[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.

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    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

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    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \19\ http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity-analysis.html.
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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.
BILLING CODE 4000-01-P

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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.
[GRAPHIC] [TIFF OMITTED] TR13JN11.046


[[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.
BILLING CODE 4000-01-P
[GRAPHIC] [TIFF OMITTED] TR13JN11.049


[[Page 34490]]


[GRAPHIC] [TIFF OMITTED] TR13JN11.050

BILLING CODE 4000-01-C

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.
BILLING CODE 4000-01-P
[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.
BILLING CODE 4000-01-P
[GRAPHIC] [TIFF OMITTED] TR13JN11.052

    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.
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    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.

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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

[[Page 34509]]

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).
---------------------------------------------------------------------------

    \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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