Today it became official: Secretary of Education Betsy DeVos is rescinding the Obama administration’s gainful employment (GE) rule. The rule, which went into effect in 2015, set debt-to-income rate minimums for vocational schools and community colleges, with the penalty for noncompliance being denial of access to federal financial aid resources. It was one of the key protections afforded American students against the manipulations and abuse at the hands of predatory schools.
TCF’s Robert Shireman, a long-time expert on consumer protection in higher education, spoke with TCF fellow Yan Cao about the repeal, giving his reaction and providing essential background to the rule and the department’s decision. As deputy undersecretary of education in 2009 and 2010, Shireman led the U.S. Department of Education’s regulatory efforts in higher education.
Yan Cao: In a nutshell, what is the meaning of this DeVos action?
Robert Shireman: DeVos’s repeal of the gainful employment rule means it is open season for predatory schools to take advantage of students and taxpayers. Schools will no longer risk having their federal funding cut off for loading up students with debts they cannot repay. This is one in a long list of actions Secretary DeVos has taken that invites manipulative recruiting, low-quality training, and high tuition prices, all while profiting off federal grants and student loans.
What is her reason for repealing the rule?
She says the regulation “unfairly targets” for-profit schools. It’s a bizarre complaint, like saying that it is unfair that there are different traffic laws for trucks than for cars. For-profit schools are structured differently, in ways that make them more hazardous. The evidence is clear, and she is ignoring it. More than 98 percent of the fraud complaints that she is fielding are about for-profit colleges. Going forward, the department itself estimates that for-profit schools will be seven times more likely to engage in misconduct than public and other nonprofit institutions.
Further, the unfairness argument would get nowhere in court, because Congress clearly recognized that public and nonprofit entities have controls on their finances and conduct that don’t exist at for-profit schools. The statute says that if schools choose to operate as for-profit entities, they are not eligible for federal money unless the program prepares students for gainful employment.
Will her repeal be challenged in court?
Almost certainly. Twenty-one state attorneys general and a student group have already sued DeVos for dragging her feet in implementing the Obama GE rule—that suit and similar challenges prompted courts to intervene, ending DeVos’s unlawful delay of Obama-era rules concerning not just gainful employment, but also borrower defense relief, automatic closed school discharge, forced arbitration, and online colleges, as well. If DeVos hands out taxpayer money in a way that pretends that the GE requirement is not in the underlying law at all, she opens herself to prosecution under a law that bars government officials from spending funds that have not been duly appropriated by Congress.
But for now I think we have to consider the GE rule dead: it’s now in the past tense.
What was the purpose of the gainful employment rule?
Think of the GE rule as a ban on the government paying for unsafe or worthless products. We don’t let Medicare pay for snake oil cures; if a doctor or drug is eligible for the federal money, the consumer assumes it must be at least safe. In this case the customers are burned by student loan debt: they enroll in a career training program using federal grants and student loans, only to discover too late that the program did not actually lead to jobs that could repay those loans. The rule said that if more than half of the graduates in a program, year after year, had unaffordable debt, then the federal money would stop flowing.
Why did the Obama administration propose the GE rule?
With the deep recession in 2009, the demand for college was high, in part because of adults seeking better job security. While the federal government pumped more money into grants and loans for college and job training programs, the budget office (the Office of Management and Budget (OMB), an agency of the White House) insisted on measures to prevent waste and fraud in the use of the economic stimulus funds. There had been a history of abuses in student aid programs going way back to the original GI Bill, so it was a legitimate worry, with a long history of reform efforts, and with varying degrees of success.
I was a deputy undersecretary at the Department of Education at the time, and as a political appointee new to the agency, I asked the career staff: What safeguards are already part of the Higher Education Act (HEA)? Are they being implemented in a way that protects consumer and taxpayer interests? We discovered that the HEA already had these protections: the problem was gaps in implementation, in provisions intended as safeguards that were not being realized. Secretary of Education Arne Duncan and officials at OMB and the White House thought that it was important to address those gaps.
The Gainful Employment requirement was something already in the Higher Education Act?
Yes, it was added as part of a deal that also allowed the funds to go to for-profit schools. The version of the Higher Education Act passed in 1965 was restricted only to public and nonprofit colleges, and only to degree programs that provide a broad foundation of knowledge and skills in a discipline. Narrowly-focused job training programs were not included, nor were any programs offered at for-profit schools.
Why did Congress originally exclude for-profit schools from the student loan and grant programs in the Higher Education Act?
Scandals had erupted at for-profit schools using the GI Bill after World War II. Since the government was footing the bill, schools could get away with substandard training while charging as much as possible. The for-profit owners could pocket the money, which was not allowed at public and nonprofit schools. That huge temptation led to massive abuses at some for-profit schools, a problem we have seen repeated over and over again.
How does this relate to gainful employment?
Owners of for-profit schools argued that they should be able to get federal loans for their students as long as they were preparing them for jobs that would allow them to repay those loans. Changes to the HEA in 1968 and 1972 allowed for-profit schools this type of restricted access: only for programs that prepared students for “gainful employment in a recognized occupation.” The expansion included non-degree programs, allowing public and nonprofit institutions to access aid for their job-focused certificate programs. A majority of programs subject to the GE rule, in fact, are at public institutions, mostly at community colleges.
The gainful employment concept was not new, then, as a way to address the problem of predatory colleges.
Right. It was a requirement in the Higher Education Act from the first time for-profit schools were allowed to get aid. But the department had never established any particular standards for how to tell if a program was so bad that it should no longer be eligible for federal aid. It was pretty much an honor code: if a school said the program prepared students for gainful employment, the school could load students up with loans. In 2009, the department launched a formal process seeking input on what those standards should be, first by asking the industry what they would recommend.
What were the industry recommendations for measures that should be used to judge whether their programs led to gainful employment?
The industry mostly stonewalled, preferring the no-standard approach. By the time I finished my stint at the department in July 2010 to return home to California, the GE rule had been set aside while other regulatory efforts had been moved forward. The following year, the department published a GE rule that gave schools two different ways of showing that a program met a bare minimum standard: a measure of graduates’ debts in relation to earnings, or a repayment rate on student loans.
That was the 2011 rule that was struck down in court, is that right?
Yes, the industry sued and the judge found that the way the repayment rate measure was set did not have a foundation in the regulatory record, such as an analysis or expert recommendation. The irony is that the industry got the rule struck down by showing it was too lenient: the repayment rate gave them an alternative way to meet the standard. When the rule was revised in 2014, the repayment rate option was not included.
Did the GE rule make a difference?
Yes, because the colleges anticipated the rule would be implemented, many of them made the kinds of changes that we had hoped they would. They reduced tuition, and they emphasized programs with better job outcomes rather than just the programs they could deliver most cheaply. Industry leaders agree that the rule had its intended effect. Company executives reported to investors that they were making their programs more affordable:
Strayer University: “I would just remind everybody of all the things that we have done on affordability. Again, we froze tuition for all of our current students. We announced that we’re going to forego any tuition increase next year. Obviously, we rolled out the graduation fund. But as we continue to listen to the needs of our students and to the extent that those needs would require us to do additional steps on tuition pricing, we would look at that.”
Capella University: “We have taken, and we’ll continue to take, steps to improve affordability and outcomes for our programs, and we’ll continue to make necessary adjustments. Our goal is to create the most direct path between learning and employment without waste of time, effort, or money, and we are well on our way.”
Grand Canyon University: “The vast majority of our programs scored very well. None of our programs failed. . .This is not surprising, given our focus on not raising tuition for over eight years in most of our programs, and giving students flexible and efficient paths to graduation.” “We believe the gainful employment data recently released by the Department of Education provide some indication of the value of a GCU degree.”
The lobbying campaign against the rule created the impression that the GE rule would have shut down all for-profit colleges. Is that true?
Not even close. The rule applied to specific programs, or majors, not to whole schools, and there was no immediate cutoff of any program. Improvement was the goal, identifying where the problems were so that schools would take action where their programs were not delivering jobs that justify the debts. Fewer than 10 percent of rated programs failed in the initial data, and more than four out of five for-profit colleges had no failing programs at all. There was also a measure of borderline programs, and a majority of for-profit colleges had none of those either.
Despite its repeal of the GE rule, the Trump administration has pledged that it will be posting earnings and debt figures for all programs on the College Scorecard, the Department of Education’s online tool for consumers to compare higher education institutions in terms of value-related data. Would their doing so make the GE rule less necessary?
The debate over the GE rule certainly paved the way for the routine collection of these data, and I am glad that the Trump administration has not abandoned that effort. The data will allow analysts and regulators to better monitor schools.
However, data disclosure alone is ineffective as a consumer protection measure in education. Wading through all those numbers is a challenge, and figuring out what the numbers mean for any particular individual is an art, not a science. Disadvantaged students frequently end up relying on the advice of someone they perceive as an expert, which is frequently the school recruiter. Commenting on DeVos’s proposed repeal of the GE rule, seven leading economists who specialize in education found that “information provision alone is not enough to alter the enrollment choices of less-resourced students,” nor is information adequate to “incentivize higher performance among institutions.”
Programs that routinely result in more harm than good should not be financed with federal student loans.
The department is also rewriting rules on accreditation: will those fill in for the protections lost because of the repeal of the GE rule?
No, accreditation is likely to become a much weaker measure of quality. In fact, the department itself admitted that its proposals “could have the unintended consequence of encouraging some accreditors to lower standards.”
It has been ten years since you were part of the launch of the GE rule-writing process. Looking forward a decade, what do you see?
The Trump administration’s reversal of consumer safeguards and elimination of oversight is disturbing and short-sighted. They are opening the door to operators whose focus on gobbling up federal grants and loans for their investors will steer the business toward manipulative recruiting and poor-quality training. We are not doomed to repeat that history, however. Many in Congress and in state legislatures are aware of the dangers and are stepping in to fill the consumer protection void.