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The Gainful Employment Metric

Gainful Employment Metric. Reporting and disclosure requirements issued as part of the June 18, 2010 NPRMCCA filed comments August 2, 2010GE2

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The Gainful Employment Metric

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    1. The Gainful Employment Metric Notice of Proposed Rulemaking Issued July 26, 2010 * Updated with Department of Education 8/11/10 conference call information

    2. Gainful Employment Metric Reporting and disclosure requirements issued as part of the June 18, 2010 NPRM CCA filed comments August 2, 2010 GE2 – the Metric – issued July 26, 2010 Comments due September 9, 2010 Data and repayment rate calculations made available 8/13/10 We will hold a webinar in the near future outlining how to file comments, and another suggesting areas for comment. This webinar is just laying out what is contained in the NPRM.We will hold a webinar in the near future outlining how to file comments, and another suggesting areas for comment. This webinar is just laying out what is contained in the NPRM.

    3. Why issue this proposed rule? Define “gainful employment” in the regulations Address growing student loan debt Prevent labor “oversupply” when the number of expected job openings is significantly lower than the number of degrees being produced Protect taxpayers against wasteful spending on educational programs of little or no value that lead to high indebtedness ED is certainly permitted to define terms in the regulations; however, this goes well beyond a definition. Labor oversupply – GAO report from the ‘90s – occupation-specific training programs that lacked a general education component made graduates of for-profit institutions less versatile and limited their opportunities for employment outside their field. Oversupply in labor market results in decline in real wages and unemployment. It is also within the Department’s purview to oversee the federal funds for which they are responsible. ED is certainly permitted to define terms in the regulations; however, this goes well beyond a definition. Labor oversupply – GAO report from the ‘90s – occupation-specific training programs that lacked a general education component made graduates of for-profit institutions less versatile and limited their opportunities for employment outside their field. Oversupply in labor market results in decline in real wages and unemployment. It is also within the Department’s purview to oversee the federal funds for which they are responsible.

    4. Who does the rule apply to? All programs at for-profit institutions Except liberal arts baccalaureate degree programs Non-degree programs at public and private not-for-profit institutions * These are the only programs with the term “gainful employment” in their definition in the statute. The HEA says these programs lead to “gainful employment in recognized occupations,” so they are the only ones the gainful employment metric – and disclosure and reporting requirements – will apply to.The HEA says these programs lead to “gainful employment in recognized occupations,” so they are the only ones the gainful employment metric – and disclosure and reporting requirements – will apply to.

    5. What is in the proposed rule Two tests to measure gainful employment Debt-to-income ratio Repayment rate Three and a half levels of compliance Eligible Eligible with additional reporting requirements Restricted Ineligible New Department of Education program approval authority Debt : income – program completers Repayment rate – everyone who was enrolled in a programDebt : income – program completers Repayment rate – everyone who was enrolled in a program

    6. Debt-to-Income Ratio Provides a measure of program completers’ ability to repay their loans Targets set based on “industry practices and expert recommendations”

    7. Debt-to-Income Ratio Repayment based on 10-year repayment plan Would use most current income available for students who completed the program in the most recent three years Three-year period – 3YP Repayment rate is reasonable if annual loan payment is 30% or less of discretionary income OR 12% or less of annual earnings

    8. Debt-to-Income Ratio Institutions that can show earnings of students increase substantially after an initial employment period could use earnings of students who completed four, five and six years prior to the most recent year Prior three-year period – P3YP Relationship is reasonable if annual loan repayment rate is less than 20% of discretionary income or less than 8% of average annual earnings Institutions must provide to ED survey results of employers or former students or other empirical evidence documenting the increased earnings Institutions must provide to ED survey results of employers or former students or other empirical evidence documenting the increased earnings

    9. Debt-to-Income Ratio Calculations ED will calculate annually to determine whether the annual loan repayment is less than the discretionary and earnings thresholds Annual loan payment < discretionary threshold * (average annual earnings – 1.5 * poverty guideline)) Annual loan payment < earnings threshold * average annual earnings

    10. Debt-to-Income Ratio: Debt Annual loan payment = median loan debt of students who completed a program during the three-year period under standard repayment terms 10-year repayment schedule and the current annual interest rate on Federal unsubsidized loans Loan debt includes title IV program loans except Parent PLUS, and any private educational loans or debt obligations arising from institutional financing plans Only debt accumulated in the applicable program or at the same/a related institution will be used in the calculation Per the Department on the 8/11 conference call – only debt accumulated at the applicable program or at the same/a related institution will be used in the calculation; NO transferred-in debt will be counted. That being said, ED is unsure yet how to handle degree transition debt – associate to bacc, bacc to masters, etc. On the call they statted that at this time they think it will all apply to the masters program. I am guessing the thinking is the eventual job received is dependant on having a masters degree.Per the Department on the 8/11 conference call – only debt accumulated at the applicable program or at the same/a related institution will be used in the calculation; NO transferred-in debt will be counted. That being said, ED is unsure yet how to handle degree transition debt – associate to bacc, bacc to masters, etc. On the call they statted that at this time they think it will all apply to the masters program. I am guessing the thinking is the eventual job received is dependant on having a masters degree.

    11. Debt-to-Income Ratio: Income ED will calculate average annual earnings using most current actual average earnings obtained from Social Security Administration or another Federal agency Earnings will be included for students who completed the program during the most recent three-year period ED states, and congressional sources have verified, that ED does not need Congressional action to receive SSA earnings data. ED states, and congressional sources have verified, that ED does not need Congressional action to receive SSA earnings data.

    12. Debt-to-Income Ratio: Income Discretionary income: the difference between average annual income and 150% of the most current Poverty Guideline for a single person in the continental US http://aspe.hhs.gov/poverty Current 2010 poverty guideline for a one-person family: $10, 830 (August 2010)

    13. Debt-to-Income Ratio : New Terms and Acronyms 3YP = three-year period P3YP = prior three-year period

    14. Loan Repayment Rate Measures whether program enrollees are repaying their loans ONLY Federal loans are included in this calculation (per ED’s 8/11/10 conference call) Allows for a high debt-to-income ratio but shows the program enrolled responsible students who understood their financial obligation Loan repayment rate applies to anyone who was enrolled in the program, regardless of their completion Different than CDR: CDR only captures those who go 270 days without making a payment. The repayment rate will capture other types of non-payment, including forbearance, delinquency, and those who make payments that don’t “pay down” their loans. The repayment rate calculation uses the preceding 4 fiscal years, so the 2012 rate is through 2011 (2008, 2009, 2010, 2011). ED stated that because this is being applied retroactively, institutions may want to up loan counseling and placement services to students in the calculation, and suggested providing skills enhancement to students in the calculation, and work to make sure borrowers understand deferment and forbearance are not in their best interest and that they are paying down their loans.Loan repayment rate applies to anyone who was enrolled in the program, regardless of their completion Different than CDR: CDR only captures those who go 270 days without making a payment. The repayment rate will capture other types of non-payment, including forbearance, delinquency, and those who make payments that don’t “pay down” their loans. The repayment rate calculation uses the preceding 4 fiscal years, so the 2012 rate is through 2011 (2008, 2009, 2010, 2011). ED stated that because this is being applied retroactively, institutions may want to up loan counseling and placement services to students in the calculation, and suggested providing skills enhancement to students in the calculation, and work to make sure borrowers understand deferment and forbearance are not in their best interest and that they are paying down their loans.

    15. Loan Repayment Rate Rate based on total amount of loans repaid divided by the original outstanding balance of all loans entering repayment in the prior four Federal fiscal years (FFY) OOPB of LPF plus OOPB of RPL OOPB of all loans for students attending the program Remember, debt to income is only program completers and only debt accumulated in that program or at the same institution. This counts every student who attended the program, and my understanding based on reading the preamble and proposed reg, as well as from what the Department said on the 8/11 conference call, is that the repayment rate calculation includes ALL debt, including transferred in debt. I’m not sure – and I don’t think they are either – how to handle that. This is something we will comment on and encourage you to comment on as well!Remember, debt to income is only program completers and only debt accumulated in that program or at the same institution. This counts every student who attended the program, and my understanding based on reading the preamble and proposed reg, as well as from what the Department said on the 8/11 conference call, is that the repayment rate calculation includes ALL debt, including transferred in debt. I’m not sure – and I don’t think they are either – how to handle that. This is something we will comment on and encourage you to comment on as well!

    16. Loan Repayment Rate: New Terminology and Acronyms FFY = Federal fiscal year October 1 through September 30 OOPB = original outstanding principal balance All FFEL and DL that entered repayment in the four preceding Federal fiscal years LPF = Loans paid in full Loans to the program’s students that have been paid in full except loans paid by a consolidation loan until that consolidation loan is paid in full RPL = reduced principal loan Loans where borrower payments during the most recently completed FFY reduces the OPB of the loan in that year OOPB does NOT include borrowers on in-school or military deferments. Consolidation loans don’t “pay off” the underlying loans; they are not considered paid off until the entire loan is repaid.OOPB does NOT include borrowers on in-school or military deferments. Consolidation loans don’t “pay off” the underlying loans; they are not considered paid off until the entire loan is repaid.

    17. Loan counts as being repaid if Borrower made loan repayments during the most recent fiscal year that reduced the outstanding principal balance Borrower made qualifying payments on the loan under the Public Service Loan Forgiveness Program Borrower paid the loan in full Again – consolidation loans do not pay off the underlying loans.Again – consolidation loans do not pay off the underlying loans.

    18. Loans not counted in repayment Consolidation loans are not considered as paying the loan in full Loans in deferment or forbearance are not considered to be in loan repayment Except military and in-school deferment

    19. New Program Approval Institutions would be required to apply to ED for approval to offer new programs offering title IV HEA aid Projected enrollment for the program for the next five years for each location (subject to enrollment limitations) Documentation from employers not affiliated with the institution that the curriculum aligns with recognized occupations at those employers’ businesses and there are projected job vacancies or expected demand for those occupations at those businesses Documentation of accrediting agency approval if the program is a substantive change

    20. Provisional Certification ED may provisionally certify an institution if one or more of its programs becomes restricted or ineligible ED feels this is warranted when an institution fails to take the steps necessary to keep its programs in compliance with the gainful employment provision This failure will be considered by ED when reviewing the application for recertification of the PPA

    21. Hearing for Not Meeting GE Provision Institutions will not have access to individual student’s income data to protect student privacy Hearing official will accept as accurate the average earnings calculation so long as the list of program completers is identified by the institution and accepted by ED

    22. This chart lays out for you the proposed regulations and how they factor in to program eligibilityThis chart lays out for you the proposed regulations and how they factor in to program eligibility

    23. Fully Eligible Programs Loan repayment rate of at least 45% AND debt-to-earnings ratio of 20% or less of discretionary income or 8% or less of average annual earnings No additional reporting/disclosure requirements No additional Department oversight

    24. Eligible With Disclosure Requirements Loan repayment rate of at least 45% OR debt-to-earnings ratio of 20% or less of discretionary income or 8% or less of average annual earnings Institutions must warn consumers and current students of high debt levels and provide the most recent debt measures for the program

    25. Restricted Status Program Loan repayment rate between 35% - 45% and unable to demonstrate debt-to-earnings ratio of 20% or less of discretionary income or 8% or less of average annual earnings Must demonstrate employer support for the program Must warn consumers and current students of high debt levels and provide most recent debt measures for the program Program subject to enrollment limits

    26. Restricted Status Programs Annually provide documentation from employers not affiliated with the institution affirming the curriculum of the program aligns with recognized occupations at those employers businesses There are projected job vacancies or expected demand for those occupations at those businesses ED will limit enrollment of title IV aid recipients Average number enrolled during the prior three award years

    27. Ineligible Programs Loan repayment rate below 35% and a debt-to-earnings ratio above 30% of discretionary income and 12% of annual earnings May not enroll new title IV eligible students May disburse title IV funds to current students who began attending the program before it became ineligible for the remainder of the current award year and for the award year following the date of the Department’s notice Must warn current and prospective students of high debt loads and reduced ability to repay loans based on projected earnings Must provide most recent debt measures for the program

    28. Timeline: July 1, 2011 Implementation Data (6/18/10 NPRM) Institutions would begin providing information to the Department about students who completed gainful employment programs during the previous three years. The Department would determine average earnings (using information from another Federal agency such as the Social Security Administration) and median student loan debt.

    29. Timeline: July 1, 2011 Implementation Disclosures (6/18/10 NPRM) Institutions must provide on their Web sites information about the occupations for which their gainful employment programs are preparing students, and the graduation rates and median debts in those programs.

    30. Timeline: July 1, 2011 Implementation Program Eligibility Additional programs subject to the gainful employment regulations must have employer affirmations that the program’s curriculum is designed to prepare students for jobs like those at the employer’s company. The number, location, and size of the job placements for the businesses must be commensurate with the projected size of the program. The program is subject to growth restrictions until loan repayment and debt measure data are available.

    31. Timeline: July 1, 2012 Warning Programs subject to the gainful employment regulations that fail to meet one of the debt thresholds must include a warning in all promotional materials and provide the most recent repayment rate and debt measures for the program.

    32. Timeline: July 1, 2012 Program Eligibility To remain eligible for title IV, HEA program funds, gainful employment programs must either have a Federal loan repayment rate of not less than 35 percent, or have student debt levels below the debt threshold. For one year, there would be a five percent cap on the number of programs (measured on the number of program completers in an award year) that can lose eligibility in that year. In the 2012-2013 year, no more than 5% of the applicable programs can lose eligibility. ED was unclear on when the actual calculations will be made. On their conference call, they stated it would be “As soon as possible given the data received, on an annual basis.”In the 2012-2013 year, no more than 5% of the applicable programs can lose eligibility. ED was unclear on when the actual calculations will be made. On their conference call, they stated it would be “As soon as possible given the data received, on an annual basis.”

    33. Timeline: July 1, 2012 Program Eligibility Ineligible programs that remain outside the cap would be subject to the employer-affirmation and growth provisions applicable to additional programs. Programs with loan repayment rates below 45 percent that fail to meet one of the debt thresholds would be subject to employer-affirmation and growth provisions, and the institution may be provisionally certified. This is the first year programs can be placed on restricted statusThis is the first year programs can be placed on restricted status

    34. Definitions: Repayment Rate Of the program’s former students entering repayment with Federal loans in the previous four FFYs, the proportion of loans for those students who are paying more than the interest charges (or fully repaid the loans) or are in full-time public service positions (i.e. eligible to seek Public Service Loan Forgiveness) in the most recent FFY. Borrowers using in-school and military deferments are excluded from both the numerator and denominator.

    35. Definitions: Average Annual Earnings The average annual earnings, in the most recent year for which post-completion data are available, for the program’s graduates from the previous three years. An institution may seek to measure earnings of earlier graduates (four to six years prior) if graduates typically experience large earnings increases after an initial period of employment. Earnings data would be acquired by the Department from a Federal agency. ED anticipates obtaining this data from the Social Security Administration (SSA).

    36. Definitions: Discretionary Income The amount of total income above 150 percent of the poverty level (domestic U.S., family size of one) for the applicable year.

    37. Definitions: Debt Threshold Loan payments as a proportion of either discretionary income or total income. The loan payments are the amount, based on a flat 10-year amortization schedule, of all of a student’s loans (Federal, private, and institutional) taken at the institution, assuming the unsubsidized Stafford loan interest rate (6.8 %). For full eligibility the proportion must be below 20% of discretionary income or 8 % of average annual earnings. Rates of 30% of discretionary income and 12% of average annual earnings and above trigger ineligibility unless the repayment rate is in compliance.

    38. Department of Education Information Conference call – August 11, 2010 http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity.html Data and repayment rate calculations for ALL title IV participating institutions http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity-analysis.html Included in the data and supporting documentation are the various reports cited in the NPRM.Included in the data and supporting documentation are the various reports cited in the NPRM.

    39. Questions? Tammy Halligan Director of Regulatory Affairs 202-336-6839 TammyH@career.org www.career.org

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