. However, we expect for-profit institutions to have the
flexibility to respond to demand created by the closure of
ineligible programs. Therefore, we assigned a higher share of
transfers attributed to these regulations to stay within the for-
profit sectors than is seen in the baseline data.
[GRAPHIC] [TIFF OMITTED] TR13JN11.031
Estimates for the percentage of students that would have dropped
out within their first year regardless of the regulations also came
from BPS data. We looked at students' one-year retention and
attainment rate at their initial institution, broken down by their
first institution's sector. This information allowed us to see, for
example, that 33 percent of students who enter a for-profit
institution of two years or less had dropped out within one year.
The results of this analysis for all sectors can be seen in Table 7.
This information on the dropout rate by sector also contributed
to our estimates of the percent of students that would drop out due
to the gainful employment regulations. The dropout rate assumptions
in the high dropout and low dropout scenarios described in RIA
Appendix A-1 and RIA Appendix A-2 are specified as the percentage of
students who drop out or new students who do not enroll as a
percentage of those remaining after the baseline level of dropouts
found in the BPS data described above. The dropouts included in the
model represent the potential response of students who would
otherwise have continued or started their education to a program's
performance on the debt measures. The Department does not have
specific data on student responsiveness to disclosure of program
performance on the debt measures and the other information available
under these regulations and those published on October 29, 2010 (75
FR 66832) (Program
[[Page 34471]]
Integrity Issues final regulations). Therefore, the high dropout and
low dropout scenarios described in RIA Appendix A-1 and RIA Appendix
A-2 established a range of outcomes based on the Department's
expertise and review of comments received after the publication of
the NPRM. Comments received led to an increased dropout rate in the
high dropout scenario and increased transfers to the for-profit
sector because of the ability of those institutions to absorb
students. The low dropout scenario started with a 5 percent dropout
rate for a first failure of the debt measures to a 22 percent
dropout rate of those remaining when a program becomes ineligible.
This escalation is repeated in the high dropout scenario, which
starts with a 15 percent dropout rate for a first failure and
escalates up to 42 percent for ineligible programs in the for-profit
less-than-2-year sector. For each status (fail once, fail twice,
ineligible), the for-profit sectors had a dropout rate 2 percentage
points higher than the public sector and private nonprofit sectors,
to reflect a potential increased emphasis on program performance in
those sectors. While there was some variation by sector, a program's
status was the key determinant of the dropout rate assigned to
students.
[GRAPHIC] [TIFF OMITTED] TR13JN11.032
Establishing rates of transfer and dropout within each sector
allowed us to determine what percentage of students should be
removed from the model before estimating the effects of our
regulations. Running our estimates of the effect of the regulations
after subtracting the students who would have left an institution
anyway contextualizes the outcome of our regulations and
acknowledges the significant existing levels of student movement
that already occur in many programs. For example, only 29 percent of
students at 2-year for-profit institutions who entered in 2003-04
were still enrolled in 2004-05. The rate of transfers and drops
after one year was used to adjust the transfer and dropout rates
used in the model after one year of failure while rates after two
and three years were used to contextualize the model rates for two
failures and ineligibility. If we estimate that these final
regulations would cause 18 percent of those remaining students to
drop out, the high existing dropout and transfer rate means that 9
percent of the student body would actually be affected. In this
case, that result would mean the effect on students from the gainful
employment regulations is approximately half as large as our
estimated dropout effect and is roughly one-fifth as large as
student exit without completion.
Summary of Results
While stepping through the events described above, the model
records the state of the system at specific points in the process.
These snapshots of data are combined, so that student shifts to
different schools and to passing or failing programs can be
displayed, across the modeled years. The model can be run under
different scenarios by changing selected user-specified input and
saving the results. The results of various scenarios may then be
considered in the analysis of the effects of the gainful employment
regulations on schools, programs, and students. The Department's
review of the effects of these regulations is consistent with the
principles of the Executive Orders 13563 and 12866 and represents a
reasoned determination that the benefits of the regulatory approach
justify its costs.
Tables 9 to 12 summarize the estimated results for programs,
students, and revenues for the scenarios evaluated. As shown in
Table 9, an estimated 1 percent of all programs and 3 percent of all
programs at for-profit institutions will lose eligibility by 2015.
The Department also estimates that 7 percent of programs at 4-year
for-profit institutions and 6 percent of programs at 2-year for-
profit institutions will lose eligibility.
Though a program must fail the debt measures for three years in
a four-year period, we expect that students likely will exhibit some
degree of reaction to a program failing once or twice, possibly by
transferring out of the program or stopping out altogether. To
reflect these behavioral considerations in our analysis, we
established two different estimates of student movement in reaction
to debt measure performance--the high dropout scenario and the low
dropout scenario. In each case, we created tables that lay out the
estimated percentage of students that will drop out or transfer,
with different results assigned depending on a program's sector and
performance on the debt measures. And
[[Page 34472]]
the extent to which students respond increases with the extent of
the negative result--meaning the transfer and dropout rate is higher
at a program that failed twice than one in the same sector that has
only failed once. As a result, the extent to which students react to
the policy by switching programs or dropping out will vary by
scenario, sector, and debt measure performance.
In the high dropout scenario, we estimate that students are more
likely to respond to poor debt measure performance by ceasing their
education. In this scenario, dropout rates as a percent of remaining
students range from 15 percent at programs in the public 4-year and
private nonprofit 4-year sectors where only one failure occurred to
42 percent at programs in the for-profit less-than 2-year sector
that are ineligible. Transfer rates as a percent of remaining
students range from 20 percent at programs in the public 4-year and
private nonprofit 4-year sectors where only one failure occurred to
40 percent at programs in the for-profit less-than 2-year sector
that are ineligible. By contrast, the low dropout scenario assumes
that instead of stopping out, students in programs that fare poorly
on the debt measures are more likely to seek out another program for
their education or stay enrolled at their current offering. In that
instance, the rate of student dropout is lower relative to our other
scenario, but the rate of student transfer is higher. As a result of
these different assumptions, the rate of student dropouts in the low
dropout scenario ranges from 5 percent at programs in the public 4-
year and private nonprofit 4-year sectors where only one failure
occurred to 22 at programs in the for-profit less-than 2-year sector
that are ineligible. Transfer rates as a percent of remaining
students range from 25 percent at programs in the public 4-year and
private nonprofit 4-year sectors where only one failure occurred to
50 percent at programs in the for-profit less-than 2-year sector
that are ineligible. The appendix to this RIA contains more detailed
charts displaying our assumptions around student transfer and
dropout, both in terms of the share of total students in gainful
employment programs and as a share of the total student body after
removing the baseline dropout and transfers that would have occurred
without this regulation.
As noted earlier, BPS provides information regarding students'
first-to-second-year persistence behaviors. We used these data to
inform our ``steady-state'' estimate for the probability of dropping
out. Using this baseline, we established the drop-out rate
benchmarks for the various scenarios as noted above. The school and
program assumptions for debt performance and repayment category
transitions vary slightly as shown in RIA Appendix A-1 and RIA
Appendix A-2. The estimated drop-outs related to the regulations
over the five years ranged from 80,153 in the low dropout scenario
to 181,933 in the high dropout scenario. The percentage of programs
subject to ineligibility ranges from 0.1 percent in the public less-
than-2-year sector to 3.9 percent in the for-profit 4-year sector
when the total number of regulated programs, including small
programs, is used as the denominator. If the denominator excludes
programs with a small number of borrowers or completers, the
percentage of programs that are ineligible ranges from 0.2 percent
to 7.1 percent. The percentage of programs that have failed the
measures at least once in a four-year cycle ranges from 1.1 percent
for the public less-than-2-year sector to 24.5 percent for the 4-
year for-profit sector.
When students transfer out of a sector or drop out of education,
revenues and expenses associated with those students shift among
sectors or leave higher education. Table 8 contains per enrollee
revenue and expense information used to estimate the costs per
sector of the student transfers set out in Tables 10-A to 10-C and
in the RIA Appendices. These estimated direct costs are set out in
Tables 12-A to 12-C. Results for programs are set out in Tables 11-A
to 11-C. We estimate the effects on revenue under a scenario in
which the maximum dropout rate is 22 percent and a scenario in which
the maximum dropout rate is 42 percent.
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BILLING CODE 4000-01-C
Data Sensitivity
The data used in this model are limited by the fact that we are
using data that were not collected for this purpose. There is also
uncertainty in our assumptions because predicting student behavior
and employment trends is well beyond what we are able to model. The
revenue and expense effects presented in Table 12 represent the
Department's best estimate of the net effects of these final
regulations for the scenarios presented in this RIA. However, we
recognize that elements in the analysis are sensitive to the cost
structure of programs and innovations in the delivery of
postsecondary education. In particular, the marginal cost of
[[Page 34483]]
a student attending a program through online delivery or a mix of
online and in-person classes could vary significantly from the
traditional model. Income statements for publicly traded for-profit
institutions show that as the number of enrolled students grows at
an institution expenses grow at almost the same rate as revenues.
Accordingly, we assume that when students transfer or drop out the
change in expenses is equal to 80 percent of the average existing
cost per student. However, given the data limitations and the
sensitivity of the net costs to the assumptions made about the
percent of revenues lost and expenses saved when students leave a
program or the revenues gained and expenses increased as students
enter programs, the Department ran an alternative scenario featuring
a reduction or increase in expenses for student transfers of 40
percent of total expenses. RIA Appendix B contains the equivalent of
Table 12 for that scenario.
While the Department has some data on the prevalence of online
delivery in gainful employment programs, we have very limited
information on the cost structures of such programs. In 2007-08, 58
percent of undergraduate students at for-profit institutions were
enrolled in programs delivered entirely through distance education.
At public and private non-profit institutions, 24 percent and 37
percent of students enrolled in certificate programs, which also
would be subject to the gainful employment rule, were enrolled in
programs delivered entirely through distance learning. However,
these data do not help describe the cost structure of such programs.
It is possible that the marginal savings from a student leaving such
a program or the marginal cost of a student transferring into an
online program would be a significant portion of the total expense
associated with the program.
As can be seen in Table 13, the annualized net losses from
dropouts and inter-sector transfers in the high dropout scenario
range from $112 million to $122 million, depending on the
composition of program delivery and the expense reduction and
increases associated with different types of program delivery. For
the low dropout scenario, this range runs from $108 million to $160
million.
Consistent with Executive Order 13563's call to ``measure, and
seek to improve, the actual results of regulatory requirements,''
the Department will continue to analyze the effects of this
regulation as the Department gains more and better data. As noted in
the preamble to the final regulation, we will begin to provide
institutions with the results of the debt calculation in 2012. These
data, along with data from subsequent years, will enable the
Department to determine whether the final regulation addresses the
issues that prompted this regulatory action.
BILLING CODE 4000-01-P
[[Page 34484]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.043
BILLING CODE 4000-01-C
The effects described above represent the estimated effects of
the regulations during the first four-year cycle leading to
ineligibility, an initial transition period as the regulations come
into effect. While the debt measures will remain in place, we would
expect the effect to decline over time as programs that could not
comply are eliminated and institutions have more data about program
performance and are familiar with complying with the gainful
employment debt measures. We expect the pattern of program failure
to that which occurred when cohort default rates were introduced in
1989 with an initial elimination of the worst-performing programs
followed by a new equilibrium in which programs comply with the
minimum standards set out in the regulations, as shown in Chart D.
[[Page 34485]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.044
V. Discussion of Costs, Benefits and Transfers
Consistent with the principles of Executive Orders 12866 and
13563, the Department has analyzed the impact of these regulations
on students, businesses, the Federal Government, and State and local
governments. The analysis rests on the projected impact of the
regulations. The benefits and costs discussed below include the
following:
[cir] Private Benefits to Students and Borrowers
[cir] Development of measures linking programs to labor market
outcomes
[cir] Improved retention rates
[cir] Increased graduation rates
[cir] Improved default rates
[cir] Social Benefits
[cir] Improved market information
[cir] Better return on money spent on education
[cir] Costs
[cir] Additional expense of educating transfer students at
programs doing well on the debt measures
[cir] Cost of paperwork burden
[cir] Additional compliance costs as programs take efforts to
meet debt measures
[cir] Distributional Effects (Transfers)
[cir] Transfers affecting institutional revenues
[cir] Transfers affecting Federal, State, and local governments
[cir] Federal revenues
[cir] State and local government costs
Accounting Statement
As required by OMB Circular A-4 (available at http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf), in Table 14, we have
prepared an accounting statement showing the classification of the
expenditures associated with the provisions of these regulations.
This table provides our best estimate of the changes in Federal
student aid payments as a result of these regulations. Expenditures
are classified as transfers from the Federal Government to student
loan borrowers and from low-performing programs to performing
programs. Transfers are neither costs nor benefits, but rather the
reallocation of resources from one party to another.
Table 14 also presents estimates of the costs, benefits, and
transfers associated with students who switch programs or withdraw.
Because more students are projected to transfer into lower-cost
institutions, overall educational expenditures are expected to
slightly decrease.
BILLING CODE 4000-01-P
[[Page 34486]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.045
BILLING CODE 4000-01-C
Private Benefits to Students and Borrowers
The regulations are primarily intended to provide opportunities
for better employment and loan affordability outcomes for students,
particularly for those participating in the Federal student aid
programs. The final regulations provide significant opportunities
for institutions to improve failing programs against the debt
measures.
Development of Measures Linking Programs to Labor Market Outcomes
One improvement will result from strengthening the connection
between training programs and the labor market. As described under
the heading, Need for Regulatory Action, market mechanisms may not
operate properly in the case of educational markets where students
have incomplete information and educational institutions are
effectively insulated from the effects of an excess supply of
graduates in a particular field.
By tying the state of the labor market to the ability of for-
profit institutions to generate revenue, the final regulations
compensate for
[[Page 34487]]
this disconnect between student demand and employer demand. First,
earnings and repayment information will provide a clear indication
to institutions about whether or not their students are successful
in securing stable and well-paying positions. This information will
help institutions determine when it would be prudent to expand some
programs or pare back others. Second, meeting the debt-to-earnings
ratio and repayment rate thresholds will encourage institutions to
prepare students for jobs in well-paying and in-demand fields. This
effect creates an incentive to move programs up-market so that they
prepare students for jobs with better salaries and employment
prospects.
The health care industry is an example of how the gainful
employment regulations could encourage institutions, particularly
those in the for-profit sectors, to adjust their offerings to
provide better opportunities to students and to eliminate oversupply
in the job market. A report by the Center for American Progress
released in January found that for-profit institutions currently
supply a significant percentage of health care credentials
annually.\21\ But many of these programs prepare students for low-
paying entry-level jobs in support occupations, such as medical
assistants, massage therapists, and medical insurance coders. Though
most of those jobs have some labor market demand, projections of
future openings indicate there is an oversupply of graduates for
these positions, while more highly compensated occupations, such as
registered nurses, are facing significant shortages. Not only are
programs preparing students for these lower-paying occupations
creating an oversupply of graduates, but this oversupply is almost
entirely produced by the for-profit sector. The Center for American
Progress report found that of the 10 most popular health care
programs offered at for-profit institutions, eight of them are in
programs for which the for-profit sector accounted for four-fifths
or more of the completions each year. In other words, the for-profit
sector was providing the vast majority of the oversupply in these
health care fields with lesser earnings and growth potential.
---------------------------------------------------------------------------
\21\ Julie Margetta Morgan and Ellen-Marie Whelan, ``Profiting
from Health Care: The Role of For-Profit Schools in Training the
Health Care Workforce,'' Center for American Progress, January 2011,
http:[sol][sol]www.americanprogress.org/issues/2011/01/profiting_
from_health_care.html
---------------------------------------------------------------------------
An analysis of national completion data shows that the health
care industry is not the only area in which for-profit institutions
are providing a significant supply of completions in areas where
earnings and growth are low. Table 15 shows the 15 most popular
instructional programs at for-profit institutions, as measured by
the number of completions at any level. In nine of these program
types, for-profit institutions accounted for over 60 percent of the
annual completions. In all but one of these programs--registered
nursing--for-profit institutions represented a disproportionately
large share of the completions. As Table 15 demonstrates, the
programs in which for-profit institutions are providing the vast
majority of completions tend to have lower median wages, as measured
by BLS data, than the programs in which they have a lower share of
completions. This information suggests that increasing programs in
these better paying areas--such as graduating more registered nurses
instead of medical assistants--would help students obtain better
jobs, while also allowing programs to perform better on the debt
measures.
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[[Page 34488]]
Improved Retention Rates
Institutions can also improve their performance on the debt
measures by improving their institutional retention and graduation
rates. Data on institutional performance clearly show that
improvements in these areas are possible because many institutions
have significantly higher retention and graduation rates even though
they serve low-income students.
Critical to a student's progress through any educational
institution or program is retention. Data from BPS suggest that
retention early in a program of study is particularly critical.
Failure to return for the second year accounts for 23 percent of all
unsuccessful departures from postsecondary education. Another 21
percent fail to return for the third year. For students who began in
a bachelor's degree program, 13 percent left before the second year
and an additional 15 percent left before the third year.\22\
---------------------------------------------------------------------------
\22\ Source: U.S. Department of Education, National Center for
Education Statistics, 2003-04 Beginning Postsecondary Students
Longitudinal Study, Second Follow-up (BPS:04/09)
---------------------------------------------------------------------------
Institutions that are currently passing the repayment rate
threshold established under the final regulations have retention
rates that are 27 percent higher than the rate for institutions that
have repayment rates that fail the repayment rate measure (71
percent vs. 56 percent).
[GRAPHIC] [TIFF OMITTED] TR13JN11.047
If institutions successfully reform failing programs, we would
expect institutions to bring their retention rates within the range
observed for programs that pass the repayment rate measure. If
currently failing institutions were able to raise their retention
rate to the average for institutions passing the repayment measure,
nearly 60,000 more students per year would be retained for a second
year.
While differences in the demographic characteristics of students
play a role in retention--the retention rate at institutions with
the lowest percentage of students receiving Pell Grants is 76
percent compared to 62 percent at institutions with the highest
percentage of students receiving Pell Grants--it is clear that
improvements can be made through investments in retention efforts.
While both institutional and student demographic characteristics
affect the retention rate, it is important to note that institutions
that pass the repayment rate measure had retention rates that were
27 percent higher than for those that failed the repayment rate
measure.
[GRAPHIC] [TIFF OMITTED] TR13JN11.048
Increased Graduation Rates
As important as retention rates are, the ultimate goal is the
completion of a degree or certificate. President Obama has called
for the United States to have the highest proportion of young adults
with college degrees and certificates in the world by 2020. The
President's 2020 goal is not simply a restatement of the
longstanding national
[[Page 34489]]
policy of promoting access to higher education but a reflection of
the fact that the United States needs more working adults with
degrees and certificates.
Degrees and certificates are only attained through diligent
effort by students enrolled at institutions that place their success
at the center of the institution's efforts. There are many types of
institutions--public; private nonprofit; and for-profit--that have
high graduation rates. Programs that are currently passing the
repayment rate threshold established under these final regulations
have graduation rates that are 35 percent higher than the rate for
institutions that have repayment rates that fail the repayment rate
measure (50 percent compared to 37 percent) and the bachelor's
degree graduation rate was 61 percent higher for institutions that
pass the repayment rate measure than for institutions that fail the
repayment rate measure (53 percent compared to 33 percent).
Like retention rates, if institutions successfully reform
programs, we would expect them to bring their graduation rates
within the range that is observed for programs that pass the
repayment rate measure. If currently failing institutions were able
to raise their graduation rate to that of the institutions that are
passing the repayment measure, nearly 70,000 more students per year
would receive a degree or certificate.
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[GRAPHIC] [TIFF OMITTED] TR13JN11.049
[[Page 34490]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.050
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Improved Default Rates
Given the nature of the repayment rate, it is not surprising
that significantly lower default rates are observed at institutions
that pass the repayment rate. But it is also important to consider
the cost of defaults on former students who cannot afford to repay
their loans. These borrowers face very serious problems if they
cannot pay their loans.
Once a loan is assigned to a guaranty agency or the Department
for collection, credit bureaus are notified, and the borrower's
credit rating will suffer. In 2010, 6.4 million students had a
Federal student loan reported to one or more credit bureaus as being
in default. These circumstances increase the cost of borrowing for
the defaulter and are likely to affect whether the borrower can
obtain a loan at all. Borrowers who default on their loans often
struggle to rent or buy a home, or buy a car. Often a poor credit
rating adversely affects the borrower's ability to obtain a job. The
borrower is subject to administrative wage garnishment, whereby the
Department will require the defaulted borrower's employer to forward
15 percent of his or her disposable pay toward repayment of the
loan. Some borrowers have lost their jobs because their employer did
not want to be responsible for the wage garnishment or because the
need to garnish the employee's wages called into question the
employee's reliability. If the borrower is a Federal employee, he or
she faces the possibility of having 15 percent of disposable pay
offset by the Department toward repayment of the loan through
Federal salary offset. A borrower could also be limited in terms of
obtaining a security clearance or a job at some agencies including
the Department of Education. Further, the Treasury Department
offsets Federal tax refunds and any other payments, as authorized by
law, to repay a defaulted loan. In 2010, approximately 1 million
students had nearly $1.5 billion applied to their defaulted Federal
student loans from withheld tax refunds, Social Security benefits,
and other Federal payments.
The borrower must pay additional collection costs when a loan is
assigned to a private collection agency. The largest of these costs
is contingent fees that are incurred to collect the loan. While the
Department gives the borrower repeated warnings before referring a
debt to a collection contractor, if the borrower does not heed those
warnings and reach an agreement with the lender on
[[Page 34491]]
repayment terms, the Department refers the loan to collection
contractors. These contractors earn a commission, or contingent fee,
for any payments then made on the loans referred. The Department
charges each borrower the cost of the commission earned by the
contractor, and applies payments from the borrower, first to defray
the contingent fee earned for that payment, and second, to the
interest and principal owed on the debt. As a result, the amount
needed to satisfy a student loan debt collected by the Department's
collection contractors can be up to 25 percent more than the
principal and interest repaid by the borrower. In 2010, more than
1.5 million borrowers paid approximately $380 million in contingent
fees to private collection agencies. Finally, if these collection
efforts are unsuccessful, the Department may take additional legal
action to force a borrower to repay the loan.
Once a loan is declared in default, the borrower is no longer
entitled to any deferments or forbearances. In addition, the
borrower cannot receive any additional title IV, HEA student aid
until he or she has made payments of an approved amount for at least
six consecutive months. Each year the Department denies aid to
nearly 350,000 students who have defaulted on their loans until
those obligations are resolved. Discharging Federal student loans in
bankruptcy is very rare.
These consequences of default are severe and often go
unacknowledged by those who argue that the public costs of
supporting public higher education outweigh the costs of default.
These critics further ignore the community and generational effects
these consequences have on postsecondary access that are very
significant but difficult to quantify.
While the anticipated benefits in terms of improved retention
and graduation rates are somewhat speculative, the impact on default
rates--with all the negative consequences that accrue to borrowers,
their families, and the broader community--are more direct. If
institutions are successful in reforming programs, cohort default
rates will decline dramatically. If these final regulations have a
positive impact by reducing the number of borrowers defaulting on
loans, the number of borrowers entering default within three years
could decline by over 292,000 over the next five years. This
estimate was derived by multiplying the number of borrowers
defaulting in programs that fell below the threshold for passing the
repayment rate measure by the difference in the repayment rate.
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[GRAPHIC] [TIFF OMITTED] TR13JN11.051
BILLING CODE 4000-01-C
Social Benefits
Improved Market Information
Students will receive private benefits associated with improved
information, which will allow them to make better educational
choices. But better information also has a social benefit component
as well. Strengthening the connection between training programs and
the labor market will allow both to function more efficiently.
First, earnings and repayment information will provide a clear
indication to institutions about whether or not their students are
successful in securing stable and well-paying positions. This
information will help institutions determine when it would be
[[Page 34492]]
prudent to expand some programs or pare back others. Second, meeting
the debt-to-earnings ratio and repayment rate thresholds will
encourage institutions to prepare students for jobs in well-paying
and in-demand fields. This effect creates an incentive to move
programs up-market so that they prepare students for jobs with
better salaries and employment prospects.
Finally, the better and clearer information that will be
available about programs leading to gainful employment will also
benefit institutions with high-performing programs, which can use
their performance on the measures to differentiate themselves from
competitors and lessen the need for complex and expensive marketing
efforts. Currently, institutions must devote a significant amount of
revenues to marketing and recruiting costs because available data do
not allow them to easily indicate quality.\23\ Graduation rates are
not broken down to the programmatic level and fail to capture many
students. Placement rates are not comparable across institutions
because they are calculated in different ways.\24\ Licensure rates
provide little indication of quality because the vast majority of
students pass their licensing examinations.\25\ In place of these
types of marketing efforts, the gainful employment regulations would
allow an institution to demonstrate to prospective students that its
programs provide better wages, lower debt burdens, and a higher
likelihood of repayment than competitor offerings--easily
understandable data that tell a clear story about student success.
---------------------------------------------------------------------------
\23\ For a discussion of the amounts spent on marketing by for-
profit colleges see interviews from PBS Frontline with Mark DeFusco,
a former director at the University of Phoenix or Jeffrey Silber, a
senior analyst at BMO Capital Markets. The interviews are available
at http://www.pbs.org/wgbh/pages/frontline/collegeinc/interviews/defusco.html and http://www.pbs.org/wgbh/pages/frontline/collegeinc/interviews/silber.html.
\24\ Andrea Sykes, Laurium Evaluation Group, ``Background Group:
Calculating Job Placement Rates under Gainful Employment
Regulations,'' February 2011.
\25\ For example, passage rates on barbering and cosmetology
examination results reported by the State of California show that
nearly 100 percent of test takers pass their licensure exams. See
http://www.barbercosmo.ca.gov/applicants/schls_rslts.shtml.
Similarly, data from the National Council of State Boards of Nursing
show that 87 percent of first-time U.S. educated students pass the
national licensing test for licensed practical/vocational nurses.
See https://www.ncsbn.org/Table_of_Pass_Rates_2010.pdf.
---------------------------------------------------------------------------
Better Return on Money Spent on Education
The social benefits that should accrue as a result of this rule
largely result from a better return on money spent on education
(associated with an increase in human capital). While the focus of
the rule is necessarily on better returns to Federal student aid,
there will also likely be better returns on other kinds of aid and
cash tuition payments. Because of the increasing information
provided to students and programs that meet minimum performance
standards, students are expected to make more optimal education
choices, leading to better income prospects. Since education has
positive spillover effects, a society would want to subsidize it.
Increasing the returns should not only increase the positive private
benefits to students but increase the positive spillover effects to
society.
While it is currently difficult to precisely quantify the
changes in positive spillover effects that are attributable to this
rule, the Department will evaluate its ability to measure these
effects as additional information regarding student earnings and
other aspects of this rule become available. This is also consistent
with Executive Order 13563, Section 1, which states that our
regulatory system ``must measure, and seek to improve, the actual
results of regulatory requirements.'' Consistent with Section 1
principles of Executive Order 13563, the agency must measure and
seek to improve the actual results of regulatory requirements.
Unlike many other efforts to improve education and workforce
training, efforts to improve gainful employment programs in response
to these regulations will be grounded in reliable data on the
outcomes of part of the overall investment in Federal student aids,
which in FY 2010, exceeded $140 billion and provided aid to 14
million students. While the rule only specifically addresses
programs which, by law, must lead to gainful employment in a
recognized occupation, the resulting data and program improvement
efforts will have significant spillover effects on the degree
programs at non-profit and public institutions.
Costs
A primary goal of this rule is to ensure that Federal student
aid funds, including student loans that must be repaid whether a
student was satisfied with the program of study or not, are well
spent. In the process of achieving that goal, there is an increase
in expenses that occurs as a result of students transferring from
failing to succeeding programs, as well as two main compliance costs
that institutions will face as a result of this regulation.
Increase in Expenses When Students Transfer From Failing to Succeeding
Programs
As a result of this rule, some segment of students is likely to
transfer from failing to succeeding programs. In the process, many
of them will also be transferring among postsecondary education
sectors. In some cases, students will move from more expensive
programs to less expensive programs; in other cases, students will
move from less expensive programs to more expensive programs.
Educating additional students requires a postsecondary education
institution to incur additional costs--both fixed costs (for
example, additional classroom space) and variable costs (such as
hiring additional instructors). As a result, there will be a shift
of certain costs from institutions with failing programs to
institutions with successful programs. There is a net increase in
expenses that results when students transfer from failing programs
to successful programs. This net increase in expenses per student
being educated amounts to a cost of $133 million (under the high-
dropout scenario) to $178 million (low-dropout scenario) per year.
The increase in expenses for programs may be associated with better
programs and services that help students succeed in the labor
market.
Paperwork Burdens
As detailed in the Paperwork Burden Costs section, institutions
will also accrue some costs to comply with the data and reporting
pieces of the regulation. This occurs in the form of time spent
determining alternative earnings information (if the institution
chooses to do so), challenging data for the debt-to-earnings ratios
and repayment rates, providing debt warnings to students, and
providing notification that a failing program has been voluntarily
discontinued. These costs are estimated in greater detail in the
Paperwork Burden Costs section, but we project this element of
compliance costs to be $5.4 million a year.
Additional Compliance Costs Associated With Meeting Debt Measures
Institutions will also bear some costs to manage their
performance under the debt measures. Institutions concerned about
failing the debt measures might accrue costs on services like
increased loan counseling for graduates that could help improve
results on measures like the repayment rate without any substantive
changes to their offerings.
It is important to note that these costs are associated with
improved outcomes, and are essential to ensuring that federal money
goes toward providing students with a valuable education.
Some institutions that are not at risk of failing the debt
measures may also choose to improve their programs as a result of
this regulation's emphasis on gainful employment. These additional
expenses could come in many different forms. For example, an
institution may choose to spend more on curriculum development to
better link a program's content to the needs of in-demand and well-
paying jobs in the workforce. Institutions could also allocate more
funds toward other functions, such as instruction to hire better
faculty; providing training to existing faculty to improve program
outcomes; tutoring or other support services to assist struggling
students; career counseling to help students find jobs; or other
areas where increased investment could yield improved performance on
the gainful employment measures. These are costs that would likely
not occur only at institutions with failing or barely-passing
programs, as institutions frequently take steps to improve all
facets of the product they are providing students. Institutions
could recoup some or all of the costs associated with program
improvement from improving the retention of students, which will
generate additional tuition and fee revenues.
Because there is significant variation in the types of
institutions that will take on these improvement costs, the type of
reforms they will employ, it is difficult for us to quantify the
amount of these additional costs.
The Department will monitor programmatic improvements against a
wide variety of performance measures as the rule is implemented,
consistent with Executive Order 13563. While today, many
postsecondary education institutions use general labor market data
from the BLS to evaluate the ``value proposition'' for
[[Page 34493]]
prospective students, these institutions, as early as 2012, will
have data on the actual performance of their former students. This
information, which, as discussed above, will be extremely important
for prospective students, also will help shape the changes that are
made to the programs offered to ensure compliance with these rules.
Distributional Effects (Transfers)
While the overall costs and benefits of this rule are discussed
above, there are also certain ``transfers'' or distributional
effects associated with the reallocation of resources between
different sectors of society.
Transfers Affecting Institutional Revenues
For institutions, the impact of the final regulations is mixed.
Institutions with failing programs, including programs that lose
eligibility, are likely to see lower revenues. On the other hand,
institutions with high-performing programs are likely to see growing
enrollment and revenue and to benefit from additional market
information that permits institutions to demonstrate the value of
their programs.
Under our two scenarios, we estimate that the for-profit
education sector would see a cumulative drop in revenue annually, on
average, of $338.1 million a year. This estimate does not include
paperwork and compliance costs, because it reflects only transfers.
The projected decrease in annual revenue represents less than 2
percent of the sector's estimated $26 billion in revenue in 2009,
the most recent year for which data are available. By contrast, data
reported by for-profit institutions to IPEDS show that schools in
the for-profit sector had an average revenue growth of 13 percent
per year over the five-year period from 2004-05 to 2008-09 (not
including investment revenue). Some of the decrease in revenue will
take the form of a transfer of tuition and fee revenues from failing
programs to other programs when students change schools. Another
portion will take the form of a transfer of Federal student aid
money from failing programs to the Federal government when students
who previously attended failing programs choose not to pursue
further education. Finally, a portion of the decrease in revenue
will take the form of a transfer of loans and cash tuition payments
from failing programs to the students themselves when students
choose not to pursue further education. See Table 14 for more
details.
We estimate that the effects of these regulations on net revenue
for the for-profit education industry will be less--$60.8 million
per year on average. This estimate does not include paperwork and
compliance costs, because it reflects only transfers. The effects on
net revenue are smaller because schools will either reduce expenses
due to a lessened need for instructors or take in new revenue as
students transfer into successful programs.
While the regulations will have the effect of reducing the
revenue of the for-profit postsecondary education industry as a
whole, they also may have the effect of increasing revenue for
companies whose programs pass the debt measures. The Department
estimates that, as a result of these regulations, between 115,000
and 141,000 students will transfer between one for-profit
institution and another by 2015. The movement of students from low
performing programs at one institution to a better performing
program at another institution will cause stronger programs to grow
and, likely, produce larger profits.
Additional analysis of the regulations' impact on small
businesses is presented in the Final Regulatory Flexibility Analysis
section of this RIA.
Transfers Affecting Federal, State, and Local Governments
Several commenters argued that the cost estimates of the effects
of the proposed regulations were incomplete because they did not
take into account the full cost of other sectors of higher
education, including other government subsidies provided to public
or private nonprofit institutions. In particular, the commenters
noted that public institutions receive direct funding from States
and private nonprofit institutions are exempt from taxes. The
commenters also indicated that the Department had misinterpreted a
study by the Florida Office of Program Policy and Government
Accountability about the costs of for-profit and public sector
institutions. Some commenters provided estimates that suggested
including these subsidies in the effects calculations would result
in increased costs to taxpayers if students shift from institutions
in the for-profit sectors to public or private, nonprofit
institutions. The largest cost estimate came from the Parthenon
Group, which estimated that between 465,000 and 660,000 students
would shift from for-profit institutions to community colleges each
year, resulting in a cost of an additional $2 billion annually for
community colleges to serve these students. However, we estimate
that most of those that fail to enroll or leave a failing program
will enroll in another program offered by a for-profit institution.
The data that will be available under the rule will be used by
institutions offering strong programs in terms of economic return to
differentiate those programs from those of their less effective
competitors.
Federal Revenues
The cost implications for the Federal Government result largely
from changes to tax revenues and changes to expenditures on student
aid. Federal tax revenues would fall to the extent that for-profit
education companies pay less in corporate taxes, institutions lay
off employees, or fewer students earn credentials that could
increase their earnings. On the other hand, Federal tax revenue
would increase to the extent that institutions improve the
performance of their programs and students transfer to better
performing programs, which could lead to higher completion rates and
credentials that carry greater economic benefits. As seen in Table
14, there is also a small transfer of money from failing programs to
the Federal Government when students who previously received Federal
aid drop out of those programs. As discussed in more depth in the
Net Budget Impacts section, the net effect is difficult to estimate
reliably but is likely to be small, around $23 million to $51
million in savings to the Federal Government annually, depending on
whether one uses the low dropout or high dropout scenario.
State and Local Government Costs
The impact of the regulations on State income tax revenue will
be similar to the impact on Federal revenue, and it is also likely
to be small. There may also be an impact on State and local
expenditures on higher education. We do not dictate to State or
local governments how they should choose to spend their funds on
higher education. Nor do we interfere with their own independent
decisions to expand enrollment, determinations that are typically
made as part of a long-term planning process. Given that States
possess full control over whether or not to expand enrollment, it is
incorrect to attribute any costs associated with these independent
decisions to these regulations.
The higher cost estimate suggested by some commenters assumes
States expanding enrollment face marginal costs that are similar to
their average cost or that they will only choose to expand through
traditional brick-and-mortar institutions. In fact, many States
across the country are experimenting with innovative models that use
different methods of instruction and content delivery that allow
students to complete courses faster and at a lower cost. Rather than
adding additional buildings or campuses, States may instead opt to
expand distance education offerings or try innovative practices like
those used by the Western Governors University, which awards credit
when students demonstrate they have mastered competency of the
material. Forecasting the extent to which future growth would occur
in traditional settings versus distance education or some other
model is outside the scope of this analysis.
Finally, a crucial assumption in estimating the increase in cost
is that the expense per completion in the for-profit sector is lower
than it is in the public sector. Such assumptions, however, fail to
account for concerns about the quality of a degree. Producing large
numbers of certificates or degrees that leave students with
unmanageable debt burdens and poor employment prospects is not
preferable to students earning credentials that, while more
expensive to obtain, result in students earning higher and more
stable incomes. Reducing such discussions about cost solely to
monetary elements fails to recognize the important dimension around
quality that these regulations also seek to capture. It also fails
to take into consideration the fact those institutions offering
strong programs, in terms of economic return, will use this
information to differentiate the programs they offer from those of
their less effective competitors and, thus, enroll more students.
VI. Paperwork Burden Costs
In assessing the potential impact of these regulations, the
Department recognizes that certain provisions are likely to increase
workload for some program participants. This additional workload is
discussed in more detail under the Paperwork Reduction Act of 1995
section of the preamble. Additional workload would normally be
[[Page 34494]]
expected to result in estimated costs associated with either the
hiring of additional employees or opportunity costs related to the
reassignment of existing staff from other activities. In total,
these regulations are estimated to increase burden on institutions
participating in the title IV, HEA student assistance programs by
261,512 hours per year. The monetized cost of this additional burden
on institutions, using wage data developed using BLS data, available
at http:[sol][sol]www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is
$5,443,820, as shown in Table 23. This cost was based on an hourly
rate of $22.12 that was used to reflect increased management time to
establish new data collection procedures associated with the gainful
employment provisions. The final regulations will also increase the
paperwork burden on students by an estimated 22,516 hours as they
read the debt warnings from institutions. The monetized cost of this
additional burden on students, using wage data developed using BLS
data, available at http:[sol][sol]www.bls.gov/ncs/ect/sp/
ecsuphst.pdf, is $376,468.
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Table 22 relates the estimated burden for institutions of each
paperwork requirement to the hours and costs estimated in the
Paperwork Reduction Act of 1995 section of this preamble. The
largest burden comes from the optional reporting of tuition and fees
to limit the amount of debt included in the debt-to-earnings
calculation. The estimated burden of reporting tuition and fee
information about students is 233,595 hours and $5,167,121.
Prior to the issuance of the draft debt-to-earnings ratios, the
Secretary will provide a list to institutions, of students that will
be included in the applicable two- or four-year period used to
calculate the debt-to-earnings ratios beginning in FY 2012.
Institutions will have 30 days after the date the list is sent to
the institution to provide corrections such as evidence that a
student should be included or excluded from the list or to submit
[[Page 34495]]
corrected or updated student identity information. The estimated
burden from these pre-draft data challenges is 2,772 hours and
$61,317. After the issuance of draft debt measures, institutions
will have the ability to challenge the accuracy of the loan data for
a borrower that was used to calculate the draft loan repayment rate,
the list of borrowers used to calculate the loan repayment rate, or
the median loan debt for the program that was used in the numerator
of the draft debt-to-earnings ratio. The burden associated with
challenges to the draft debt measures is 4,620 hours annually at a
cost of $102,194. Programs that fail the debt measures may
demonstrate that a failing program would meet a debt-to-earnings
standard by recalculating the debt-to-earnings ratios using the
median loan debt for the program and using alternative earnings data
from: a State-sponsored data system, an institutional survey
conducted in accordance with NCES standards, or, for fiscal years
2012, 2013, and 2014, BLS data. The estimated burden of notifying
the Secretary of the intent to use alternative earnings data and of
supplying the alternative earnings information is 4,655 hours and
$102,969.
Additional items included in the burden on institutions reported
under OMB 1845-0109 include an estimated burden of 15,311 hours for
notifying students when an institution voluntarily withdraws a
failing program from title IV, HEA participation and the date when
title IV, HEA aid will no longer be available for the program and an
estimated 462 hours in issuing debt warnings to current students.
Together, these provisions have an estimated cost to institutions of
$340,825. A total of 22,516 hours and $376,468 of burden on students
for reading the notice of voluntarily withdrawal is recorded under
OMB 1845-0109.
VII. Net Budget Impacts
The regulations are estimated to have a positive net budget
impact ranging between $23 million (in the low dropout scenario) to
$51 million (in the high dropout scenario). Consistent with the
requirements of the Credit Reform Act of 1990, budget cost estimates
for the student loan programs reflect the estimated net present
value of all future non-administrative Federal costs associated with
a cohort of loans. (A cohort reflects all loans originated in a
given fiscal year.)
These estimates were developed using the Office of Management
and Budget's (OMB) Credit Subsidy Calculator. The OMB calculator
takes projected future cash flows from the Department's student loan
cost estimation model and produces discounted subsidy rates
reflecting the net present value of all future Federal costs
associated with awards made in a given fiscal year. Values are
calculated using a ``basket of zeros'' methodology under which each
cash flow is discounted using the interest rate of a zero-coupon
Treasury bond with the same maturity as that cash flow. To ensure
comparability across programs, this methodology is incorporated into
the calculator and used government-wide to develop estimates of the
Federal cost of credit programs. Accordingly, the Department
believes it is the appropriate methodology to use in developing
estimates for these regulations. That said, in developing the
following Accounting Statement, the Department consulted with OMB on
how to integrate our discounting methodology with the discounting
methodology traditionally used in developing regulatory impact
analyses.
Absent evidence of the impact of these regulations on student
behavior, budget cost estimates were based on behavior as reflected
in various Department data sets and longitudinal surveys listed
under Assumptions, Limitations, and Data Sources. Program cost
estimates were generated by running projected cash flows related to
each provision through the Department's student loan cost estimation
model. Student loan cost estimates are developed across five risk
categories: For-profit institutions (less than 2-year), 2-year
institutions, freshmen/sophomores at 4-year institutions, juniors/
seniors at 4-year institutions, and graduate students. Risk
categories have separate assumptions based on the historical pattern
of behavior--for example, the likelihood of default or the
likelihood to use statutory deferment or discharge benefits--of
borrowers in each category.
The scenarios presented in these final regulations anticipate
some small savings in Federal student aid programs as students who
would have attended programs that fail the debt measures elect not
to pursue postsecondary education and do not take out Federal loans
or receive Pell Grants. In some years, costs from students not
taking Federal loans offset savings from Pell Grants.
As we estimate that many students who transfer out of failing
programs will continue to receive student aid, the estimates for the
effects on the Federal student aid programs are based on the number
of students expected to drop out under the high dropout and low
dropout scenarios described in this RIA. Since some prospective
students will decide not to enroll and students already enrolled may
decide to leave postsecondary education rather than re-enroll at
another institution, we estimate a small net Federal savings. Of
these estimated savings, approximately $26.2 million in the high
dropout scenario and $59.1 million in the low dropout scenario would
be from reductions in Pell Grants, which are offset by estimated
increased costs in student loans. These potential savings represent
our best estimate of the effect of the regulations on the Federal
student aid programs, but student responsiveness to program
performance, programs' efforts to improve performance, and potential
increases in retention rates could offset the estimated savings.
Assumptions, Limitations, and Data Sources
The impact estimates provided in the preceding section reflect a
baseline in which the changes implemented in these regulations do
not exist. Costs have been quantified for five years.
In developing these estimates, a wide range of data sources was
used, including data from the NSLDS; operational and financial data
from Department of Education systems; and data from a range of
surveys conducted by NCES such as the 2007-2008 NPSAS, the 2008-09
IPEDS, and the 2009 follow-up to the 2004 BPS. Data from other
sources, such as the U.S. Census Bureau and the Missouri Department
of Higher Education, were also used. Data on administrative burden
at participating institutions are extremely limited; accordingly, in
the NPRM, the Department expressed interest in receiving comments in
this area. We recognize that, despite the Department's diligent
efforts and extensive public input, there are limitations in the
best available data and there remains some uncertainty about the
impact of these final regulations. Therefore, the Department intends
to monitor the implementation of these regulations carefully,
consider new data as they become available to ensure against
unintended adverse consequences, and reconsider relevant issues if
the evidence warrants. As additional data become available, the
Department may update these estimates.
We identify and explain burdens specifically associated with
information collection requirements in the Paperwork Reduction Act
of 1995 section of the preamble.
VIII. Alternatives Considered
A number of commenters suggested fundamentally different
approaches for defining ``gainful employment.'' Some of these
approaches, including graduation and placement rates, a higher
repayment rate threshold, an index, alternative debt measures, and
default rates, were alternatives discussed by the Department in the
negotiated rulemaking process, the NPRM, or both. The alternatives
suggested by commenters are discussed below.
Return on Investment and Net Present Value
Some commenters argued that the proposed gainful employment debt
measures evaluate only one aspect of the quality of programs--
whether a student's initial debt burden was reasonable--but fail to
account for other long-standing measures of program quality or a
student's long-term return on his or her educational investment. The
commenters believed that structuring regulations in this manner may
discourage institutions from offering training in jobs with the
potential for long-term salary growth for fear of losing program
eligibility. For example, based on BLS data, entry-level salaries
for graduates from programs for auto technicians range from $19,840
to $25,970. According to the commenters, salaries for auto
technicians may have long-term growth potential because it can take
a technician two to five years after graduation to become fully
qualified. Mastering additional complex specialties also requires
the technician to have years of experience and advanced training.
According to the commenters, applying the proposed gainful
employment measures to these programs may prevent students from
pursuing training in these necessary fields.
Some commenters offered that a more reasonable measure of the
quality of an educational program would be the student's return on
investment (ROI), not a first-year debt service calculation. The
commenters
[[Page 34496]]
argued that a student's initial capacity to service debt should be
one consideration in judging educational program quality, but not
the essential metric. Instead, the analysis of a program should take
into account the potential long term benefits and earnings.
Other commenters believed that, according to finance theory, the
only correct method for determining the value of a program would be
a Net Present Value (NPV) approach that considers the present value
of all incremental lifetime earnings stemming from the program and
the present value of the total costs of the program. The commenters
contended that, even if it were economically rational to base the
regulations on another approach, the proposed regulations are
economically irrational because the debt-to-earnings and loan
repayment tests are based on arbitrary three- and four-year
evaluation periods that are too short to fairly reflect the benefits
of education.
While we appreciate the suggestion to incorporate a return on
investment calculation into these final regulations, we believe
there are significant theoretical and practical reasons for not
doing so. To be sure, an ROI or NPV approach helps to distinguish
among competing investment opportunities. However, inherent in an
ROI or NPV calculation is a specified discount rate so that all
future cash flows (income as well as expenses) can be described in
terms of present-day values. Thus the selection of an appropriate
discount rate is key to this calculation. If the Department were to
implement an ROI or NPV calculation in the proposed metrics, it
would have no basis for establishing a discount rate for borrowers
who make personal investment decisions with respect to pursuing
postsecondary education programs.
The Department agrees that there are long-term benefits, in
particular with respect to increased lifetime earnings, for those
with formal education or training beyond high school. However, those
earnings accrue of the course of a career that could span three or
four decades. Measurements of program performance 30 or 40 years in
the past would not be meaningful for helping institutions improve or
for protecting students against low-quality programs. We do know
from The National Longitudinal Survey of Youth conducted by the BLS
that the length of time an employee remains with the same employer
tends to be shorter for younger workers and that the average worker
will have about eleven different jobs in the first 25 years or so of
his or her working lifetime.\26\ However, we are unaware of any on-
going, longitudinal tracking of work-life earnings by specific
occupation.
---------------------------------------------------------------------------
\26\ Bureau of Labor Statistics, National Longitudinal Survey of
Youth, available at http://www.bls.gov/news.release/pdf/nlsoy.pdf
---------------------------------------------------------------------------
Retention, Completion, and Placement Rates
Some commenters suggested a variety of alternative measures for
determining whether a program leads to gainful employment including
retention rates, employment rates, job placement rates adjusted for
local economic conditions, and completion rates. Other commenters
believed there was no need to further define gainful employment
because (1) national accrediting agencies require that the majority
of students graduate and find jobs in the field in which they were
trained, or (2) students who pass State licensing examinations are
gainfully employable.
We likewise appreciate the suggestions to use retention rates,
employment rates, job placement rates, and completion rates as
alternative measures. During the negotiation sessions, some non-
Federal negotiators objected to a proposal for using graduation
rates on the ground that the proposed standard was too demanding,
but they did not propose an alternative. Some negotiators also
raised concerns about the ability of institutions to obtain valid
placement information from graduates and employers. In the Program
Integrity Issues final regulations published on October 29, 2010,
the Department required disclosure of program-level graduation and
placement rates. Based on the information we have available, using
them as a measure of whether a program leads to gainful employment
would be premature.
Default Rates
Some commenters suggested the use of default rates to measure
program performance. The application of default rates to
institutional eligibility is one tool that Congress has used that is
related to debt burdens. Under current law, prospective students are
not allowed to use their Federal aid at an institution where its
former students had a high default rate. However, the cohort default
rate only includes borrowers who defaulted by going 360 days without
making a payment within two years of entering repayment. These
borrowers represent only a small portion of borrowers who are
struggling with their loans. The default measurement does not
include borrowers who are in late stages of delinquency, even if
they default after two years. The metric also does not include those
who are delinquent on their payments or borrowers who cease making
payments without defaulting by receiving a forbearance or deferment.
A significant number of borrowers fall into these categories.
According to a recent study of students in the 2005 cohort by the
Institute for Higher Education Policy, 26 percent of borrowers
became delinquent on their loans at some point.\27\ Because of the
concerns outlined above, the repayment rate better captures the
experience of all these individuals who are struggling to repay
their loans.
---------------------------------------------------------------------------
\27\ Alisa F. Cunningham and Gregory S. Kienzl, ``Delinquency:
The Untold Story of Student Loan Borrowing,'' March 2011, available
at http://www.ihep.org/assets/files/publications/a-f/Delinquency-The_Untold_Story_FINAL_March_2011.pdf.
---------------------------------------------------------------------------
Gainful Employment Index
Other commenters suggested that the Department use a composite
score based on default, graduation, and placement rates. The
commenters argued that institutions with exceptional, industry-
determined rates have proven their success in providing quality
education and therefore should be allowed to continue serving their
students without impediments. The commenters noted that
Representative Robert Andrews pioneered a composite index in the
1990s and suggested using default, graduation, and placement rates
along with the number of Pell Grant recipients to determine an
overall score for an institution. According to the commenters,
factoring in Pell Grant information would acknowledge the unhappy
truth that low-income students are less likely to complete higher
education programs. To avoid punishing schools for accepting these
students into their programs, the commenters suggested the
Department use a formula that would acknowledge the extra
difficulties faced by students at a lower socioeconomic level. Some
commenters supporting the composite index approach suggested
weighting the placement rate at 50 percent, the cohort default rate
at 30 percent, and the graduation rate at 20 percent.
The commenters argued that a composite index approach is
superior to the proposed debt measures in the following ways. First,
the composite index would not rely on one characteristic (debt load)
or a complex loan repayment rate, but on a number of outcomes, most
importantly the employment of graduates. Second, the index could be
implemented readily since cohort default and graduation rates are
already tracked by the Department, and the great majority of for-
profit colleges already track student placement. Third, this
approach is analogous to the currently used financial responsibility
composite score for institutions that integrates a basket of three
financial measures into one index. Finally, it measures outcomes at
the institutional level, rather than the program level, reducing
complexity and difficulty in implementing a gainful employment
standard. The commenters stated that the index approach could be
implemented relatively rapidly without disrupting the market and
risking unintended consequences. If the metrics need refinement, the
commenters offered that the Department could implement the index,
and over the next 36 months redefine how default rates are measured
(potentially moving to measuring the repayment of principal in
dollars) and how graduation rates are measured (potentially moving
to track all students). Alternatively, it could apply the index at
the program level after the relevant information is gathered and
analyzed.
Although the concept of a composite index is appealing, the
suggested index uses some of the same indicators, which in our view
fall short of directly evaluating a program's performance. The
specific indicators suffer from important shortcomings: default
rates measure only a portion of the borrowers who have had
difficulty repaying their loans, the statutory definition of
graduation rate excludes transfer and part-time students, and
placement rates are defined differently by accrediting agencies and
States. Applying the composite index at the institutional level
would mask poorly performing programs because only the overall
performance of the institution, not each program, would be
evaluated. Moreover, if the institution's overall performance was
subpar, the composite index would jeopardize the
[[Page 34497]]
eligibility of the entire institution. By using purpose-built
measures applied at the program level, these regulations effectively
target poor-performing programs without necessarily placing the
entire institution at risk because only those programs become
ineligible for title IV, HEA funds. Finally, the Department does not
believe that programs enrolling lower-income students cannot help
those students achieve success and would be concerned about the
consequences for writing into law lower expectations for the future
employment and debt repayment of those students.
Earnings Comparison
Commenters also suggested that the Department use, particularly
for short-term programs, a comparison of pre-program and post-
program earnings to capture the near-term effect of the program.
This approach has some merit conceptually. However, earnings
immediately before enrollment may not be an accurate measure of an
individual's baseline earning potential without the program. Pre-
enrollment earnings are particularly unlikely to reflect earnings
potential for dependent students, workers returning to school after
becoming unemployed, or those using their training to switch fields.
Moreover, such a measurement would not identify programs where large
numbers of students are taking out debts they cannot afford to
repay.
Disclosure
A number of commenters recommended that the Department require
additional disclosures so that consumers can make better-informed
decisions. The final regulations do create a number of additional
disclosures to help students make informed choices among
institutions and programs. However, disclosures alone cannot serve
as a standard for determining whether a program complies with the
gainful employment requirement in the statute. For example, with a
disclosure approach an institution might report that one of its
programs did not place a single graduate into a job, yet the program
would remain eligible as ``preparing students for gainful employment
in a recognized occupation'' because it disclosed the fact that it
had failed to do so.
Delay for Further Study and Data Collection
Some commenters recommended that the Department delay the
issuance of final regulations to allow further study of the issues
around gainful employment programs. Some commenters mentioned that
the Government Accountability Office is currently studying related
issues. Other commenters expressed the view that the Department
should establish procedures to calculate each program's repayment
rate and debt-to-earnings ratios before using those measures to set
program eligibility to reduce the uncertainty around the impact of
the regulations and give institutions more time to improve their
programs.
The Department believes that action is urgently needed to
address the problem of poorly performing gainful employment
programs. Each year of delay would likely mean hundreds of thousands
of additional students enrolling in programs that are likely to
leave them with unaffordable debts and poor employment prospects.
The process of developing these regulations has taken nearly two
years and involved unprecedented levels of public engagement,
including three public hearings in the spring of 2009, three
negotiated rulemaking sessions in the winter of 2009-10, and the
postponement of the final regulations by eight months to allow the
careful consideration of over 90,000 comments, two additional public
hearings in October 2010, and dozens of additional meetings with
individuals and organizations who commented on the NPRM. In
addition, the Department has carefully analyzed the information and
data available to it from public sources, its research activities,
and the Federal financial aid program.
Finally, the Department has revised the regulations to provide
programs with an opportunity to improve their performance before
losing eligibility. In 2011, the Department will release data to
institutions on an informational basis, helping them identify and
improve their failing programs. No programs will lose eligibility
until they have failed the debt measures for three out of four FYs.
When the first eligibility losses occur in 2014, they will be
limited to the lowest-performing 5 percent of programs. To help
institutions anticipate the impact of the regulations, the
Department is prepared to accept BLS earnings information during a
transition period of three years, and the repayment rate measure has
been designed to recognize programs demonstrating rapid improvement.
IX. Final Regulatory Flexibility Analysis
These gainful employment regulations will affect institutions
that participate in the title IV, HEA programs, and individual
students and loan borrowers. The U.S. Small Business Administration
(SBA) Size Standards define for-profit institutions as ``small
businesses'' if they are independently owned and operated and not
dominant in their field of operation with total annual revenue below
$7,000,000. The SBA Size Standards define nonprofit institutions as
small organizations if they are independently owned and operated and
not dominant in their field of operation, or as small entities if
they are institutions controlled by governmental entities with
populations below 50,000. The revenues involved in the sector
affected by these regulations, and the concentration of ownership of
institutions by private owners or public systems means that the
number of title IV, HEA eligible institutions that are small
entities would be limited but for the fact that the nonprofit
entities fit within the definition of a small organization
regardless of revenue. Additionally, the concentration of small
entities in the sectors directly affected by these provisions and
the potential for some of the programs offered by those entities to
lose eligibility to participate in the title IV, HEA programs led to
the preparation of this Final Regulatory Flexibility Analysis.
Description of the Reasons That Action by the Agency Is Being
Considered
The Secretary is establishing through these regulations a
definition of gainful employment in a recognized occupation by
establishing what we consider, for purposes of meeting the
requirements of section 102 of the HEA, to be a reasonable
relationship between the loan debt incurred by students in a
training program and income earned from employment after the student
completes the training. The regulations clarify, for purposes of
establishing a student's eligibility to receive title IV, HEA funds,
a program's eligibility based on providing training that leads to
gainful employment in a recognized occupation. An institution must
provide a warning to students and prospective students if a program
does not pass any of the debt measures.
Student debt is more prevalent and individual borrowers are
incurring more debt than ever before. Twenty years ago, only one in
six full-time freshmen at 4-year public colleges and universities
took out a Federal student loan; now more than half do. Today,
nearly two-thirds of all graduating college seniors carry student
loan debt, up from less than one-half a generation ago. All other
things being equal, any former students would be better off leaving
college without debt. The less debt a student has, the more funds
they are able to devote to buying a home, saving for retirement or
for their children's education, or serving the community. Student
loan debt is worth having if it makes it possible to gain the
education and training that enhances productivity as a citizen,
civic leader, worker, or entrepreneur. To the extent that the
student loan debt brings little or no benefit to the students (or to
society), it is a cost that public policy should attempt to minimize
or eliminate. It is in this context that the requirement that a
program of study must lead to ``gainful employment'' can best be
understood. The cost of excess student debt manifests in three
significant ways: payment burdens on the borrower; subsidies from
taxpayers; and the negative consequences of default (which fall on
the borrower and taxpayers).
The concept of training leading to gainful employment was
intended to ensure that this connection between debt and earnings
would not be lost. The Department, however, has historically applied
the barest minimum enforcement: when applying to access Federal
funds, the institution must check a box that says its programs
``prepare students for gainful employment in a recognized
occupation.'' \28\ While the Department does audit and review other
aspects of program eligibility (such as the length of the program),
there is no standard for determining whether a program in fact meets
the gainful employment requirement.
---------------------------------------------------------------------------
\28\ The application form is available at http://www.eligcert.ed.gov/ows-doc/eapp.pdf. Most institutions complete an
electronic version of the form.
---------------------------------------------------------------------------
As described in this RIA, the trends in graduates' earnings,
student loan debt, defaults, and repayment underscore the need for
the Department to act. The gainful employment standard takes into
consideration repayment rates on Federal student loans and the
relationship between total student loan debt and earnings after
completion of a postsecondary program, and in some cases of new or
additional programs,
[[Page 34498]]
the institution's application to the Department to target the worst-
performing programs and to encourage institutions to improve their
programs.
Succinct Statement of the Objectives of, and Legal Basis for, the
Regulations
As discussed under the heading Legal Authority in the Analysis
of Comments and Changes section of the preamble, the gainful
employment regulations are intended to address growing concerns
about high levels of loan debt for students enrolled in
postsecondary programs that presumptively provide training that
leads to gainful employment in a recognized occupation. The HEA
applies different criteria for determining the eligibility of
programs and institutions for title IV, HEA program funds. For
public and private nonprofit institutions, degree programs of
greater than one year in length are generally eligible for title IV,
HEA aid regardless of the subject or purpose of the program so long
as they meet other requirements. In the case of shorter programs and
programs of any length at for-profit institutions, eligibility is
restricted to programs that ``prepare students for gainful
employment in a recognized occupation.'' This difference in
eligibility is longstanding and has been retained through many
amendments to the HEA. As recently as the HEOA, Congress again
adopted this distinct treatment of for-profit institutions while
adding an exception for certain liberal arts baccalaureate programs
at some for-profit institutions.
Description of and, Where Feasible, an Estimate of the Number of
Small Entities to Which the Regulations Will Apply
These final regulations apply to programs eligible for title IV,
HEA funding because they prepare students for gainful employment. At
this time, the Department does not have an accurate count of the
number of programs offered by institutions. However, we estimate
that as many as 13,728 programs offered by small entities could be
subject to these regulations. The proxy used for the number of
``programs'' is IPEDS Completions data. It counts each instance of a
six-digit CIP code (area of study) by award level. So, for example,
if an institution awards a certificate in business as well as a
bachelor's degree and a master's degree, the programs are counted as
three separate programs. The programs are aggregated to the six-
digit ID level so that they can be looked at with the repayment
data, and the number of programs is unduplicated as a program
offered at multiple locations represented by the six-digit OPEID is
considered one program. Given that the category of small entities
includes some private nonprofit institutions regardless of revenues,
a wide range of small entities is covered by the regulations. The
entities may include institutions with multiple programs, a few of
which are covered by the regulations, to single-program institutions
with well established ties to a local employer base. Many of the
programs subject to the regulations are offered by for-profit
institutions and public and private nonprofit institutions with
programs less than two years in length. As demonstrated in Table 24,
these sectors have a greater concentration of small entities. Across
all sectors, the average total revenue for entities with revenue
below $7 million is $2,439,483 based on IPEDS 2008-2009 data.
[GRAPHIC] [TIFF OMITTED] TR13JN11.053
The structure of the regulations and the small numbers
provisions in the final regulations reduce the effect of the
regulations on small entities but complicate the analysis. The
regulations provide for the evaluation of individual gainful
employment programs offered by postsecondary institutions, but these
programs are administered by the institution, either at the branch
level or on a system-wide basis. Many institutions have programs
that would be considered small, but the classification for this
analysis is at the institutional level since a program that is
determined ineligible under the regulations would affect the
institution's ability to operate. Of the 1,440 for-profit
institutions with less than $7 million in revenues, approximately 76
percent have fewer than five programs and the loss of title IV, HEA
eligibility for any program would be more likely to cause the
institution to shut down than would be the case for larger entities
with multiple programs.
The small numbers provision finalized in these regulations
requires 30 completers for the debt-to-earnings ratios and 30
borrowers entering repayment in the applicable 2YP, 2YP-A, 2YP-R,
4YP, or 4YP-R for calculation of the debt measures in order for a
program to fail the debt measures and potentially be found
ineligible. To develop the data necessary to calculate the debt
measures, the Department will be entering into a data matching
agreement with another Federal agency that has income data, most
likely the SSA. The data matching agreement will not permit us to be
able to identify an individual program completer's income.
Therefore, we will need to assure that data for particular
individuals will not be identifiable. To ensure individual data are
not identifiable, we will need to suppress small cell sizes based on
the requirements of the other Federal agency, which currently
requires more than ten individuals.
Under the NPRM, the treatment of programs with a small number of
completers was not fully determined. The Department requested
comments about small programs in the NPRM, and many commenters did
request clarification on how programs with a small number of
completers would be treated. While the possibility of rolling up
data first from six- to four-digit CIP codes,
[[Page 34499]]
then from four- to two-digit CIP code families, then to the entire
institution was considered in the NPRM, this approach was rejected.
Under these final regulations, programs that do not have a
minimum of 30 completers or borrowers in the 2YP, 2YP-A, or 2YP-R
will be evaluated for a four-year period consisting of years three
to six in repayment (4Y-P) or years six to nine in repayment (4YP-
R). Programs that do not have a minimum of 30 completers or
borrowers in the 4YP or 4YP-R will not be evaluated for
ineligibility. If the list of completers the Department sends to SSA
has more than 30 individuals, the mean or median earnings calculated
by SSA will be used to evaluate the program's debt-to-earnings
ratios, even if the number of completers used in the calculation is
less than 30 after SSA removes any identity mismatches from the list
of completers. Programs with fewer than 10 completers in the
relevant calculation period cannot be evaluated with data from SSA
and the debt-to-earnings ratios will not be produced for those
programs. Ultimately, if there are insufficient observations, we
will not be able to assess an institution's performance against the
debt measures and, in this circumstance, the program is considered
to satisfy the debt measures.
The small numbers provision brings the estimated number of
programs that could become ineligible under the regulations down
from 55,405 to 21,049 programs at all institutions and from 13,566
to 5,728 programs at small entities. Table 25 demonstrates the
effect of the small numbers provision on small entities by sector
and revenue category. Across all sectors and revenue categories,
approximately 62 percent of regulated programs would not have enough
completers to be determined ineligible based on existing completions
data. While the 30 completer or borrower minimum means that a
significant percentage of programs will not be ineligible, it does
reduce the chance that the performance of one or two borrowers could
result in large variability in a program's performance on the debt
measures from year to year. Additionally, while the percentage of
programs to which the small numbers provision applies is high,
especially for the four-year institutions, the regulated programs
with at least 31 completers still represent approximately 92 percent
of enrollment in regulated programs at small entities.
BILLING CODE 4000-01-P
[[Page 34500]]
[GRAPHIC] [TIFF OMITTED] TR13JN11.054
The combination of the small numbers provision and the estimated
performance of these programs on the debt measures limit the number
of programs at small entities as defined by the Small Business
Administration that can be found ineligible under the debt measures.
While private nonprofit institutions are classified as small
entities, our estimates indicate that no more than 4.9 percent of
programs at those institutions are likely to fail the debt measures,
with an even smaller percentage likely to be found ineligible. It is
unlikely that the number of ineligible programs would reach the 5
percent ineligibility cap available based on FY 2014 data. The
governmental entities controlling public sector institutions are not
expected to fall below the 50,000 threshold for small status under
the SBA's Size Standards, but even if they do, programs at public
sector institutions are highly unlikely to fail the debt measures.
Therefore, our analysis of the effects on small entities focuses on
the for-profit sectors. From the estimates described in the Analysis
of the Regulations section above, the percentage of programs subject
to evaluation in the for-profit sectors likely to be found
ineligible is 7.1 percent for 4-year institutions, 6.4 percent for
2-year institutions, and 1.8 percent for less-than-2-year
institutions. When modeled using the small entities only, those
percentages were 6.3 percent, 4.5 percent, and 1.4 percent
respectively. Tables 26 A-C and 27 A-C present the results for
programs when the model runs are limited to small entities. As
indicated above, these results are slightly better than the
performance of the full set of institutions. Among programs that are
not subject to the small numbers provision, small entities have a
higher percentage of programs with initial repayment rates above 35
percent.
[[Page 34501]]
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The revenue profile and cost structure of small entities vary
from that of the overall set of institutions. Table 28 provides per-
enrollee average revenue and expense amounts by sector for small
entities.
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The number of students from small entities estimated to drop out
of education or transfer out of programs at small entities as a
result of those programs failing the gainful employment debt
measures or becoming ineligible and the accompanying revenue effects
are shown in Table 30. The effects of incoming transfers are
estimated by applying the share of small entities in a sector to the
estimated number of students transferring into the sector in the
results generated by the model runs for the full set of institutions
described in this Regulatory Impact Analysis. Small entities that
fail the debt measures and eventually become ineligible are more
likely to close than larger institutions with multiple programs. As
a result, the sector revenue losses presented in Table 29 assume
that small entities lose 85 percent of total revenues per enrollee
leaving failing and ineligible programs, while all institutions lose
100 percent of tuition and fee revenues per enrollee leaving failing
and ineligible programs. The estimated cumulative drop in revenue
from small entities resulting from students transferring or dropping
out of programs that fail the gainful employment debt measures is
$91.8 million from programs at for-profit institutions in a four-
year period, an average of $22.9 million annually. When offset by
the potential revenue gains or expense reductions, the estimated net
effects are a $49.5 million loss over four years for programs at
for-profit institutions, an average annual loss of $12.4 million.
This estimate does not include paperwork and compliance costs,
because it reflects only transfers. These estimates are based on
student transfers coming in from small entities only and inter-
sector transfers from small for-profit entities. Transfers in from
large entities could offer small entities opportunities for
additional net revenues that would offset these estimated losses.
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While many programs at small entities would not be determined
ineligible under the small numbers provisions and their performance
on the debt measures, it is still important for the Department to
have data on all of these programs for several reasons. As for all
programs, they would be required to disclose their performance. The
Department believes that students considering or attending programs
with small numbers of borrowers or completers will find the debt
measures useful in their decision-making process, even as the
Department believes that a larger sample is needed to make reliable
eligibility determinations. These data will also be useful to
institutions seeking to improve the performance of their programs or
considering expanding enrollment in their programs. Finally,
examining these programs' data over time will help the Department
evaluate the performance of all gainful employment programs. The
estimated costs associated with complying with the data collection
and reporting requirements are summarized below.
Description of the Projected Reporting, Recordkeeping and Other
Compliance Requirements of the Regulations, Including an Estimate
of the Classes of Small Entities That Will Be Subject to the
Requirement and the Type of Professional Skills Necessary for
Preparation of the Report or Record
Table 30 relates the estimated burden of each information
collection requirement to the hours and costs estimated in the
Paperwork Reduction Act of 1995 section of the preamble. This
additional workload is discussed in more detail under the Paperwork
Reduction Act of 1995 section of the preamble. Additional workload
would normally be expected to result in estimated costs associated
with either the hiring of additional employees or opportunity costs
related to the reassignment of existing staff from other activities.
In total, these changes are estimated to increase burden on small
entities participating in the title IV, HEA programs by 30,339 hours
per year. The monetized cost of this additional burden on
institutions, using wage data developed using BLS data available at
http://www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is $671,093. This cost
was based on an hourly rate of $22.12 that was used to reflect
increased management time to establish new data collection
procedures associated with the gainful employment provisions.
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Table 30 relates the estimated burden for small entities of each
paperwork requirement to the hours and costs estimated in the
Paperwork Reduction Act of 1995 section of this preamble. The
largest burden comes from the optional reporting of tuition and fees
to limit the amount of debt included in the debt-to-earnings
calculation. The estimated burden for small entities of reporting
tuition and fee information about students is 23,360 hours and
$516,712.
Prior to the issuance of the draft debt-to-earnings ratios, the
Secretary will provide a list to institutions of students that will
be included in the applicable two- or four-year period used to
calculate the debt-to-earnings ratios beginning in FY 2012.
Institutions will have 30 days after the date the list is sent to
the institution, to provide corrections such as, evidence that a
student should be included or excluded from the list or to submit
corrected or updated student identity information. The estimated
burden from these pre-draft data challenges is 1,155 hours and
$25,742. After the issuance of draft debt measures, institutions
will have the ability to challenge the accuracy of the loan data for
a borrower that was used to calculate the draft loan repayment rate,
the list of borrowers used to calculate the loan repayment rate, or
the median loan debt for the program that was used in the numerator
of the draft debt-to-earnings ratio. The burden associated with
challenges to the draft debt measures is 2,772 hours annually at a
cost of $61,317. Programs that fail the debt measures may
demonstrate that a failing program would meet a debt-to-earnings
standard by recalculating the debt-to-earnings ratios using the
median loan debt for the program and using alternative earnings data
from: a State-sponsored data system, an institutional survey
conducted in accordance with NCES standards, or, for fiscal years
2012, 2013, and 2014, BLS data. The estimated burden of notifying
the Secretary of the intent to use alternative earnings data and of
supplying the alternative earnings information is 1,164 hours and
$25,742.
Additional items included in the burden estimate for
institutions reported under OMB
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1845-0109 include an estimated burden of 3,852 hours for notifying
the Secretary and students when an institution voluntarily withdraws
a failing program from title IV, HEA participation and the date when
title IV, HEA aid will no longer be available for the program and an
estimated 116 hours in issuing debt warnings to current students.
Together, these provisions have an estimated cost of $113,503 for
small entities.
Identification, to the Extent Practicable, of All Relevant Federal
Regulations That May Duplicate, Overlap, or Conflict With the
Regulations
The regulations are unlikely to conflict with or duplicate
existing Federal regulations. Under existing law and regulations
administered by the Department, institutions are required to
disclose data in a number of complementary areas related to the
regulations. For example, among the information that institutions
must disclose under the HEA is price information including a ``net
price'' calculator and a pricing summary page. The additional
information required by these final regulations will help students
make informed decisions about the affordability of their student
loan debts and the performance of the covered programs.
Alternatives Considered
As described above, the Department evaluated the regulations for
their effect on different types of institutions, including the small
entities that comprise approximately 60 percent of title IV, HEA
eligible institutions subject to these regulations. As discussed in
the Alternatives Considered section of this RIA, several different
approaches were analyzed, including the use of graduation and
placement rates, disclosure alone, a NPV return on investment
analysis, an index of factors, default rates, and higher thresholds
for the repayment rate. Default rates are not used because a low
default rate is not synonymous with a low debt burden. As noted
earlier, forbearance, deferments for economic hardship and
unemployment, and income-contingent and income-based repayment are
important consumer protections that help keep former students out of
default; however cohort default rates, alone, are not an adequate
standard for assessment of whether a program prepares students for
gainful employment. Nor can disclosure serve as a standard for
determining whether a program complies with the gainful employment
requirement in the statute. For example, with a disclosure approach
an institution might report that one of its programs did not place a
single graduate into a job, yet the program would remain eligible as
``preparing students for gainful employment in a recognized
occupation'' because it disclosed the fact that it had failed to do
so. For graduation and placement rates, non-Federal negotiators
raised concerns about the ability of institutions to obtain valid
placement information from graduates and employers. Based on the
information we have available, using them as a measure of gainful
employment would be premature. No specific proposal was considered
for an index, nor is it clear how such an index would logically
measure gainful employment. Furthermore, one should be cautious
about assuming that an institution enrolling lower-income students
should necessarily have lower expectations for the future employment
or earnings of graduates. An index could be a good approach to
provide incentives, perhaps as a method of distributing funds in a
program. While we find the concept appealing, we are not convinced
that it is appropriate for accomplishing the goals of these
regulations.
As the analysis and comments from outside parties shaped the
proposal, alternatives were developed that reduced the proposal's
negative effects. These alternatives include a delayed effective
date for the gainful employment standard, an ability of institutions
to request that a program's repayment rate be evaluated for those
three years further along in their careers, a cap limiting the
number of programs that could lose eligibility in the first year
after the regulations take effect to the lowest-performing programs
producing no more than 5 percent of completers during the prior
award year, increased debt-to-earnings limits, and a decreased
repayment rate threshold. These alternatives are not specifically
targeted at small entities, but the delayed effective date and
initial cap on the regulations' effect will provide time for small
entities to adapt to the regulations. Clarification of the treatment
of programs with a small number of completers or borrowers is
particularly relevant for small entities and, along with the changes
to the calculation of the debt measures and the requirement that a
program is not ineligible until it fails the debt measures for three
of four FYs, reduces the effect of the regulations on small entities
and opens opportunities for programs that serve students well.
RIA Technical Notes
All data analyzed as part of this regulatory impact analysis,
including the regressions relating repayment rate to student and
institutional characteristics, is available on-line at http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity-analysis.html. This file was created by merging data provided from
the National Student Loan Data System (NSLDS) with information
collected by the National Center for Education Statistics'
Integrated Postsecondary Education Data System (IPEDS). Analysts who
wish to append additional information to this file are cautioned
that all IPEDS data has been aggregated by six-digit OPE IDs,
because that is the level at which repayment rates are reported.
The RIA analysis file contains 5,495 unique records. The
regressions reported in this filing are limited to a subset of those
records, specifically: (a) Those that had undergraduate offerings,
(b) those that have a non-missing repayment rate (e.g., institutions
may participate in title IV, HEA grant programs but not in the loan
programs), and (c) those that had no missing predictor variables.
The final analytic population is 4,255 institutions, or 77 percent
of the total RIA file.
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The regression analysis has five components:
(1) An ordinary least squares regression relating repayment rate
(RepayRateFinalRule) to four possible sets of predictor variables;
a. Student body characteristics, including the percentage of
students at an institution who are identified as racial/ethnic
minorities (PerMinority), the percentage of students at an
institution who receive Pell grants (PellPerWinsor),\29\ the
percentage of the undergraduate student population represented by
women (pctugwomen), and the percentage of the undergraduate student
population under the age of 25 (pctugunder25).
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\29\ This variable has been winsorized to reduce extreme
observations.
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b. Measures of institutional spending and growth, including
instructional (InstPerTotalExp) and non-instructional
(CorePerTotalExp) costs and the percentage change in the size of the
entering undergraduate class at an institution between 2006 and 2009
(PctChangeEntering06--09).
c. Total graduation rate (GradRateTot).
d. And, among 4-year institutions, a measure of institutional
selectivity: An institutions acceptance rate (AcceptRate08).
(2) An ordinary least squares regression relating repayment rate
(RepayRateFinalRule) to the percentage of students at an institution
who are identified as racial/ethnic minorities;
(3) An ordinary least squares regression relating repayment rate
(RepayRateFinalRule) to the percentage of students at an institution
who receive Pell grants;
(4) All pairwise correlations between the dependent and
independent variables; and
(5) The semi-partial correlation between repayment rate and each
of the independent variables used in the regression analysis.
In the discussion of the results of that analysis, we rely on
two concepts with which not all readers may be familiar.
The standardized regression coefficient. Comparing the strength
of predictors in a regression model is complicated by the fact that
not all independent variables are likely to be in the same metric.
Such is the case here; for example, we include both rates (e.g.,
retention) and per-FTE expenses (e.g., instructional expenses). To
increase comparability, regression coefficients can be standardized,
so that all variables have the same ``scale.'' The larger the
absolute value of a standardized regression coefficient, the greater
the effect it has on the dependent variable. Technically, the
standardized regression coefficient, beta, is read as: ``A one
standard deviation change in x makes a beta standard deviation
change in y.''
RIA Appendix A-1: High Dropout Scenario
This scenario features a drop-out starting at 15% of those
remaining after baseline dropouts and transfers for a single failure
and up to 42% for for-profit-less-than-2-year institutions. The
transfer rates associated with this scenario run from 20% for a
single failure to 40% for ineligibility. The transfers are
distributed according to our opinion that most transfers
attributable to gainful employment would occur within the sectors,
particularly the for-profit sectors. This is due to the capacity and
flexibility of successful for-profit programs to expand at a faster
rate than public institutions.
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RIA Appendis A-2: Low Dropout Scenario
This scenario features a drop-out starting at 5% of those
remaining after baseline dropouts and transfers for a single failure
and up to 22% for for-profit-less-than-2-year institutions. The
transfer rates associated with this scenario run from 25% for a
single failure to 50% for ineligibility, slightly higher than under
Scenario A-1 as fewer students dropped out in this scenario. The
transfers are distributed according to our opinion that most
transfers attributable to gainful employment would occur within the
sectors, particularly the for-profit-sectors. This is due to the
capacity and flexibility of successful for-profit programs to expand
at a faster rate than public institutions.
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RIA Appendix A-3: Program Results for Small Institutions
The scenarios described here mirror those described in the high
dropout and low dropout scenarios, with the data set limited to
small institutions only.
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[FR Doc. 2011-13905 Filed 6-10-11; 8:45 am]
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