New Gainful Employment Rule Aims to Protect Students From Crushing Debt

The Biden administration's proposal will identify and punish for-profit colleges and certificate programs at nonprofit colleges whose graduates incur high student debt relative to their post-graduation income.
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Matthew Arrojas is a news reporter at BestColleges covering higher education issues and policy. He previously worked as the hospitality and tourism news reporter at the South Florida Business Journal. He also covered higher education policy issues as...
Published on May 18, 2023
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  • Under the new rule, the Department of Education would set a minimum threshold for students' debt-to-earnings ratio.
  • It also requires at least half of graduates from a program to have higher earnings than a typical high school graduate in their state's labor force.
  • An earlier version of the gainful employment rule was proposed under the Obama administration and later rescinded by the Trump administration in 2019.

A regulation meant to ensure for-profit colleges and career training programs at nonprofit colleges don't saddle students with unmanageable debt is back in place after a five-year hiatus.

The Department of Education (ED) on May 17 released the final version of its gainful employment (GE) rule that will hold programs — mostly at for-profit institutions — accountable for student outcomes and debt burdens. It's the final step in a yearlong process of negotiations to reinstate a beefier version of the policy struck down during former President Donald Trump's administration.

President Joe Biden's new GE rule is more heavy-handed than the regulation Trump struck down in 2019.

Under the new GE rule, a program passed the GE requirement if its graduates left school with an annual loan payment less than 8% of their annual salary or that payment makes up less than 20% of their discretionary income.

It also created an income threshold where a program could fail the GE rule if its graduates' median earnings are less than the median earnings of working adults in their state ages 25-34 who hold only a high school diploma or GED certificate.

The income threshold did not exist under the pre-Trump GE rule. This was something pushed by student and borrower advocates during negotiated rulemaking with ED in early 2022. Negotiators representing institutions, meanwhile, voted against the proposed rule in March.

Bradley Adams, who represented for-profit colleges and universities, was the most vocal critic of the rule at the time.

Another difference from the pre-Trump GE rule is the elimination of any warning zone. Previously, a program would be placed under "warning" status if graduates' loan payments were between 8% and 12% of annual salary or between 20% and 30% of discretionary income. Now those ranges count as failing GE.

The new GE rule will affect all programs at for-profit institutions, as well as credential programs at public and private institutions.

It will likely, however, have an outsized impact on for-profit colleges and universities.

An analysis from New America found that only 5% of community colleges have any graduates in programs that would fail GE. Across all nonprofit and public schools, 97% have fewer than 10% of graduates in failing programs, meaning the impact will be minimal at the institutional level even for schools with failing programs.

Meanwhile, just 42% of for-profit institutions have fewer than 10% of graduates in failing programs, according to New America.