Congress’s College Accountability Statute Has Cracks. The 2023 Gainful Employment Rule Fills Them.

On December 8, the U.S. Department of Education (ED) will begin public rulemaking to implement new college accountability rules passed under the reconciliation law known as the One Big Beautiful Bill Act (OBBBA). At the same time, the rulemaking marks another fork in the road for a related regulation that has immense potential to benefit students by directing them away from low- or no-value college programs and toward ones with strong outcomes.

This regulation, the Gainful Employment (GE) rule, can work in tandem with the OBBBA’s accountability requirements to protect students from investing in programs that provide little or no benefit. The first Trump administration rescinded an earlier version of the GE rule, and it is possible that ED may use the upcoming rulemaking to weaken, or even rescind, the GE rule that the Biden administration put in place. However, watering down or eliminating the 2023 GE rule could leave a large swath of students unprotected from investing in low- or no-value programs—and would undermine the goals of the accountability statute Congress just passed through OBBBA. Below, we give a brief history of the GE rule and then detail the major reasons why the ED should preserve the 2023 version of the rule.

The Gainful Employment Rule’s Journey: From Obama to OBBBA

When Congress created the modern federal financial aid program in the 1960s, it excluded for-profit colleges from participation due to concerns about waste and abuse of federal aid. Later, Congress expanded federal aid to for-profit colleges, but it limited eligibility to programs that prepare students for “gainful employment” in a recognized occupation. ED developed the GE rule to define the term “gainful employment.” The rule also applies to nondegree certificate programs offered by public, nonprofit, and for-profit colleges.

The GE rule was first enacted by the Obama administration and would have cut off a program’s eligibility for federal financial aid if its graduates’ ratio of debt to income exceeded certain thresholds for two years in a three-year period. ED rescinded the Obama-era GE rule under the first Trump administration.

In 2023, the Biden administration enacted a new GE rule. The 2023 GE rule had two components:

• To receive federal investment, programs must at least boost graduates’ earnings above the rate of workers in the state that had only a high school diploma.
• To receive federal financial aid, program graduates must not be left with unmanageable debt. The rule imposed a benchmark for graduates’ debt-to-income ratios.

A program would have to clear both tests to maintain federal financial aid eligibility. The rule helps protect students from investing in programs that provide little benefit, creates an incentive for institutions to shift program offerings to higher-value programs or reduce tuition costs, and could lead to increased earnings for students. The Century Foundation has projected that, if students in programs that failed the GE rule instead attended a passing program, their annual earnings would be nearly 50 percent higher, a gain of nearly $10,000 per year.

Lawsuits challenging ED’s authority to enact the GE rule, brought by a consortium of cosmetology schools, stalled the full implementation of the 2023 rule. However, this October, the court ruled against the cosmetology schools and affirmed ED’s authority to implement the rule.

This summer, Congress included a “GE-like” test in the reconciliation law, referred to as the Low Earnings test. The Low Earnings test codifies a framework similar to the one in the 2023 GE rule, with three key differences:

• OBBBA’s test covers degree programs and graduate certificate programs offered by public, nonprofit, and for-profit colleges. It does not apply to undergraduate certificates in any sector.
• The statute does not include a debt-to-earnings test.
• Programs that fail OBBBA’s test lose eligibility for federal student loans, but not Pell Grants. In contrast, programs that fail the GE rule lose access to both the federal student loan and Pell Grant programs.

OBBBA also expanded Pell Grant eligibility to certain very short-term (under fifteen weeks) job training programs and included a different earnings test for these programs: the tuition and fees cannot exceed the “value-added earnings” of completers who received federal student aid.

OBBBA’s accountability requirements are not a replacement for the GE rule, but they can work in tandem with the rule to protect students across all sectors and program types.

Without the GE Rule, 1.4 Million Students Per Year Are At Risk from OBBBA’s Certificate Exception

While the OBBBA’s earnings tests protect those students who enroll in degree programs, graduate certificates, and in certain very-short-term job training programs, OBBBA does nothing to protect the roughly 1.4 million students per year who use federal grants and loans to attend undergraduate certificate programs.¹ These latter students are protected by the GE rule. Without that rule, one-quarter of those 1.4 million students may waste time and tuition on an estimated 1,277 certificate programs where the typical graduate does not make more than the typical worker with a high school diploma.

A major benefit of accountability measures like the OBBBA framework and the GE rule is that they can steer students to high-quality programs. The Century Foundation has projected the benefit to students from such protections by simulating student movement from failing programs to the nearest program that passes. Preserving the GE rule, for example, would lead to a projected average increase of $9,500 in earnings for students in undergraduate certificate programs who, rather than attending failing programs, would attend programs that pass the test. That increase, from $19,200 to $28,700, is a nearly 50 percent increase in annual earnings.

Preserving the 2023 GE rule would maintain an earnings test for undergraduate certificate programs, protecting students from squandering their time and limited Pell Grant aid or going into debt for low- or no-value programs. Preserving the 2023 GE rule would also direct students to higher-quality options. By contrast, eliminating the GE rule would send a vivid signal that easy Pell Grant money is available to those who would set up shoddy programs to make a profit, with practically no accountability.

The GE Rule’s Debt-to-Earnings Test Would Reduce Unrepayable Student Debt

Elsewhere in OBBBA, Republican lawmakers eliminated the Grad PLUS program, effectively capping graduate loans. According to Senator Bill Cassidy, the aim was to prevent overborrowing: “By capping inflationary graduate loan programs, we prevent students from overborrowing and put downward pressure on rising college costs.”

But that’s not exactly what the loan caps do. The new graduate loan limits are agnostic to the expected earnings of a program’s students, or what would count as “overborrowing.”

Take dentistry students, for example: at more than 94 percent of DDS programs, the majority of borrowers will hit the aggregate loan cap of $200,000 before they graduate, ending their federal borrowing and thus potentially requiring private borrowing. But DDS graduates’ median earnings five years after graduating are a comfortable $158,100, putting them in the top 10 percent of earners, meaning they are likely to fare quite well in repayment, even if federal borrowing amounts were above $200,000. For dentistry students, and many students in similar programs leading to high-paying fields, loan limits look less like a cure for high borrowing and more like a handout to the private loan industry, where loan terms benefit the lender far more than the borrower.

Meanwhile, plenty of programs will continue to have an over-borrowing problem that the loan limits don’t solve—either because their graduates find their federal debt is unaffordable relative to their earnings, or because they continue to borrow too much when including private debt. Furthermore, even students who don’t hit their loan limit may still struggle mightily to repay their debt if their earnings are too low: the federal loan cap amounts of $100,000 or $200,000, plus private loans atop them, is still too much to borrow for a low-quality degree or one that leads to a low-paying field.

The GE rule more directly addresses the need to reduce unrepayable student debt. The debt-to-earnings test in the 2023 GE rule would end Title IV eligibility for programs that saddle students with significant debt without leading to incomes that can support it. The GE rule’s debt-to-earnings test would also help to address the burden of private debt, because the debt-to-earnings test accounts for both federal and private debt. In 2022, roughly 191,000 students received Title IV aid to enroll in 282 programs that would pass the reconciliation law’s Low Earnings Test but would fail GE’s debt-to-earnings test. Those credentials are not worth the debt: for every $1 in typical earnings three years after completing, these programs saddle students with $1.09 in debt, compared to $0.40 for higher education programs overall.

The typical student from Walden University’s doctorate in psychology, for example, cannot repay their loan principal of $137,200 on the typical annual earnings of just $62,500 three years after completing. That’s enough to pass the OBBBA’s earnings test, but not to pay their bills. Same for a student from Bryant & Stratton College’s bachelor degree program in criminal justice: $30,400 in earnings is enough to pass the Low Earnings Test, but not enough to justify $49,800 in debt.

Preserving the 2023 GE rule provides this necessary layer of accountability, directing students toward alternative options with better prospects for repayment.

The GE Rule Ensures Pell Grants Go to High-Quality Programs

The GE rule augments and strengthens the protections of the OBBBA accountability framework by ensuring that low- and no-value programs lose eligibility for Pell Grants, in addition to federal loans. This is important because many of the undergraduate programs that would fail OBBBA’s Low Earnings test distribute more federal money in Pell Grants than the federal money they distribute in student loans. Without GE, $1.4 billion in Pell Grants per year would go to programs that failed GE. (See Table 1.)

Table 1

Two out of every three programs that fail the OBBBA test also fail GE, but they will only lose Pell Grant eligibility with the GE rule in place. And about one-quarter of the programs that fail both the OBBBA test and GE rule eat up more in Pell Grants than loans. For those programs, and their students, the loss of student loan eligibility will not be as powerful as the loss of Pell Grant eligibility.

Denying Pell Grant eligibility to programs that fail the GE rule would give the accountability system teeth that, for many programs, is missing under OBBBA, where only student loans are at stake. And it would discourage bad actors from propping up low-quality programs that would take Pell Grants for personal profit.

By Preserving the GE Rule, the Department of Education Can Make a Positive Difference

Accountability rules, when designed well, protect students from investing in low- or no-value programs; create helpful incentives for institutions to boost outcomes, lower tuition, and redirect resources into higher-value programs; and can even boost student earnings.

As these analyses show, the differences between the reconciliation law’s accountability statute and the GE rule are not trivial but are, in fact, significant cracks that need filling. In the future, Congress should enact the GE rule in statute. Until then, there is a GE-shaped hole in the statute, and to fill it, ED should preserve the 2023 GE rule.

The methods for the analysis above can be found here. The code for the original analysis can be found at this GitHub repository.

1. This statistic and all subsequent statistics in the commentary reflect original analysis by the author using Department of Education data. See the methods document for further details, available at https://docs.google.com/document/d/1XhABuFnQ07brhRynD8HiwksM5eKtGOMCkIJb15H36RA/edit?usp=sharing.

Tags: college accountability, OBBA, Gainful Employment Rule