On June 20, 2023, the Higher Education team at The Century Foundation, in response to a Notice of Proposed Rulemaking, dated May 19, 2023 (Docket ID ED–2023–OPE–0089), provided comments to Secretary Miguel Cardona at the U.S. Department of Education concerning the proposed rule, Gainful Employment, Financial Responsibility, Administrative Capability, and Certification Procedures. In the submitted comments, which you can read below, the team supported and provided details on many of the department’s proposed regulations.
Dear Secretary Cardona:
Thank you for the opportunity to provide comments on the Notice of Proposed Rulemaking, dated May 19, 2023, Docket ID ED–2023–OPE–0089. We provide comments below on the following aspects of the proposed rule: Gainful Employment, Financial Responsibility, Administrative Capability, and Certification Procedures.
With the proposed Gainful Employment (GE) rule, the Department seeks to establish a strong set of safeguards to protect students from investing in low-value programs that leave graduates saddled with unaffordable debt and low earnings. We strongly support the Department’s proposed GE regulations.
The Department’s proposed rule also includes a number of important changes to the financial responsibility standards, administrative capability standards, and certification procedures for Title IV institutions. As set forth below, we support many of the Department’s proposals.
Gainful Employment
Until 1968, Title IV aid was only available to nonprofit and public schools. For-profit entities were ineligible due to concerns about waste and abuse of federal aid in the for-profit sector. However, in 1968, Congress made an exception to allow for-profit schools to participate in Title IV for career training programs that prepare students for gainful employment in a recognized occupation. Given the career-specific nature of the programs, it was assumed that it would be more difficult for these programs to abuse federal aid. However, no parameters were put in place to ensure that eligible programs were adequately preparing students for gainful employment in a recognized occupation, and for-profit colleges began expanding their program offerings, resulting in severe abuses by the for-profit sector. These included exploding enrollments in high-cost, low-quality programs; widespread instances of deceptive and aggressive recruiting practices; programs that left students with burdensome debt; and a wave of enforcement actions by state and federal oversight agencies that led to closures of predatory schools. In response, the Obama administration adopted the first Gainful Employment rule in 2011, and a revised version in 2014. The rule was designed to protect students and taxpayers from investing in programs that leave students with high debt burdens. In 2016, under the Trump administration, Betsy DeVos rescinded the rule.
The 2023 proposed rule restores and strengthens GE requirements to protect students and taxpayers from investing in low-value programs that leave students with unmanageable debt and paltry earnings.
Debt-to-Earnings Test (D/E)—§668.403
The Debt-to-Earnings (D/E) test ensures that students in career development programs leave their programs with affordable debt. The student loan debt burden for U.S. students is now greater than 1.6 trillion dollars. Efforts to control the growth of excessive student debt are critical.
D/E program failure is associated with higher rates of student loan default. For example, analysis from the Department shows that “programs that fail the proposed D/E standards (including both GE and non-GE programs) account for just 4.1 percent of title IV enrollments (i.e., Federally aided students), but these same programs account for 11.19 percent of all students who default within 3 years of entering repayment.” Thus, the D/E test is an important metric for safeguarding students from schools that will leave them with unaffordable debt and at a higher risk of defaulting on student loans.
Parent PLUS Loans—§668.403(d)
The proposed GE rule does not include Parent PLUS loans in the calculation of student debt for the D/E metric. The exclusion of Parent PLUS loans in the proposed rule’s D/E calculation is concerning for several reasons. First, loan debt from Parent PLUS loans disproportionately impacts families of color and low-income families. Among Black families who use PLUS loans, over 40 percent have an Estimated Family Contribution of zero dollars. Among Hispanic families, 25 percent have an Estimated Family Contribution of zero dollars. Black families in particular struggle to repay the debt incurred with high-interest Parent PLUS loans. Second, Parent PLUS loans shift the financial burden of higher education from states and schools onto families. Consequently, Parent PLUS loans contribute to the already large racial wealth gap between white and Black families.
The exclusion of Parent PLUS loans from the D/E test also creates an incentive for schools to shield themselves from potential D/E failure by shifting the financial burden of higher education onto families through offering more Parent PLUS loans and less forms of other financial support.
We recommend that the Department take steps to address this issue in one of two ways. One option would be for the Department to include Parent PLUS loans in the D/E calculation. Another option would be for the Department to impose restrictions on the use of Parent PLUS loans that would make it harder for institutions to game the system. For example, the Department could set limits on the percentage of a school’s funding that can come from Parent PLUS loans or impose a requirement that students exhaust their Title IV borrowing options before parents can take out Parent PLUS loans. These safeguards would help to prevent schools from pushing families into taking on burdensome Parent PLUS loan debt.
Earnings Premium—§668.404
We support the Department’s proposal to impose an Earnings Premium (EP) requirement, as well as a D/E requirement, on GE programs. Programs will be classified as passing the EP test if they have “median annual earnings greater than the median earnings among high school graduates aged 25 to 34 in the labor force in the State in which the program is located.” Including both a D/E threshold and an EP requirement in the rule will protect students and taxpayers from investing in programs that leave students unable to pay back their loans, or earning near-poverty-level wages. Some programs pass the D/E metric because of low borrowing rates among students, but fail the EP metric because of graduates’ inadequate earnings. As the Department explains, borrowers in programs that pass the D/E metric but fail the EP metric “have very high rates of default, so the EP metric helps to identify programs where borrowing may be overly risky even when debt levels are relatively low.”
While the EP threshold sets a low bar for earnings—the Department notes that the median earnings of high school graduates nationally is about $25,000, which is lower than minimum wage in fifteen States—it is still high enough to pose challenges for some institutions that serve students living in high-poverty areas. Today, 6.1 percent of the U.S. population lives in a county that is designated by the U.S. Census Bureau as a Persistent Poverty County (PPC)—a county that has maintained poverty rates of 20 percent for more than thirty years. Individuals attending programs in PPCs may experience increased difficulty achieving adequate earnings due to the sustained high levels of poverty in the areas in which they reside. It may be difficult for programs that serve students who live in these areas to meet the EP test. Accordingly, we recommend that the Department consider providing waivers from the EP test for certain programs offered by institutions that primarily serve students who live in a PPC. However, the Department should impose guardrails on such waivers to ensure that institutions offering low-value programs do not relocate to PPCs or make an effort to enroll online students who are located in PPCs in an attempt to game the system and avoid being subject to the EP test. Students who live in high-poverty areas deserve the same protection as other students from the risks of investing in low-value programs.
We support the Department’s decision to use median earnings, as opposed to mean earnings, in the calculation of the EP test (§668.404). Using median earnings in these calculations will help to avoid producing misleading values that can result from using mean earnings where there are statistical outliers. Using median earnings avoids this problem and is more likely to accurately reflect the earnings of program graduates.
Cosmetology Programs
Cosmetology programs make up a disproportionate share of programs that are at risk of failing the proposed GE metrics: pursuant to Department data, 36 percent of all failing GE programs are cosmetology programs, and 22 percent of enrollment in all programs that fail the rule is in cosmetology programs. Cosmetology programs struggle under both the D/E and EP metric because many are relatively high-cost, but lead to very low, near-poverty earnings. Applying the GE rule metrics to cosmetology programs will protect students—and taxpayers—from investing in programs that lead to inadequate earnings.
The GE rule’s EP test sets an extremely low bar for graduates’ earnings—programs fail only if graduates earn, on average, less than workers with no post-secondary credential. Schools offering cosmetology programs have argued that applying earnings-based metrics to cosmetology programs is inappropriate because cosmetologists receive a significant portion of their earnings as tipped income, and this income may be underreported to tax authorities, which are the source of the data used to calculate earnings outcomes. However, research suggests that underreporting earnings are not a primary contributor to programs’ poor outcomes. A recent report estimated that approximately 8 percent of cosmetologist’s income is not reported to tax authorities. The report concluded that adjusting cosmetology programs’ earnings data to include the estimated unreported earnings would not substantially change the failure rates for cosmetology programs under the GE rule. This is because cosmetology graduates earn far too little for a reasonable adjustment to make a meaningful difference in these schools’ outcomes under the rule.
Applying the GE rule metrics to cosmetology programs will create incentives for schools offering cosmetology programs to improve their programs’ outcomes; lower tuition costs; decrease student’s need to borrow, and boost program quality. For programs that fail the EP test, the GE rule will create an incentive for schools to change their program offerings by expanding or adding programs in fields that lead to adequate earnings. Some schools may also choose to seek other sources of funding for cosmetology programs.
A significant proportion of cosmetology programs currently operate without participating in Title IV, and these programs may actually be less expensive for students. One study that compared for-profit cosmetology programs that receive Title IV funding with similar programs that did not participate in Title IV found that the non-Title IV programs had lower tuition costs. The study found that, on average, the tuition for non-Title programs was $3,900 less than the tuition of Title IV-participating programs. The price difference was roughly the same as the amount of Title IV aid provided for each student, suggesting that participation in Title IV may have caused for-profit schools to inflate tuition above the cost of education.
Programs with Insufficient Data—§668.405
Programs with fewer than thirty graduates in the relevant completer cohort will be considered to have “passed” the GE rule metrics based on sufficient data to calculate graduates’ median earnings and debt. We recommend that the Department’s disclosures to students clearly label such programs as “passing due to insufficient data.” This label may help to mitigate the incentive for schools to cap program enrollment at twenty-nine students in order to avoid being subject to the D/E and EP tests. Labeling programs as “passing due to insufficient data” will also increase transparency for students.
Student Disclosure Acknowledgements—§668.407
In addition to establishing requirements for GE programs, the Department is proposing a system of student disclosures that will apply to all Title IV programs, regardless of program type or institutional control. Under this regime, prospective students, before they can receive aid for a program with high debt burden, would be directed to a Department website where they would acknowledge that they had reviewed the information. We support providing this important information to prospective students, and more broadly to the public. Doing so may help to prevent harm to vulnerable populations.
At the same time, we recommend additional information be added to the website that recognizes the broader roles and responsibilities of nonprofit institutions—and guards against attempts to take advantage of the greater trust that comes with the nonprofit label. We recommend the Department ask nonprofit and public institutions to provide answers to two questions, labeled “Commitment to Education”: (1) “Are all revenues of the institution committed to its educational and charitable mission?” and (2) “Are the majority of net tuition revenues in the program used for post-enrollment instruction and student support?” The answers should be affirmed in a footnote on the institution’s audited financial statement. The Department should include the answers on the disclosure web page for the program, providing prospective students with further context for their consideration.
Providing this additional information will support quality by promoting legitimate nonprofit operation of institutions. Ensuring the fair and responsible treatment of vulnerable populations is one of the purposes for nonprofit governance of an institution. Muting the push for profits at nonprofit firms “decreases their incentives to take advantage of under informed consumers,” according to economist Burton Weisbrod. “By reducing incentives for the opportunistic behavior,” explained economist Gordon Winston, “nonprofits become the preferred suppliers in certain settings: they increase the probability—and the confidence of donors or buyers—that they’re getting what they are paying for.”
The additional disclosures will guard against students who are considering a program with a high debt burden from assuming that their tuition dollars are being used to support their success, if in fact the program is diverting funds to recruitment or to other programs or purposes.
This additional information would also provide important context for students who are planning to enroll in programs offered by Historically Black Colleges and Universities (HBCUs), institutions that are historically underfunded, yet contribute substantial amounts of their limited funding to instruction and student support. Instructional spending is an important indicator of a school’s investment in their students. For example, higher instructional spending correlates with student success. In 2021, private HBCUs’ median ratio of instructional spending to net tuition and fees was about 64 percent. This rate was almost double that of for-profit schools, which was only about 36 percent.
The Department should consider making the additional information a voluntary option, at least at the start, since some institutions may need to add the question to their internal accounting. However, our experience in discussing these questions with some institutional leaders suggest that in many cases the questions are answerable without any further analysis.
Warnings and Acknowledgments—§668.605
As set forth above, we recommend that the GE disclosures on the Department website include information about a school’s spending on instruction and student support. Inclusion of the spending data would provide useful context for students at HBCUs and other institutions that invest a high proportion of their resources in instruction and student support.
Section 668.605(h) provides that neither the required warning, nor the student’s acknowledgment of the warning, obviate the institution’s responsibility to provide accurate information to students concerning program status, and provides that neither the warning nor the acknowledgement will be considered as evidence against a student’s claim if applying for a loan discharge. While this disclaimer is important, we are concerned that some institutions could exploit the student acknowledgment requirements of the proposed rule to try to insulate themselves from legal liability for misconduct in an administrative or judicial proceeding brought by a student or by a government agency. Accordingly, we recommend that the Department include language in the disclaimer section that provides that neither the warnings nor the acknowledgements can be used by an institution as a defense to deceptive practices claims brought by students or government agencies in administrative or judicial proceedings.
Graduate Program Reporting—§668.408
The Department’s proposed rule includes new reporting requirements for graduate-level programs. The new reporting requirements will increase transparency and help improve decision making for the students who typically hold the most student debt—graduate students.
Under the proposed GE rule, institutions will be required for the first time to provide data on the net prices, total direct costs, indirect costs, how much students pay for their degrees, and time to degree for graduate level programs, as well as undergraduate programs. We commend the Department for extending these reporting requirements to graduate-level programs. As the Department notes, borrowing has increased substantially for graduate programs. Indeed, while only a quarter of those with student loans attended graduate school, half of all debt is owed by graduate students. This is partially because graduate students hold undergraduate debt as well as graduate debt. However, it is also the case that graduate students have taken out more student loans over time. The new reporting requirements will enable the Department to provide information to those considering graduate programs, which will allow these students to make informed decisions and whether and where to enroll.
Appeals—§668.603
We support the Department’s proposal in §668.603 to provide an opportunity for institutions to appeal a determination that a program fails the D/E test on the grounds that the Department made an error in calculating the institution’s D/E ratio. This provision provides important due process protections to institutions, ensuring that institutions have a remedy if they believe that the Department erred in calculating D/E rates.
Benefits to Students and Taxpayers
We commend the Department for incorporating D/E and EP tests in the proposed GE rule. The D/E and EP tests work in conjunction to provide safeguards for both students and taxpayers. Students will be equipped with knowledge about the levels of debt and earnings they are likely to leave with upon completion of a program. This information will help students make informed decisions about whether and where to enroll. Failure on the D/E and EP tests subjects schools to losing their Title IV eligibility and potentially closing. This will prevent students from enrolling in programs with poor outcomes. In addition, the D/E test will drive improvements in programs by creating a strong incentive for schools to reduce tuition costs, decrease students’ need to borrow, and boost program quality.
Imposing minimum D/E and EP standards also protects taxpayers in several ways. First, it protects taxpayers from investing funds into programs that provide little or no benefit to students. Second, it protects taxpayers from the costs associated with Title IV loans that are not paid back. As the Department notes, “[b]orrowers with low earnings are eligible for reduced loan payments and loan forgiveness which increase the costs of the title IV, HEA loan program to taxpayers.” In other words, students who leave school with unaffordable debt and earnings that are not high enough to repay these debts may ultimately qualify to have these debts forgiven at the expense of taxpayers. Additionally, programs with low debt burdens but that fail the minimum earnings test put students at risk of completely defaulting on their student loans, another risk to taxpayers. The D/E and EP tests hold programs to a minimum standard of leaving graduates with debt they can afford to repay and with earnings that exceed that of a worker with no postsecondary credential.
Financial Responsibility
The Department’s proposed amendments to the financial responsibility regulations would significantly strengthen the Department’s ability to monitor and assess institutions’ finances, deter institutions from engaging in improper or risky conduct, protect taxpayers against liabilities arising from closed school discharges and borrower defense discharges, and protect students against the risks of precipitous closures.
Disclosures Related to Advertising Spending—§668.23(d)(5)
We strongly support the Department’s proposal, at §668.23(d)(5), to require Title IV participation institutions to disclose the amounts spent in the previous fiscal year on recruiting activities, advertising, and other pre-enrollment expenditures. Many institutions devote significant portions of their expenditures to advertising and recruiting, and such spending diverts students’ tuition dollars and Title IV aid away from providing quality instruction and support to students.
Tracking colleges’ spending on advertising is currently challenging because there is little publicly available data that breaks out spending on advertising and recruiting from other expenditures by colleges. The Department’s proposal to require institutions to disclose their advertising and pre-enrollment spending as a footnote to their annual financial statements would address this lack of data on advertising and recruiting expenditures.
The Department should expand the proposal to require schools to disclose not only the amount spent by the institution on advertising and recruiting, but also the amount spent on instruction and post-enrollment student services. Requiring both disclosures would enable the Department to put an institution’s advertising and recruiting expenditures in context by comparing the schools’ spending in the two categories. Requiring both disclosures would also enable the Department to implement the new proposed “supplementary performance measures,” §668.13(e) in the proposed amendments to the certification procedures regulations. Section 668.13(e) provides that the Secretary may consider “the amounts the institution spent on instruction and instructional activities, academic support, and support services,” as well as the amount spent on recruiting and advertising, when making certification decisions. The Department should require disclosure of both of these types of spending in §668.23(d)(5) to harmonize the two provisions and to ensure that the Department has the information it needs to assess both supplementary performance measures.
Expansion of Mandatory and Discretionary Triggers for Financial Protection—§§668.171(c) and (d)
We strongly support the Department’s proposals to add new mandatory and discretionary
triggers for the Department to impose financial protection requirements, such as a letter of credit, on institutions that show indicators of financial instability. These new triggers strengthen the Department’s ability to monitor and assess institutions’ finances and will also deter institutions from engaging in improper or risky conduct. The new triggers will also help to protect taxpayers against liabilities arising from closed school discharges and borrower defense discharges, and protect students against the risks of precipitous closures.
One trigger is particularly important—the mandatory trigger, at §668.171(c)(2)(xiii), requiring financial protection when an institution enters into receivership. While schools that enter bankruptcy are ineligible to participate in Title IV, schools that enter receivership are not statutorily barred from participation. In recent years, several financially troubled schools have exploited this statutory loophole and entered receiverships, where a court-appointed individual oversees a process similar to a bankruptcy reorganization, to attempt to reorganize while continuing to qualify for Title IV funding. This evasion of the statutory prohibition raises the risk that a school on the brink of collapse will continue to collect federal funds and enroll new students in the run-up to closure, increasing the magnitude of harm to students and taxpayers. In addition, in a receivership, as in a bankruptcy proceeding, the interests of secured creditors are prioritized over the interest of students and taxpayers. Including receivership as a mandatory trigger will help to address these risks to students and taxpayers.
The Department proposes, at §668.171(f)(1)(iii), to add a reporting requirement when an institution receives a civil investigative demand, subpoena, request for information, or other inquiry from a government entity. The Department requests feedback on whether such an investigation warrants a mandatory or discretionary financial trigger. We recommend that the Department include such demands from government entities as a discretionary trigger. An investigation by a government entity signals a risk of significant compliance concerns, including substantial consumer protection violations, that could impact institutions’ financial stability. While a reporting requirement is important to provide the Department with notice of such investigations, the Department must also be able to take steps to protect against potential liabilities, where appropriate, upon receiving such notice. Accordingly, an investigation by a government entity should be a discretionary trigger.
Documentation of Government Backing of Public Institutions—§668.171(g)
We strongly support the Department’s proposal to require that an institution seeking to avoid scrutiny of its financial health by claiming to be “public” provide documentation that it is backed by the full faith and credit of the state or other government entity that sponsors the institution. The full-faith-and-credit expectation has long been the justification for the exception from the financial score requirements, but has not been explicit in the regulations and documentation. With public institutions increasingly engaged in the establishment of new money-making divisions and subsidiaries—in some cases through the acquisition of formerly for-profit institutions—the federal government must ensure that Title IV aid is not enabling large business ventures that lack adequate financial backing.
The Department is wise to be cautious about what may be state-affiliated businesses seeking to claim the benefits of being considered public while eschewing the responsibilities. In litigation over the question of sovereign immunity, courts have ruled that whether a state entity qualifies (in this case for immunity from some lawsuits) depends on a number of factors, including whether the state itself would pay any judgment, how autonomous the entity is in its governance or funding, whether its functions are state concerns, and the nature of the entity’s relationship to the state.
The need to clarify which colleges are, or are not, financially backed by government entities emerged in 2009. The recession had decimated state budgets, and the economic stimulus bill enacted by Congress included funds that came with a caveat: to receive the federal money the state had to use some of its own funds to restore cuts to the funding of their public higher education institutions. Department of Education officials were surprised to learn (we know because one of us was there) that four of the Pennsylvania colleges that the Department considered “public” were considered by the state to be privately chartered. One of them was the flagship Pennsylvania State University.
Full-faith-and-credit backing is in question for Department-designated public institutions beyond those in Pennsylvania. The Oregon Health and Science University, considered public by the Department, says on its website that it is an “independent public corporation” with “close ties to the state.” What would that mean if there was a large Title IV liability? Would the state step in to cover it? Rutgers University, in New Jersey, is largely controlled by a Board of Governors with a majority of members appointed by the state’s governor—but some powers are held by a separate Board of Trustees tied to the original private institution. Even the status of the University of California as a government versus private entity was uncertain enough that a court, in a 1958 case, had to resort in part to “common sense” in issuing its decision.
The statutory exception for institutions from the financial responsibility requirement applies not to all institutions claiming to be public, but only to those institutions “backed by the full faith and credit of a state or its equivalent.” It is incumbent on the Department to seek documentation as proposed in the Notice of Proposed Rulemaking.
Administrative Capability
We strongly support the Department’s proposals to amend the administrative capability standards, at §668.16(h), to include requirements concerning the information included in financial aid communications provided to students. In the absence of such requirements, some institutions have failed to convey key information, such as the net price for the student to attend (the actual amount a student needs to pay after subtracting grant and scholarship aid) in financial aid packages. The Department’s proposal would require institutions to disclose vital information, such as the net price, the source of aid, and whether aid must be repaid, in financial aid communications.
We also strongly support the Department’s proposal, at §668.16(n), to add a requirement that an institution has not been the subject of a significant negative action by a state or federal agency, a court, or an accreditor, where the basis of the action is repeated or unresolved. We also strongly support the proposed provision, at §668.16(u), to require that an institution not engage in misrepresentations or aggressive or deceptive recruitment practices. Institutions that fail to address compliance issues or that engage in deceptive or aggressive recruitment practices pose immediate and substantial risks to students and to Title IV funds. The inclusion of these additional requirements in the administrative capability regulations strengthens the Department’s ability to preserve the integrity of the Title IV program and may also have a deterrent effect on misconduct by Title IV participating institutions.
Certification Procedures
The Department’s proposals to amend the regulations governing Title IV certification procedures would significantly strengthen oversight of Title IV institutions. The certification procedures are critical tools that enable the Department to assess and monitor Title IV institutions’ eligibility to receive federal aid, set limitations and conditions on participation where warranted, and turn off the spigot of Title IV funding to institutions that fail to meet eligibility requirements.
The certification procedures regulations provide that the Department may place institutions into “provisional” certification status where the institution does not fully meet the requirements of Title IV, but is deemed capable of coming into compliance within a short period. The regulations permit the Department to impose conditions on institutions that are provisionally certified. These conditions, which are included as terms in the school’s Provisional Program Participation Agreement, are important safeguards against abuses. These conditions can be used as targeted corrective action plans to address deficiencies in schools’ eligibility or can also be used to set the stage for orderly closure of a failing institution.
The Department’s proposed amendments to the certification procedures regulations strengthen the Department’s ability to monitor and assess institution’s eligibility and to take action to address risks to students and to the integrity of the Title IV program.
Eliminating “Automatic” Recertification—§668.13(b)(3)
The proposed rule would eliminate §668.13(b)(3), a provision in the Certification Procedures regulations which currently provides that the Department must automatically grant an institution a renewal of Title IV certification if the Secretary does not act on a certification application within twelve months of the expiration of the school’s current period of participation. After this provision was adopted, The Century Foundation developed an online tool for tracking the certification status of Title IV institutions. This tool enables users to identify schools that have entered “expired” certification status because their Program Participation Agreement was not renewed immediately upon the expiration of the prior certification term. The certification-tracking tool shows that some schools in expired certification status have a history of consumer protection concerns, suggesting that the Department has delayed immediate recertification in order to investigate whether the school has addressed these consumer protection issues before granting recertification. Automatically renewing the certification of such institutions would endanger students and taxpayers. Eliminating the automatic renewal provision will ensure that the Department is able to devote adequate time to reviewing an application for certification, including determining whether compliance issues have been resolved. Eliminating the provision will also ensure that schools that have unresolved compliance issues do not become automatically certified.
Adding New Grounds for Provisional Certification—§668.13(c)(1)(i)(F)
The proposed rule would also strengthen protections for students and taxpayers by adding new grounds for provisional certification. The Department’s proposal, at §668.13(c)(1)(i)(F), provides that an institution may be provisionally certified if the Secretary determines that the institution is at risk of closure. This would enable the Department to impose conditions via schools’ Provisional Program Participation Agreements, such as limitations on new enrollment, additional reporting requirements, or other safeguards, that would help to protect students and taxpayers from the harms associated with abrupt school closures.
The Department’s proposed rule would also clarify, at §668.13(c)(1)(i)(C), that the Secretary has authority to provisionally certify an institution that is not meeting the requirements for financial responsibility and administrative capability, independent of whether the school is subject to an action under subpart G. This important clarification affirms that the Department is able to take immediate action to protect the integrity of the Title IV program where an institution is not fully meeting Title IV eligibility requirements.
Timeframes for Recertifying Institutions—§668.13(c)(2)(ii)
The proposed rule also creates new timeframes for provisional certification, including a new requirement, §668.13(c)(2)(ii), that institutions exhibiting consumer protection concerns recertify within two years. The requirement to recertify within two years would help ensure that changes of ownership are closely monitored, which is especially important where there are new owners who have never operated a school, and where there has been an approved conversion from proprietary to nonprofit status. In such cases, the requirement to recertify after two years would enable the Department to monitor for any continued involvement after the change of ownership with prior owners that show signs of possible prohibited insider advantage.
The Department seeks feedback about whether to maintain the proposed two-year recertification requirement for schools with major consumer protection issues found at §668.13(c)(2)(ii). The Department asks whether two years is long enough to evaluate how well the institution has addressed consumer protection issues. The timeframes for compliance and monitoring set out in settlements between consumer protection agencies and for-profit colleges are illustrative. When agencies such as the Federal Trade Commission (FTC) and state attorneys general offices reach settlements with institutions for consumer protection violations, they frequently require resolution of consumer protection violations within a short period (generally a few months) and then provide for compliance reporting in one year. For example, when the FTC entered into an agreement with DeVry University in 2016 regarding the FTC’s charges of deceptive advertising, the agreement provided a four-month period for the school to initiate training to address the deceptive practices and imposed a compliance reporting requirement one year from the date of resolution. Similarly, the Department should require resolution of consumer protection violations within a short period (several months) and require recertification after one year.
Supplementary Performance Measures—§668.13(e)
The proposed rule would establish supplementary performance measures, at §668.13(e), that could be considered when the Department assesses whether to certify or condition the participation of an institution in Title IV. The proposed rule provides that when making certification decisions, the Department may assess and consider performance measures such as: the institution’s withdrawal rate; the debt-to-earnings rates of programs offered by the institution; the earnings premium measures of programs offered; the amount the institution spent on instruction and support services, and the amounts spent on recruiting and advertising; and the licensure pass rate of programs offered by the institution for programs that are designed to meet educational requirements for a specific professional license or certification. The inclusion of these performance measures in the rule is a significant enhancement of the Department’s oversight. By using these measures, the Department will be better able to protect taxpayers and students from investing in low value programs.
The Department should strengthen the provision by amending it to provide that the Department shall, rather than that the Department may, consider the supplementary performance measures when making decisions to certify or condition the participation of an institution in Title IV. This will ensure that the Department takes these important performance measures into account in certification decision making, safeguarding students and taxpayers from investing in programs that provide little or no value to students.
Program Participation Signature Requirements—§668.14(a)(3)
The proposed rule also includes important new provisions related to Program Participation Agreement (PPA) signatories. Section 668.14(a)(3) provides that an institution’s PPA must be signed by a representative of the institution, and that where a separate entity has ownership and control over a proprietary or private nonprofit institution, a representative of that entity must also sign the PPA. The Department has statutory authority, and in some cases, a statutory obligation, to pursue redress for liabilities from institutions and controlling individuals even without a representative’s signature on a PPA. However, adding this PPA signature requirement for entities with ownership and control over a for-profit or private nonprofit institution will serve as a reminder to institutions and their principals that the Department has the authority to recover unpaid liabilities from controlling entities and individuals. This reminder may serve as a deterrent to misconduct and may help to prevent unwarranted legal challenges to the Department’s efforts to pursue redress for liabilities.
Information Sharing with Federal and State Agencies—§668.14(b)(17)
We strongly support the Department’s proposal, at §668.14(b)(7), to broaden the list of entities authorized to share information related to an institution’s eligibility or participation in Title IV to include all Federal agencies and State attorneys general. Federal consumer protection agencies, such as the Consumer Financial Protection Bureau and the Federal Trade Commission, and state attorneys general have identified consumer protection law violations and brought enforcement actions against a number of predatory schools in the for-profit sector. Codifying existing information-sharing practices between the Department and these agencies will facilitate cooperation between agencies, strengthening all agencies’ ability to identify and take action to address institutional misconduct and provide relief to students who are harmed by misconduct.
Limitation on Length of Certain Career Training Programs—§668.14(b)(26)(ii)
The proposed rule, at §668.14(b)(26)(ii), would limit the length of a Title IV career training program to the greater of the required minimum number of clock or credit hours as established by the state in which the institution is located, if the state has established such a requirement, or as established by a federal agency or the institution’s accrediting agency. While this proposal would help protect students and taxpayers from enrolling in programs with inflated hours requirements, the proposal does not provide sufficient flexibility to accommodate programs that serve students in multiple states. The proposal should be modified to accommodate such programs.
Professional Licensure Requirements—§668.14(b)(32)(ii)
The proposed §668.14(b)(32)(ii) would require Title IV institutions to determine that each program offered satisfies the prerequisites for professional licensure or certification in each state where the program is offered. This provision provides an important new protection for students and taxpayers and would ensure that students and taxpayers do not invest in career training programs that do not satisfy the prerequisites for licensure or certification in their state. However, as representatives of the WICHE Cooperative for Educational Technologies (WCET) and the State Authorization Network (SAN) note in their comments on the proposal, the proposed provision raises several practical concerns. In some cases, state licensing entities may not provide clear and complete information about the prerequisites for licensure or certification in their state, making it difficult for institutions to determine whether a program satisfies requirements in those states. In addition, the provision would preclude students who are located in a state where the program fails to satisfy professional licensure prerequisites from enrolling, even if the student intended to seek employment in a different state where the program fulfills professional licensure prerequisites.
To address these practical concerns, we recommend modifying the language of §668.14(b)(32)(ii) to require institutions to determine whether a program meets applicable education prerequisite for professional licensure in the state where the student is located, “if such prerequisites are available or can be obtained from the State.” This would account for situations in which an institution is unable to obtain information from a state licensing entity about a state’s prerequisites for professional licensure. We also recommend that the provision be modified to permit institutions to make exceptions on a case-by-case basis for students who provide a signed written consent indicating that they are knowingly enrolling in a program that fails to meet the prerequisites for professional licensure in their state, and stating their reason for their decision. This would account for situations in which a student may wish to enroll in a program that does not lead to professional licensure in the students’ state because the student plans to move to another state, or for other reasons.
State Consumer Protection Laws—§668.14(b)(32)(iii)
We strongly support the intent of the Department’s proposal, at §668.14(b)(32)(iii), to require institutions that operate in multiple states pursuant to a reciprocity agreement to determine that each program complies with state consumer protection laws related to closure, recruitment, and misrepresentations. However, we recommend that the Department expand the categories of state consumer protection laws included in this requirement so that institutions authorized pursuant to a reciprocity agreement are required to comply with all state consumer protection laws, with the exception of requirements directly related to authorization, in each state where they operate. We also recommend technical changes, set out below, to clarify the requirements of the provision.
Millions of students receive Title IV funding for online programs offered by schools located outside of their states. These online students may assume that they are protected by the same basic consumer protection laws that cover brick-and-mortar students in their state, such as refund and cancellation rights, and tuition reimbursement funds. In reality, the current online oversight system leaves many online Title IV students unprotected. The national state authorization reciprocity agreement (SARA) prohibits states with strong consumer protection laws from enforcing education-specific or sector-specific state laws to protect students at out-of-state SARA member schools. In lieu of these strong state laws, SARA provides only a set of minimum standards that schools must meet in order to participate, leaving some online students inadequately protected. SARA’s prohibition on member states’ enforcement of state laws also weakens states’ oversight role within the triad.
The Department’s proposal partially implements a recommendation discussed during the negotiated rulemaking that was submitted by representatives of state attorneys general offices, state higher education oversight agencies, and consumer protection and veterans-focused organizations, to require institutions authorized pursuant to a reciprocity agreement to comply with all state consumer protection laws except those related to obtaining state authorization.
While we support the intent of the Department’s proposal, there are several problems with the drafting of the proposal that require technical corrections. First, the proposed language at §668.14(b)(32)(iii) could mistakenly be read to imply that institutions that do not participate in a reciprocity agreement and that offer programs in multiple states do not have to comply with state laws in each state where they operate, except for in the three specified areas. In fact, institutions that operate in multiple states without participating in a reciprocity agreement must comply with all applicable state and federal laws. The proposed provision should be revised to make it clear that institutions that do not participate in a reciprocity agreement must comply with all applicable state laws in the states where they offer programs. We have included proposed language below.
In addition, the proposed language in §668.14(b)(32)(iii) could mistakenly be read to imply that institutions authorized to operate in multiple states pursuant to a reciprocity agreement are not required to comply with all generally applicable state laws, but rather, only those generally applicable laws related to closure, recruitment, and misrepresentations. In fact, institutions that are authorized to operate pursuant to a reciprocity agreement remain subject to all generally applicable laws. To avoid creating confusion on this point, the provision should be revised to clarify that institutions that are authorized to operate in multiple states pursuant to a reciprocity agreement must follow all generally applicable state laws and those education-specific or sector-specific state laws that relate to closure, recruitment, and misrepresentations.
To address the above-described problems with the proposed language of §668.14(b)(32)(iii), we suggest the following technical corrections:
§668.14(b)(32)
In each State in which the institution is located or in which students enrolled by the institution are located, as determined at the time of initial enrollment in accordance with 34 CFR 600.9(c)(2), the institution must determine that each program eligible for title IV, HEA program funds—
***
(iii)
(A) Complies with all applicable State laws; and
(B) For institutions covered by a state authorization reciprocity agreement as defined in 34 CFR 600.2, notwithstanding any limitations in that agreement, complies with all State higher education requirements, standards, or laws related to risk of institutional closure or to recruitment and marketing practices, and with all State general-purpose laws, including but not limited to those related to misrepresentations, fraud, or other illegal activity;
Finally, while the proposal on state law would increase protections for online students attending SARA participating schools, the proposal does not go far enough. States should be permitted to enforce all of their state consumer protection laws, including education-specific and sector-specific prohibitions on typical types of misconduct; cancellation and refund requirements; disclosure requirements; laws that create a private cause of action for the violation of education-specific consumer protection laws to ensure that students are able to seek redress for harm; laws creating criminal liability for violations of education-specific or sector-specific state laws; laws related to originating, servicing, or collecting on debt; laws related to school ownership; record retention laws; financial responsibility requirements; minimum outcome requirements; and other protections. SARA states should be required to waive only those state requirements that directly relate to the procedures for institutional authorization, such as application or fee requirements. Accordingly, §668.14(b)(32)(iii) should be broadened to require institutions authorized pursuant to a reciprocity agreement to comply with all state consumer protection laws in states where the institution is authorized pursuant to a reciprocity agreement, with the exception of those state requirements that are directly related to authorization.
Transcript Withholding—§668.14(b)(33)
The proposed rule would provide an important new prohibition, at §668.14(b)(33), on withholding transcripts as a means of forcing a student to pay a balance on their account if the balance was created because the institution made an error with respect to the student’s Title IV aid; if the balance resulted from the institution’s fraud or misconduct; or if the balance results from returns under the Return of Title IV Funds requirements. Last year, the Consumer Financial Protection Bureau found that blanket transcript withholding policies as a debt collection tool are an abusive practice prohibited under federal consumer protection law. We support the proposed prohibition on transcript withholding.
Conditions for Provisionally Certified Institutions—§668.14(e)
The proposed rule would include a provision, at §668.14(e), that would set out a non-exhaustive list of conditions that the Department may apply to provisionally certified institutions. This includes conditions such as: requiring institutions at risk of closure to submit an acceptable teach-out plan or agreement; limiting the addition of new programs, restrictions on new enrollment, reporting requirements, including reporting on student complaints and financial indicators; and, for an institution alleged to have engaged in misrepresentations or other misconduct, a requirement to hire a monitor and to submit marketing materials for review. We support the Department’s inclusion of this non-exhaustive list of conditions. The list provides a number of tools that the Department can use in appropriate circumstances to protect students and safeguard the integrity of the Title IV system. It is important that the list be explicitly non-exhaustive to preserve the Department’s flexibility to impose additional conditions where appropriate to respond to the highly varied, situationally specific compliance issues faced by institutions seeking certification or recertification.
Conditions for For-Profit to Nonprofit Conversions—§668.14(f)
The Department’s proposed §668.14(f) sets out PPA conditions for institutions converting from for-profit to nonprofit status. In recent years, a number of for-profit colleges have purported to convert from a for-profit to a nonprofit, sometimes while maintaining financial arrangements that continue to benefit the previous for-profit owner, calling into doubt whether the nonprofit label really fits. The proposed rule would add important safeguards to the conversion process by requiring institutions seeking to convert from for-profit to nonprofit status to continue to meet all the of regulatory requirements applicable to for-profit colleges for a period of the later of years under the new ownership, or until the Department approves the institution’s request to convert to nonprofit status. The provision would also require converting institutions to submit regular reports on agreements entered with a former owner of the institution or a related person or entity. This would help the Department to monitor and assess whether the converted nonprofit’s arrangements with the former owner are appropriate and whether the institution is in fact operating as a nonprofit. The proposal would also prohibit an institution from advertising that it operates a nonprofit until the Department approves the institution’s request to convert to a nonprofit institution. We strongly support these proposals, which will protect consumers and will strengthen the Department’s ability to monitor converted for-profit institutions.
Thank you for the opportunity to provide comments on the proposed rule. The proposed GE rule will establish a strong set of safeguards to protect students from investing in low-value programs that leave graduates saddled with unaffordable debt and low earnings. In addition, the proposed rule’s changes to the Financial Responsibility, Administrative Capability, and Certification Procedures regulations will strengthen the Department’s oversight of Title IV institutions and add critical protections for students and taxpayers.
Tags: higher education, Gainful Employment Rule, gainful employment
The New Gainful Employment Rule Is the Biggest Step Ever Taken to Ensure Accountability in Higher Education
On June 20, 2023, the Higher Education team at The Century Foundation, in response to a Notice of Proposed Rulemaking, dated May 19, 2023 (Docket ID ED–2023–OPE–0089), provided comments to Secretary Miguel Cardona at the U.S. Department of Education concerning the proposed rule, Gainful Employment, Financial Responsibility, Administrative Capability, and Certification Procedures. In the submitted comments, which you can read below, the team supported and provided details on many of the department’s proposed regulations.
Dear Secretary Cardona:
Thank you for the opportunity to provide comments on the Notice of Proposed Rulemaking, dated May 19, 2023, Docket ID ED–2023–OPE–0089. We provide comments below on the following aspects of the proposed rule: Gainful Employment, Financial Responsibility, Administrative Capability, and Certification Procedures.
With the proposed Gainful Employment (GE) rule, the Department seeks to establish a strong set of safeguards to protect students from investing in low-value programs that leave graduates saddled with unaffordable debt and low earnings. We strongly support the Department’s proposed GE regulations.
The Department’s proposed rule also includes a number of important changes to the financial responsibility standards, administrative capability standards, and certification procedures for Title IV institutions. As set forth below, we support many of the Department’s proposals.
Table of Contents
Gainful Employment
Debt-to-Earnings Test (D/E)—§668.403
Parent PLUS Loans—§668.403(d)
Earnings Premium—§668.404
Cosmetology Programs
Programs with Insufficient Data—§668.405
Student Disclosure Acknowledgements—§668.407
Warnings and Acknowledgments—§668.605
Graduate Program Reporting—§668.408
Appeals—§668.603
Benefits to Students and Taxpayers
Financial Responsibility
Disclosures related to Advertising Spending—§668.23(d)(5)
Expansion of Mandatory and Discretionary Triggers for Financial Protection—§§668.171(c) and (d)
Documentation of Government Backing of Public Institutions—§668.171(g)
Administrative Capability
Certification Procedures
Eliminating “Automatic” Recertification—§668.13(b)(3)
Adding new grounds for Provisional Certification—§668.13(c)(1)(i)(F)
Timeframes for Recertifying Institutions—§668.13(c)(2)(ii)
Supplementary Performance Measures—§668.13(e)
Program Participation Signature Requirements—§668.14(a)(3)
Information sharing with federal and state agencies—§668.14(b)(17)
Limitation on Length of Certain Career Training Programs—§668.14(b)(26)(ii)
Professional licensure requirements—§668.14(b)(32)(ii)
State consumer protection laws—§668.14(b)(32)(iii)
Transcript withholding—§668.14(b)(33)
Conditions for Provisionally-Certified Institutions—§668.14(e)
Conditions for For-Profit to Non-Profit Conversions—§668.14(f)
Gainful Employment
Until 1968, Title IV aid was only available to nonprofit and public schools. For-profit entities were ineligible due to concerns about waste and abuse of federal aid in the for-profit sector.1 However, in 1968, Congress made an exception to allow for-profit schools to participate in Title IV for career training programs that prepare students for gainful employment in a recognized occupation. Given the career-specific nature of the programs, it was assumed that it would be more difficult for these programs to abuse federal aid. However, no parameters were put in place to ensure that eligible programs were adequately preparing students for gainful employment in a recognized occupation, and for-profit colleges began expanding their program offerings, resulting in severe abuses by the for-profit sector. These included exploding enrollments in high-cost, low-quality programs; widespread instances of deceptive and aggressive recruiting practices; programs that left students with burdensome debt; and a wave of enforcement actions by state and federal oversight agencies that led to closures of predatory schools. In response, the Obama administration adopted the first Gainful Employment rule in 2011, and a revised version in 2014. The rule was designed to protect students and taxpayers from investing in programs that leave students with high debt burdens. In 2016, under the Trump administration, Betsy DeVos rescinded the rule.
The 2023 proposed rule restores and strengthens GE requirements to protect students and taxpayers from investing in low-value programs that leave students with unmanageable debt and paltry earnings.
Debt-to-Earnings Test (D/E)—§668.403
The Debt-to-Earnings (D/E) test ensures that students in career development programs leave their programs with affordable debt. The student loan debt burden for U.S. students is now greater than 1.6 trillion dollars.2 Efforts to control the growth of excessive student debt are critical.
D/E program failure is associated with higher rates of student loan default. For example, analysis from the Department shows that “programs that fail the proposed D/E standards (including both GE and non-GE programs) account for just 4.1 percent of title IV enrollments (i.e., Federally aided students), but these same programs account for 11.19 percent of all students who default within 3 years of entering repayment.”3 Thus, the D/E test is an important metric for safeguarding students from schools that will leave them with unaffordable debt and at a higher risk of defaulting on student loans.
Parent PLUS Loans—§668.403(d)
The proposed GE rule does not include Parent PLUS loans in the calculation of student debt for the D/E metric. The exclusion of Parent PLUS loans in the proposed rule’s D/E calculation is concerning for several reasons. First, loan debt from Parent PLUS loans disproportionately impacts families of color and low-income families. Among Black families who use PLUS loans, over 40 percent have an Estimated Family Contribution of zero dollars. Among Hispanic families, 25 percent have an Estimated Family Contribution of zero dollars.4 Black families in particular struggle to repay the debt incurred with high-interest Parent PLUS loans.5 Second, Parent PLUS loans shift the financial burden of higher education from states and schools onto families. Consequently, Parent PLUS loans contribute to the already large racial wealth gap between white and Black families.6
The exclusion of Parent PLUS loans from the D/E test also creates an incentive for schools to shield themselves from potential D/E failure by shifting the financial burden of higher education onto families through offering more Parent PLUS loans and less forms of other financial support.
We recommend that the Department take steps to address this issue in one of two ways. One option would be for the Department to include Parent PLUS loans in the D/E calculation. Another option would be for the Department to impose restrictions on the use of Parent PLUS loans that would make it harder for institutions to game the system. For example, the Department could set limits on the percentage of a school’s funding that can come from Parent PLUS loans or impose a requirement that students exhaust their Title IV borrowing options before parents can take out Parent PLUS loans. These safeguards would help to prevent schools from pushing families into taking on burdensome Parent PLUS loan debt.
Earnings Premium—§668.404
We support the Department’s proposal to impose an Earnings Premium (EP) requirement, as well as a D/E requirement, on GE programs. Programs will be classified as passing the EP test if they have “median annual earnings greater than the median earnings among high school graduates aged 25 to 34 in the labor force in the State in which the program is located.”7 Including both a D/E threshold and an EP requirement in the rule will protect students and taxpayers from investing in programs that leave students unable to pay back their loans, or earning near-poverty-level wages. Some programs pass the D/E metric because of low borrowing rates among students, but fail the EP metric because of graduates’ inadequate earnings. As the Department explains, borrowers in programs that pass the D/E metric but fail the EP metric “have very high rates of default, so the EP metric helps to identify programs where borrowing may be overly risky even when debt levels are relatively low.”8
While the EP threshold sets a low bar for earnings—the Department notes that the median earnings of high school graduates nationally is about $25,000, which is lower than minimum wage in fifteen States—it is still high enough to pose challenges for some institutions that serve students living in high-poverty areas. Today, 6.1 percent of the U.S. population lives in a county that is designated by the U.S. Census Bureau as a Persistent Poverty County (PPC)—a county that has maintained poverty rates of 20 percent for more than thirty years.9 Individuals attending programs in PPCs may experience increased difficulty achieving adequate earnings due to the sustained high levels of poverty in the areas in which they reside. It may be difficult for programs that serve students who live in these areas to meet the EP test. Accordingly, we recommend that the Department consider providing waivers from the EP test for certain programs offered by institutions that primarily serve students who live in a PPC. However, the Department should impose guardrails on such waivers to ensure that institutions offering low-value programs do not relocate to PPCs or make an effort to enroll online students who are located in PPCs in an attempt to game the system and avoid being subject to the EP test. Students who live in high-poverty areas deserve the same protection as other students from the risks of investing in low-value programs.
We support the Department’s decision to use median earnings, as opposed to mean earnings, in the calculation of the EP test (§668.404). Using median earnings in these calculations will help to avoid producing misleading values that can result from using mean earnings where there are statistical outliers. Using median earnings avoids this problem and is more likely to accurately reflect the earnings of program graduates.
Cosmetology Programs
Cosmetology programs make up a disproportionate share of programs that are at risk of failing the proposed GE metrics: pursuant to Department data, 36 percent of all failing GE programs are cosmetology programs, and 22 percent of enrollment in all programs that fail the rule is in cosmetology programs. Cosmetology programs struggle under both the D/E and EP metric because many are relatively high-cost, but lead to very low, near-poverty earnings.10 Applying the GE rule metrics to cosmetology programs will protect students—and taxpayers—from investing in programs that lead to inadequate earnings.
The GE rule’s EP test sets an extremely low bar for graduates’ earnings—programs fail only if graduates earn, on average, less than workers with no post-secondary credential. Schools offering cosmetology programs have argued that applying earnings-based metrics to cosmetology programs is inappropriate because cosmetologists receive a significant portion of their earnings as tipped income, and this income may be underreported to tax authorities, which are the source of the data used to calculate earnings outcomes.11 However, research suggests that underreporting earnings are not a primary contributor to programs’ poor outcomes. A recent report estimated that approximately 8 percent of cosmetologist’s income is not reported to tax authorities.12 The report concluded that adjusting cosmetology programs’ earnings data to include the estimated unreported earnings would not substantially change the failure rates for cosmetology programs under the GE rule.13 This is because cosmetology graduates earn far too little for a reasonable adjustment to make a meaningful difference in these schools’ outcomes under the rule.
Applying the GE rule metrics to cosmetology programs will create incentives for schools offering cosmetology programs to improve their programs’ outcomes; lower tuition costs; decrease student’s need to borrow, and boost program quality.14 For programs that fail the EP test, the GE rule will create an incentive for schools to change their program offerings by expanding or adding programs in fields that lead to adequate earnings. Some schools may also choose to seek other sources of funding for cosmetology programs.15
A significant proportion of cosmetology programs currently operate without participating in Title IV, and these programs may actually be less expensive for students. One study that compared for-profit cosmetology programs that receive Title IV funding with similar programs that did not participate in Title IV found that the non-Title IV programs had lower tuition costs. The study found that, on average, the tuition for non-Title programs was $3,900 less than the tuition of Title IV-participating programs.16 The price difference was roughly the same as the amount of Title IV aid provided for each student, suggesting that participation in Title IV may have caused for-profit schools to inflate tuition above the cost of education.
Programs with Insufficient Data—§668.405
Programs with fewer than thirty graduates in the relevant completer cohort will be considered to have “passed” the GE rule metrics based on sufficient data to calculate graduates’ median earnings and debt. We recommend that the Department’s disclosures to students clearly label such programs as “passing due to insufficient data.” This label may help to mitigate the incentive for schools to cap program enrollment at twenty-nine students in order to avoid being subject to the D/E and EP tests. Labeling programs as “passing due to insufficient data” will also increase transparency for students.
Student Disclosure Acknowledgements—§668.407
In addition to establishing requirements for GE programs, the Department is proposing a system of student disclosures that will apply to all Title IV programs, regardless of program type or institutional control. Under this regime, prospective students, before they can receive aid for a program with high debt burden, would be directed to a Department website where they would acknowledge that they had reviewed the information. We support providing this important information to prospective students, and more broadly to the public. Doing so may help to prevent harm to vulnerable populations.
At the same time, we recommend additional information be added to the website that recognizes the broader roles and responsibilities of nonprofit institutions—and guards against attempts to take advantage of the greater trust that comes with the nonprofit label. We recommend the Department ask nonprofit and public institutions to provide answers to two questions, labeled “Commitment to Education”: (1) “Are all revenues of the institution committed to its educational and charitable mission?” and (2) “Are the majority of net tuition revenues in the program used for post-enrollment instruction and student support?” The answers should be affirmed in a footnote on the institution’s audited financial statement. The Department should include the answers on the disclosure web page for the program, providing prospective students with further context for their consideration.
Providing this additional information will support quality by promoting legitimate nonprofit operation of institutions. Ensuring the fair and responsible treatment of vulnerable populations is one of the purposes for nonprofit governance of an institution. Muting the push for profits at nonprofit firms “decreases their incentives to take advantage of under informed consumers,” according to economist Burton Weisbrod.17 “By reducing incentives for the opportunistic behavior,” explained economist Gordon Winston, “nonprofits become the preferred suppliers in certain settings: they increase the probability—and the confidence of donors or buyers—that they’re getting what they are paying for.”18
The additional disclosures will guard against students who are considering a program with a high debt burden from assuming that their tuition dollars are being used to support their success, if in fact the program is diverting funds to recruitment or to other programs or purposes.
This additional information would also provide important context for students who are planning to enroll in programs offered by Historically Black Colleges and Universities (HBCUs), institutions that are historically underfunded, yet contribute substantial amounts of their limited funding to instruction and student support.19 Instructional spending is an important indicator of a school’s investment in their students. For example, higher instructional spending correlates with student success.20 In 2021, private HBCUs’ median ratio of instructional spending to net tuition and fees was about 64 percent. This rate was almost double that of for-profit schools, which was only about 36 percent.21
The Department should consider making the additional information a voluntary option, at least at the start, since some institutions may need to add the question to their internal accounting. However, our experience in discussing these questions with some institutional leaders suggest that in many cases the questions are answerable without any further analysis.
Warnings and Acknowledgments—§668.605
As set forth above, we recommend that the GE disclosures on the Department website include information about a school’s spending on instruction and student support. Inclusion of the spending data would provide useful context for students at HBCUs and other institutions that invest a high proportion of their resources in instruction and student support.
Section 668.605(h) provides that neither the required warning, nor the student’s acknowledgment of the warning, obviate the institution’s responsibility to provide accurate information to students concerning program status, and provides that neither the warning nor the acknowledgement will be considered as evidence against a student’s claim if applying for a loan discharge. While this disclaimer is important, we are concerned that some institutions could exploit the student acknowledgment requirements of the proposed rule to try to insulate themselves from legal liability for misconduct in an administrative or judicial proceeding brought by a student or by a government agency. Accordingly, we recommend that the Department include language in the disclaimer section that provides that neither the warnings nor the acknowledgements can be used by an institution as a defense to deceptive practices claims brought by students or government agencies in administrative or judicial proceedings.
Graduate Program Reporting—§668.408
The Department’s proposed rule includes new reporting requirements for graduate-level programs. The new reporting requirements will increase transparency and help improve decision making for the students who typically hold the most student debt—graduate students.
Under the proposed GE rule, institutions will be required for the first time to provide data on the net prices, total direct costs, indirect costs, how much students pay for their degrees, and time to degree for graduate level programs, as well as undergraduate programs. We commend the Department for extending these reporting requirements to graduate-level programs. As the Department notes, borrowing has increased substantially for graduate programs. Indeed, while only a quarter of those with student loans attended graduate school, half of all debt is owed by graduate students.22 This is partially because graduate students hold undergraduate debt as well as graduate debt. However, it is also the case that graduate students have taken out more student loans over time.23 The new reporting requirements will enable the Department to provide information to those considering graduate programs, which will allow these students to make informed decisions and whether and where to enroll.
Appeals—§668.603
We support the Department’s proposal in §668.603 to provide an opportunity for institutions to appeal a determination that a program fails the D/E test on the grounds that the Department made an error in calculating the institution’s D/E ratio. This provision provides important due process protections to institutions, ensuring that institutions have a remedy if they believe that the Department erred in calculating D/E rates.
Benefits to Students and Taxpayers
We commend the Department for incorporating D/E and EP tests in the proposed GE rule. The D/E and EP tests work in conjunction to provide safeguards for both students and taxpayers. Students will be equipped with knowledge about the levels of debt and earnings they are likely to leave with upon completion of a program. This information will help students make informed decisions about whether and where to enroll. Failure on the D/E and EP tests subjects schools to losing their Title IV eligibility and potentially closing. This will prevent students from enrolling in programs with poor outcomes. In addition, the D/E test will drive improvements in programs by creating a strong incentive for schools to reduce tuition costs, decrease students’ need to borrow, and boost program quality.
Imposing minimum D/E and EP standards also protects taxpayers in several ways. First, it protects taxpayers from investing funds into programs that provide little or no benefit to students. Second, it protects taxpayers from the costs associated with Title IV loans that are not paid back. As the Department notes, “[b]orrowers with low earnings are eligible for reduced loan payments and loan forgiveness which increase the costs of the title IV, HEA loan program to taxpayers.”24 In other words, students who leave school with unaffordable debt and earnings that are not high enough to repay these debts may ultimately qualify to have these debts forgiven at the expense of taxpayers. Additionally, programs with low debt burdens but that fail the minimum earnings test put students at risk of completely defaulting on their student loans, another risk to taxpayers. The D/E and EP tests hold programs to a minimum standard of leaving graduates with debt they can afford to repay and with earnings that exceed that of a worker with no postsecondary credential.
Financial Responsibility
The Department’s proposed amendments to the financial responsibility regulations would significantly strengthen the Department’s ability to monitor and assess institutions’ finances, deter institutions from engaging in improper or risky conduct, protect taxpayers against liabilities arising from closed school discharges and borrower defense discharges, and protect students against the risks of precipitous closures.
Disclosures Related to Advertising Spending—§668.23(d)(5)
We strongly support the Department’s proposal, at §668.23(d)(5), to require Title IV participation institutions to disclose the amounts spent in the previous fiscal year on recruiting activities, advertising, and other pre-enrollment expenditures. Many institutions devote significant portions of their expenditures to advertising and recruiting, and such spending diverts students’ tuition dollars and Title IV aid away from providing quality instruction and support to students.25
Tracking colleges’ spending on advertising is currently challenging because there is little publicly available data that breaks out spending on advertising and recruiting from other expenditures by colleges. The Department’s proposal to require institutions to disclose their advertising and pre-enrollment spending as a footnote to their annual financial statements would address this lack of data on advertising and recruiting expenditures.
The Department should expand the proposal to require schools to disclose not only the amount spent by the institution on advertising and recruiting, but also the amount spent on instruction and post-enrollment student services.26 Requiring both disclosures would enable the Department to put an institution’s advertising and recruiting expenditures in context by comparing the schools’ spending in the two categories. Requiring both disclosures would also enable the Department to implement the new proposed “supplementary performance measures,” §668.13(e) in the proposed amendments to the certification procedures regulations. Section 668.13(e) provides that the Secretary may consider “the amounts the institution spent on instruction and instructional activities, academic support, and support services,” as well as the amount spent on recruiting and advertising, when making certification decisions.27 The Department should require disclosure of both of these types of spending in §668.23(d)(5) to harmonize the two provisions and to ensure that the Department has the information it needs to assess both supplementary performance measures.
Expansion of Mandatory and Discretionary Triggers for Financial Protection—§§668.171(c) and (d)
We strongly support the Department’s proposals to add new mandatory and discretionary
triggers for the Department to impose financial protection requirements, such as a letter of credit, on institutions that show indicators of financial instability. These new triggers strengthen the Department’s ability to monitor and assess institutions’ finances and will also deter institutions from engaging in improper or risky conduct. The new triggers will also help to protect taxpayers against liabilities arising from closed school discharges and borrower defense discharges, and protect students against the risks of precipitous closures.
One trigger is particularly important—the mandatory trigger, at §668.171(c)(2)(xiii), requiring financial protection when an institution enters into receivership. While schools that enter bankruptcy are ineligible to participate in Title IV, schools that enter receivership are not statutorily barred from participation. In recent years, several financially troubled schools have exploited this statutory loophole and entered receiverships, where a court-appointed individual oversees a process similar to a bankruptcy reorganization, to attempt to reorganize while continuing to qualify for Title IV funding.28 This evasion of the statutory prohibition raises the risk that a school on the brink of collapse will continue to collect federal funds and enroll new students in the run-up to closure, increasing the magnitude of harm to students and taxpayers. In addition, in a receivership, as in a bankruptcy proceeding, the interests of secured creditors are prioritized over the interest of students and taxpayers.29 Including receivership as a mandatory trigger will help to address these risks to students and taxpayers.
The Department proposes, at §668.171(f)(1)(iii), to add a reporting requirement when an institution receives a civil investigative demand, subpoena, request for information, or other inquiry from a government entity. The Department requests feedback on whether such an investigation warrants a mandatory or discretionary financial trigger. We recommend that the Department include such demands from government entities as a discretionary trigger. An investigation by a government entity signals a risk of significant compliance concerns, including substantial consumer protection violations, that could impact institutions’ financial stability. While a reporting requirement is important to provide the Department with notice of such investigations, the Department must also be able to take steps to protect against potential liabilities, where appropriate, upon receiving such notice. Accordingly, an investigation by a government entity should be a discretionary trigger.
Documentation of Government Backing of Public Institutions—§668.171(g)
We strongly support the Department’s proposal to require that an institution seeking to avoid scrutiny of its financial health by claiming to be “public” provide documentation that it is backed by the full faith and credit of the state or other government entity that sponsors the institution. The full-faith-and-credit expectation has long been the justification for the exception from the financial score requirements, but has not been explicit in the regulations and documentation. With public institutions increasingly engaged in the establishment of new money-making divisions and subsidiaries—in some cases through the acquisition of formerly for-profit institutions—the federal government must ensure that Title IV aid is not enabling large business ventures that lack adequate financial backing.
The Department is wise to be cautious about what may be state-affiliated businesses seeking to claim the benefits of being considered public while eschewing the responsibilities. In litigation over the question of sovereign immunity, courts have ruled that whether a state entity qualifies (in this case for immunity from some lawsuits) depends on a number of factors, including whether the state itself would pay any judgment, how autonomous the entity is in its governance or funding, whether its functions are state concerns, and the nature of the entity’s relationship to the state.30
The need to clarify which colleges are, or are not, financially backed by government entities emerged in 2009. The recession had decimated state budgets, and the economic stimulus bill enacted by Congress included funds that came with a caveat: to receive the federal money the state had to use some of its own funds to restore cuts to the funding of their public higher education institutions.31 Department of Education officials were surprised to learn (we know because one of us was there) that four of the Pennsylvania colleges that the Department considered “public” were considered by the state to be privately chartered. One of them was the flagship Pennsylvania State University.32
Full-faith-and-credit backing is in question for Department-designated public institutions beyond those in Pennsylvania. The Oregon Health and Science University, considered public by the Department, says on its website that it is an “independent public corporation” with “close ties to the state.”33 What would that mean if there was a large Title IV liability? Would the state step in to cover it? Rutgers University, in New Jersey, is largely controlled by a Board of Governors with a majority of members appointed by the state’s governor—but some powers are held by a separate Board of Trustees tied to the original private institution.34 Even the status of the University of California as a government versus private entity was uncertain enough that a court, in a 1958 case, had to resort in part to “common sense” in issuing its decision.35
The statutory exception for institutions from the financial responsibility requirement applies not to all institutions claiming to be public, but only to those institutions “backed by the full faith and credit of a state or its equivalent.”36 It is incumbent on the Department to seek documentation as proposed in the Notice of Proposed Rulemaking.
Administrative Capability
We strongly support the Department’s proposals to amend the administrative capability standards, at §668.16(h), to include requirements concerning the information included in financial aid communications provided to students. In the absence of such requirements, some institutions have failed to convey key information, such as the net price for the student to attend (the actual amount a student needs to pay after subtracting grant and scholarship aid) in financial aid packages.37 The Department’s proposal would require institutions to disclose vital information, such as the net price, the source of aid, and whether aid must be repaid, in financial aid communications.
We also strongly support the Department’s proposal, at §668.16(n), to add a requirement that an institution has not been the subject of a significant negative action by a state or federal agency, a court, or an accreditor, where the basis of the action is repeated or unresolved. We also strongly support the proposed provision, at §668.16(u), to require that an institution not engage in misrepresentations or aggressive or deceptive recruitment practices. Institutions that fail to address compliance issues or that engage in deceptive or aggressive recruitment practices pose immediate and substantial risks to students and to Title IV funds. The inclusion of these additional requirements in the administrative capability regulations strengthens the Department’s ability to preserve the integrity of the Title IV program and may also have a deterrent effect on misconduct by Title IV participating institutions.
Certification Procedures
The Department’s proposals to amend the regulations governing Title IV certification procedures would significantly strengthen oversight of Title IV institutions. The certification procedures are critical tools that enable the Department to assess and monitor Title IV institutions’ eligibility to receive federal aid, set limitations and conditions on participation where warranted, and turn off the spigot of Title IV funding to institutions that fail to meet eligibility requirements.38
The certification procedures regulations provide that the Department may place institutions into “provisional” certification status where the institution does not fully meet the requirements of Title IV, but is deemed capable of coming into compliance within a short period. The regulations permit the Department to impose conditions on institutions that are provisionally certified. These conditions, which are included as terms in the school’s Provisional Program Participation Agreement, are important safeguards against abuses. These conditions can be used as targeted corrective action plans to address deficiencies in schools’ eligibility or can also be used to set the stage for orderly closure of a failing institution.
The Department’s proposed amendments to the certification procedures regulations strengthen the Department’s ability to monitor and assess institution’s eligibility and to take action to address risks to students and to the integrity of the Title IV program.
Eliminating “Automatic” Recertification—§668.13(b)(3)
The proposed rule would eliminate §668.13(b)(3), a provision in the Certification Procedures regulations which currently provides that the Department must automatically grant an institution a renewal of Title IV certification if the Secretary does not act on a certification application within twelve months of the expiration of the school’s current period of participation. After this provision was adopted, The Century Foundation developed an online tool for tracking the certification status of Title IV institutions.39 This tool enables users to identify schools that have entered “expired” certification status because their Program Participation Agreement was not renewed immediately upon the expiration of the prior certification term. The certification-tracking tool shows that some schools in expired certification status have a history of consumer protection concerns, suggesting that the Department has delayed immediate recertification in order to investigate whether the school has addressed these consumer protection issues before granting recertification.40 Automatically renewing the certification of such institutions would endanger students and taxpayers. Eliminating the automatic renewal provision will ensure that the Department is able to devote adequate time to reviewing an application for certification, including determining whether compliance issues have been resolved. Eliminating the provision will also ensure that schools that have unresolved compliance issues do not become automatically certified.
Adding New Grounds for Provisional Certification—§668.13(c)(1)(i)(F)
The proposed rule would also strengthen protections for students and taxpayers by adding new grounds for provisional certification. The Department’s proposal, at §668.13(c)(1)(i)(F), provides that an institution may be provisionally certified if the Secretary determines that the institution is at risk of closure. This would enable the Department to impose conditions via schools’ Provisional Program Participation Agreements, such as limitations on new enrollment, additional reporting requirements, or other safeguards, that would help to protect students and taxpayers from the harms associated with abrupt school closures.
The Department’s proposed rule would also clarify, at §668.13(c)(1)(i)(C), that the Secretary has authority to provisionally certify an institution that is not meeting the requirements for financial responsibility and administrative capability, independent of whether the school is subject to an action under subpart G. This important clarification affirms that the Department is able to take immediate action to protect the integrity of the Title IV program where an institution is not fully meeting Title IV eligibility requirements.
Timeframes for Recertifying Institutions—§668.13(c)(2)(ii)
The proposed rule also creates new timeframes for provisional certification, including a new requirement, §668.13(c)(2)(ii), that institutions exhibiting consumer protection concerns recertify within two years. The requirement to recertify within two years would help ensure that changes of ownership are closely monitored, which is especially important where there are new owners who have never operated a school, and where there has been an approved conversion from proprietary to nonprofit status. In such cases, the requirement to recertify after two years would enable the Department to monitor for any continued involvement after the change of ownership with prior owners that show signs of possible prohibited insider advantage.
The Department seeks feedback about whether to maintain the proposed two-year recertification requirement for schools with major consumer protection issues found at §668.13(c)(2)(ii). The Department asks whether two years is long enough to evaluate how well the institution has addressed consumer protection issues. The timeframes for compliance and monitoring set out in settlements between consumer protection agencies and for-profit colleges are illustrative. When agencies such as the Federal Trade Commission (FTC) and state attorneys general offices reach settlements with institutions for consumer protection violations, they frequently require resolution of consumer protection violations within a short period (generally a few months) and then provide for compliance reporting in one year. For example, when the FTC entered into an agreement with DeVry University in 2016 regarding the FTC’s charges of deceptive advertising, the agreement provided a four-month period for the school to initiate training to address the deceptive practices and imposed a compliance reporting requirement one year from the date of resolution.41 Similarly, the Department should require resolution of consumer protection violations within a short period (several months) and require recertification after one year.
Supplementary Performance Measures—§668.13(e)
The proposed rule would establish supplementary performance measures, at §668.13(e), that could be considered when the Department assesses whether to certify or condition the participation of an institution in Title IV. The proposed rule provides that when making certification decisions, the Department may assess and consider performance measures such as: the institution’s withdrawal rate; the debt-to-earnings rates of programs offered by the institution; the earnings premium measures of programs offered; the amount the institution spent on instruction and support services, and the amounts spent on recruiting and advertising; and the licensure pass rate of programs offered by the institution for programs that are designed to meet educational requirements for a specific professional license or certification. The inclusion of these performance measures in the rule is a significant enhancement of the Department’s oversight. By using these measures, the Department will be better able to protect taxpayers and students from investing in low value programs.
The Department should strengthen the provision by amending it to provide that the Department shall, rather than that the Department may, consider the supplementary performance measures when making decisions to certify or condition the participation of an institution in Title IV. This will ensure that the Department takes these important performance measures into account in certification decision making, safeguarding students and taxpayers from investing in programs that provide little or no value to students.
Program Participation Signature Requirements—§668.14(a)(3)
The proposed rule also includes important new provisions related to Program Participation Agreement (PPA) signatories. Section 668.14(a)(3) provides that an institution’s PPA must be signed by a representative of the institution, and that where a separate entity has ownership and control over a proprietary or private nonprofit institution, a representative of that entity must also sign the PPA. The Department has statutory authority, and in some cases, a statutory obligation, to pursue redress for liabilities from institutions and controlling individuals even without a representative’s signature on a PPA.42 However, adding this PPA signature requirement for entities with ownership and control over a for-profit or private nonprofit institution will serve as a reminder to institutions and their principals that the Department has the authority to recover unpaid liabilities from controlling entities and individuals. This reminder may serve as a deterrent to misconduct and may help to prevent unwarranted legal challenges to the Department’s efforts to pursue redress for liabilities.
Information Sharing with Federal and State Agencies—§668.14(b)(17)
We strongly support the Department’s proposal, at §668.14(b)(7), to broaden the list of entities authorized to share information related to an institution’s eligibility or participation in Title IV to include all Federal agencies and State attorneys general. Federal consumer protection agencies, such as the Consumer Financial Protection Bureau and the Federal Trade Commission, and state attorneys general have identified consumer protection law violations and brought enforcement actions against a number of predatory schools in the for-profit sector. Codifying existing information-sharing practices between the Department and these agencies will facilitate cooperation between agencies, strengthening all agencies’ ability to identify and take action to address institutional misconduct and provide relief to students who are harmed by misconduct.
Limitation on Length of Certain Career Training Programs—§668.14(b)(26)(ii)
The proposed rule, at §668.14(b)(26)(ii), would limit the length of a Title IV career training program to the greater of the required minimum number of clock or credit hours as established by the state in which the institution is located, if the state has established such a requirement, or as established by a federal agency or the institution’s accrediting agency. While this proposal would help protect students and taxpayers from enrolling in programs with inflated hours requirements, the proposal does not provide sufficient flexibility to accommodate programs that serve students in multiple states. The proposal should be modified to accommodate such programs.
Professional Licensure Requirements—§668.14(b)(32)(ii)
The proposed §668.14(b)(32)(ii) would require Title IV institutions to determine that each program offered satisfies the prerequisites for professional licensure or certification in each state where the program is offered. This provision provides an important new protection for students and taxpayers and would ensure that students and taxpayers do not invest in career training programs that do not satisfy the prerequisites for licensure or certification in their state. However, as representatives of the WICHE Cooperative for Educational Technologies (WCET) and the State Authorization Network (SAN) note in their comments on the proposal,43 the proposed provision raises several practical concerns. In some cases, state licensing entities may not provide clear and complete information about the prerequisites for licensure or certification in their state, making it difficult for institutions to determine whether a program satisfies requirements in those states. In addition, the provision would preclude students who are located in a state where the program fails to satisfy professional licensure prerequisites from enrolling, even if the student intended to seek employment in a different state where the program fulfills professional licensure prerequisites.
To address these practical concerns, we recommend modifying the language of §668.14(b)(32)(ii) to require institutions to determine whether a program meets applicable education prerequisite for professional licensure in the state where the student is located, “if such prerequisites are available or can be obtained from the State.”44 This would account for situations in which an institution is unable to obtain information from a state licensing entity about a state’s prerequisites for professional licensure. We also recommend that the provision be modified to permit institutions to make exceptions on a case-by-case basis for students who provide a signed written consent indicating that they are knowingly enrolling in a program that fails to meet the prerequisites for professional licensure in their state, and stating their reason for their decision. This would account for situations in which a student may wish to enroll in a program that does not lead to professional licensure in the students’ state because the student plans to move to another state, or for other reasons.
State Consumer Protection Laws—§668.14(b)(32)(iii)
We strongly support the intent of the Department’s proposal, at §668.14(b)(32)(iii), to require institutions that operate in multiple states pursuant to a reciprocity agreement to determine that each program complies with state consumer protection laws related to closure, recruitment, and misrepresentations. However, we recommend that the Department expand the categories of state consumer protection laws included in this requirement so that institutions authorized pursuant to a reciprocity agreement are required to comply with all state consumer protection laws, with the exception of requirements directly related to authorization, in each state where they operate. We also recommend technical changes, set out below, to clarify the requirements of the provision.
Millions of students receive Title IV funding for online programs offered by schools located outside of their states. These online students may assume that they are protected by the same basic consumer protection laws that cover brick-and-mortar students in their state, such as refund and cancellation rights, and tuition reimbursement funds. In reality, the current online oversight system leaves many online Title IV students unprotected. The national state authorization reciprocity agreement (SARA) prohibits states with strong consumer protection laws from enforcing education-specific or sector-specific state laws to protect students at out-of-state SARA member schools. In lieu of these strong state laws, SARA provides only a set of minimum standards that schools must meet in order to participate, leaving some online students inadequately protected.45 SARA’s prohibition on member states’ enforcement of state laws also weakens states’ oversight role within the triad.46
The Department’s proposal partially implements a recommendation discussed during the negotiated rulemaking that was submitted by representatives of state attorneys general offices, state higher education oversight agencies, and consumer protection and veterans-focused organizations, to require institutions authorized pursuant to a reciprocity agreement to comply with all state consumer protection laws except those related to obtaining state authorization.47
While we support the intent of the Department’s proposal, there are several problems with the drafting of the proposal that require technical corrections. First, the proposed language at §668.14(b)(32)(iii) could mistakenly be read to imply that institutions that do not participate in a reciprocity agreement and that offer programs in multiple states do not have to comply with state laws in each state where they operate, except for in the three specified areas. In fact, institutions that operate in multiple states without participating in a reciprocity agreement must comply with all applicable state and federal laws. The proposed provision should be revised to make it clear that institutions that do not participate in a reciprocity agreement must comply with all applicable state laws in the states where they offer programs. We have included proposed language below.
In addition, the proposed language in §668.14(b)(32)(iii) could mistakenly be read to imply that institutions authorized to operate in multiple states pursuant to a reciprocity agreement are not required to comply with all generally applicable state laws, but rather, only those generally applicable laws related to closure, recruitment, and misrepresentations. In fact, institutions that are authorized to operate pursuant to a reciprocity agreement remain subject to all generally applicable laws. To avoid creating confusion on this point, the provision should be revised to clarify that institutions that are authorized to operate in multiple states pursuant to a reciprocity agreement must follow all generally applicable state laws and those education-specific or sector-specific state laws that relate to closure, recruitment, and misrepresentations.
To address the above-described problems with the proposed language of §668.14(b)(32)(iii), we suggest the following technical corrections:
§668.14(b)(32)
In each State in which the institution is located or in which students enrolled by the institution are located, as determined at the time of initial enrollment in accordance with 34 CFR 600.9(c)(2), the institution must determine that each program eligible for title IV, HEA program funds—
***
(iii)
(A) Complies with all applicable State laws; and
(B) For institutions covered by a state authorization reciprocity agreement as defined in 34 CFR 600.2, notwithstanding any limitations in that agreement, complies with all State higher education requirements, standards, or laws related to risk of institutional closure or to recruitment and marketing practices, and with all State general-purpose laws, including but not limited to those related to misrepresentations, fraud, or other illegal activity;
Finally, while the proposal on state law would increase protections for online students attending SARA participating schools, the proposal does not go far enough. States should be permitted to enforce all of their state consumer protection laws, including education-specific and sector-specific prohibitions on typical types of misconduct; cancellation and refund requirements; disclosure requirements; laws that create a private cause of action for the violation of education-specific consumer protection laws to ensure that students are able to seek redress for harm; laws creating criminal liability for violations of education-specific or sector-specific state laws; laws related to originating, servicing, or collecting on debt; laws related to school ownership; record retention laws; financial responsibility requirements; minimum outcome requirements; and other protections. SARA states should be required to waive only those state requirements that directly relate to the procedures for institutional authorization, such as application or fee requirements. Accordingly, §668.14(b)(32)(iii) should be broadened to require institutions authorized pursuant to a reciprocity agreement to comply with all state consumer protection laws in states where the institution is authorized pursuant to a reciprocity agreement, with the exception of those state requirements that are directly related to authorization.
Transcript Withholding—§668.14(b)(33)
The proposed rule would provide an important new prohibition, at §668.14(b)(33), on withholding transcripts as a means of forcing a student to pay a balance on their account if the balance was created because the institution made an error with respect to the student’s Title IV aid; if the balance resulted from the institution’s fraud or misconduct; or if the balance results from returns under the Return of Title IV Funds requirements. Last year, the Consumer Financial Protection Bureau found that blanket transcript withholding policies as a debt collection tool are an abusive practice prohibited under federal consumer protection law.48 We support the proposed prohibition on transcript withholding.
Conditions for Provisionally Certified Institutions—§668.14(e)
The proposed rule would include a provision, at §668.14(e), that would set out a non-exhaustive list of conditions that the Department may apply to provisionally certified institutions. This includes conditions such as: requiring institutions at risk of closure to submit an acceptable teach-out plan or agreement; limiting the addition of new programs, restrictions on new enrollment, reporting requirements, including reporting on student complaints and financial indicators; and, for an institution alleged to have engaged in misrepresentations or other misconduct, a requirement to hire a monitor and to submit marketing materials for review. We support the Department’s inclusion of this non-exhaustive list of conditions. The list provides a number of tools that the Department can use in appropriate circumstances to protect students and safeguard the integrity of the Title IV system. It is important that the list be explicitly non-exhaustive to preserve the Department’s flexibility to impose additional conditions where appropriate to respond to the highly varied, situationally specific compliance issues faced by institutions seeking certification or recertification.
Conditions for For-Profit to Nonprofit Conversions—§668.14(f)
The Department’s proposed §668.14(f) sets out PPA conditions for institutions converting from for-profit to nonprofit status. In recent years, a number of for-profit colleges have purported to convert from a for-profit to a nonprofit, sometimes while maintaining financial arrangements that continue to benefit the previous for-profit owner, calling into doubt whether the nonprofit label really fits.49 The proposed rule would add important safeguards to the conversion process by requiring institutions seeking to convert from for-profit to nonprofit status to continue to meet all the of regulatory requirements applicable to for-profit colleges for a period of the later of years under the new ownership, or until the Department approves the institution’s request to convert to nonprofit status. The provision would also require converting institutions to submit regular reports on agreements entered with a former owner of the institution or a related person or entity. This would help the Department to monitor and assess whether the converted nonprofit’s arrangements with the former owner are appropriate and whether the institution is in fact operating as a nonprofit. The proposal would also prohibit an institution from advertising that it operates a nonprofit until the Department approves the institution’s request to convert to a nonprofit institution. We strongly support these proposals, which will protect consumers and will strengthen the Department’s ability to monitor converted for-profit institutions.
Thank you for the opportunity to provide comments on the proposed rule. The proposed GE rule will establish a strong set of safeguards to protect students from investing in low-value programs that leave graduates saddled with unaffordable debt and low earnings. In addition, the proposed rule’s changes to the Financial Responsibility, Administrative Capability, and Certification Procedures regulations will strengthen the Department’s oversight of Title IV institutions and add critical protections for students and taxpayers.
Notes
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