On May 17, 2023, the U.S. Department of Education (ED) released a Notice of Proposed Rulemaking intended to increase transparency regarding the costs and financial outcomes of postsecondary programs. The centerpiece of the proposed regulations is a Gainful Employment (“GE”) Rule, which would terminate access to federal financial aid for career training programs that fail to meet federal benchmarks. The rules would also require, amongst other things, disclosures to be provided to current and prospective students regarding the likely out-of-pocket cost for a given educational program and whether a program has been associated with a high debt burden.

The proposed rules, which would amend the regulations implementing Title IV of the Higher Education Act (“HEA”), are aimed at for-profit colleges and certificate programs that ED considers low-performing. The HEA requires that certificate programs at all institutions and degree programs at private for-profit colleges must provide training that prepares students for gainful employment in a recognized occupation. ED seeks to set a minimum threshold for students’ debt-to-earnings ratio. It also would require that at least half of a school or program’s graduates have higher earnings than a typical high school graduate in their state’s labor force who did not attend a post-secondary program. Programs that fail to meet these requirements would be required to warn students that the program may lose access to federal student loan and grant programs, and federal aid would be cut off for programs that fail to meet these metrics twice in a three-year period. Programs would be assessed separately on each metric.

An earlier incarnation of the GE Rule issued by the Obama Administration was rescinded by the Trump Administration in 2019. In explaining the context for the proposal, the Notice of Proposed Rulemaking notes that “many programs fail to effectively enhance students’ skills or increase their earnings, leaving them no better off than if they had never pursued a postsecondary credential and with debt they cannot afford.” ED also points to a “significant” number of instances where a school shut down with no warning, citing to a report from the State Higher Education Executive Officers Association and the National Student Clearinghouse Research Center that found 70% of students at such institutions (100,000 individuals) received no warning for closures that took place over a 16 year period,

Beyond the GE Rule, the proposed rules also mandates disclosure to all postsecondary students about what they are likely to pay for postsecondary programs, how much they are likely to earn after completing a credential, and whether they are selecting a program that ED designates as one “likely to leave them with unaffordable debt.” To accomplish this, the proposed rules calls for the collection of data from all colleges and programs about costs, non-Federal grant aid, typical borrowing amounts (both private and federal), earnings, any applicable occupational and licensing requirements, and licensure exam passage rates, where relevant. ED would make this information publicly available on a website, and students would need to acknowledge viewing these disclosures before receiving loans to attend programs that consistently leave participants with high debt burdens. ED would also create a “watchlist” of “the least financially valuable postsecondary education programs” as determined by debt burden. The proposed rules include additional administrative requirements as well related to the provision of adequate career services and safeguards to through written agreements to protect students where a school or program is at risk of closure. It also includes “Ability to Benefit” rules that allow students without a high school diploma to access federal aid.

In the press release announcing the proposed rules, ED Under Secretary James Kvaal stated “[w]e cannot turn a blind eye to the college programs that are leaving students with mountains of unaffordable debts. The data show that the problem is concentrated at for-profit and career colleges. This package of accountability proposals would create the strongest-ever protections for students and taxpayers against low-value, debt-fueled colleges.” Virginia Foxx, Chairwoman of the House Education and the Workforce Committee, criticized the proposal as an unfair attack on career schools that limits student choice and opportunity, stating “[the]announcement does not protect students or taxpayers, but rather reaffirms the Department’s commitment to eliminating institutions that don’t have its preferred tax status.” The proposed rules are expected to be published in the Federal Register on May 19, 2023, and comments may be submitted for 30 days through www.regulations.gov. ED expects to finalize the rules this fall, and they would be effective on July 1, 2024.