Over the past several years there have been hundreds of headlines about students who enrolled in a career training program believing it would lead to a job that would easily justify the student loans they were taking on, only to discover—too late—that they had dug themselves a deep hole. In most cases, for-profit companies were the culprits, targeting the students most determined to improve their lives and convincing them their schools are the answer.

In 2014, after a five-year process, the U.S. Department of Education adopted the “gainful employment” rule for programs that seek to use federal financial aid to train students in vocational fields. These career programs—majors that “prepare students for gainful employment in a recognized occupation”1—are the route through which for-profit companies are allowed direct access to federal financial aid for college.

Why Do For-profit Companies Use Career Programs to Qualify for Federal Financial Aid?

Public institutions gain eligibility for federal financial aid by demonstrating that they are backed by the full faith and credit of a state or other government agency. Nonprofit institutions gain eligibility for federal financial aid by virtue of committing all of their revenue to educational or charitable purposes, policed by trustees without a financial interest. Because of these controls and assurances, at accredited public and nonprofit colleges, federal financial aid may be used for any degree program.2

For-profit institutions lack the corporate accountability requirements that apply to public and nonprofit institutions. At for-profit colleges, the legal responsibility for pricing, spending, enrollment growth, and other decisions rests with private parties that have a direct financial interest—the type of conflict that is generally prohibited at public and nonprofit institutions. Unlike at nonprofits, those who control for-profit institutions can personally benefit by growing their institutions quickly, spending less on education, and charging students more. At any time, investors can sell their ownership shares and leave any consequences to others. Frequently, it’s taxpayers and former students who are left holding the bag.

Ever since the scandals following the first GI Bill, before the current student aid programs were even created, the federal government has restricted for-profit institutions to job training because, at least theoretically, the outcomes for these programs are  more clear-cut and measurable than those of a traditional liberal-arts education.3 That should make them higher quality and less vulnerable to predatory marketing practices. The track record is not good, however. The gainful employment rule is an attempt to make the gainful employment requirement more concrete, in the hopes that doing so will steer the companies toward more positive outcomes for students and taxpayers.

By law, the gainful employment requirement does apply to public and nonprofit schools, but only when they seek to use federal aid for non-degree programs, such as certificate programs in medical assistant fields, cosmetology, or computer-aided design.4

What Does It Take to Pass or Fail the Gainful Employment Rule’s Test?

Under the rule, a program at a school is in good standing—it passes the test—if fewer than about half5 of its graduates6 have heavy student loan debt burdens when weighed against their incomes after college.7 Above the highest passing level of debt burden there is a zone before reaching the level at which a program fails the gainful employment test.8 (The zone is a sort of probation status that ultimately can result in a program losing eligibility, as explained below.)

The debt burdens that place a program into the zone or failing categories are set at levels well above what is common. For example, aid recipients who graduated from public, nonprofit, and for-profit institutions in 2011–12 borrowed an average of $24,130, $30,057, and $39,820, respectively.9 To be in the non-passing zone, the debt level for the majority of graduates would have to exceed $63,000 assuming average earnings. To fail, the debt level would have to approach $100,000.10 In other words, a program passes even if it is more than double the average burden faced at public and nonprofit institutions, and does not fail unless a majority of its students reach a debt burden more than triple the burden faced by BA recipients at public and nonprofit institutions.

What Happens If a Program Does Not Pass?

Schools with a program that does not pass must notify the program’s students or prospective students. If the problem is not repeated, there are no further consequences. If a program fails in any two out of three consecutive years, it loses eligibility for federal aid for a period of three years. A program also loses eligibility if it does not pass (any combination of failing, or in the zone between passing and failing) four years in a row. During the three years that a program is ineligible for federal aid, the school remains free to offer federal financial aid for existing programs, to create new programs that are distinct from the ineligible program, and to enroll students in programs not using federal aid.

How Are Former Students’ Incomes and Debts Determined?

Schools provide lists of students who have graduated or withdrawn to the Department of Education. The department calculates each student’s debts by combining their federal loans11 and any reported private loans.12

Income is measured two to three years after students complete or stop attending their programs.13 For example, the data released in January 2017 represented earnings during the 2014 calendar year for students who graduated in the 2010–11 and 2011–12 academic years. The Department of Education provides their identifying information, by groups,14 to the Social Security Administration, which calculates and reports the average and median earnings for each group.15 No individual’s earnings are revealed to the Department of Education or to the school.

For the first several years of the regulation, programs that do not pass based on the graduates who are first analyzed have a second chance based on the debts of more recent graduates.16 The regulation also provides schools the opportunity to offer corrections to student data, and to appeal the income calculations by presenting an alternative measure using a survey instrument or data from a state-administered system that measures earnings.

Why Use a Debt Burden Measure Instead of Job Placement?

Standards for measuring job placement vary across accrediting agencies and states, and therefore do not provide usable data for federal aid purposes. Whether a job is related to the training is a judgment call that has often been abused by schools and their accreditors.

In 1974, Congress adopted a requirement that at least half of GI Bill recipients in vocational programs be placed in a job related to the training. The data submitted by schools, however, was unreliable, and Congress found that there was an “almost total failure” of the relevant agencies to review or verify the submitted data.

Data on earnings and debt are more reliable and accurate than any job placement data currently available.

What Do the Gainful Employment Data Show?

Out of a total of 8,637 rated programs, 803 failed while 1,239 fell into the zone between passing and failing outright. While nearly all of the failing programs were operated at for-profit colleges (some of which have now closed), 82 percent of for-profit colleges had no failing programs, including these chains: American Public University, Capella University, Concorde Career College, ECPI University, Empire Beauty School, Grand Canyon University, and Strayer University.17 Company executives and investor analysts say that the gainful employment rule has prompted companies to reduce tuition and to focus their enrollment efforts on training for well-paying careers.

The accrediting agency that approved schools with the largest number of non-passing programs —more than a quarter of the total—is the Accrediting Council for Independent Colleges and Schools (ACICS), which was de-recognized by the Department of Education in 2016. Additional analyses of the gainful employment data are available from the Center for American Progress and The Institute for College Access & Success.

What Types of Information Are Schools Required to Provide to Students under the Gainful Employment Rule?

When a program is one year away from potentially losing access to federal aid, the school must warn the program’s students and prospective students that the program did not pass federal standards and may not be eligible for federal aid in the future.18

In addition, all programs that receive federal aid by virtue of claiming to prepare students for gainful employment in a recognized occupation must provide to all students using a template provided by the Department of Education. The 2017 version of the template includes:

  • Percent of students graduating on time
  • Program Costs
  • Percent of students who borrow money to pay for the program
  • Median debt of borrowers
  • Typical monthly loan payment
  • Typical graduate earnings
  • State/Accreditor job placement rates
  • Fields that employ program graduates
  • Licensure requirements

Why Do the Gainful Employment Data Used for Program Eligibility Sometimes Differ from the Data Used by Schools in the Information Disclosures to Students?

Several factors can cause differences between the information in disclosures and the data used to determine a program’s continuing eligibility for federal aid:

  • Data on earnings and debt are disclosed if there are data on at least ten students, while the program eligibility data are used only if there are data on at least thirty students.19
  • Schools disclose the median earnings of graduates (and, separately, of dropouts). For program-eligibility purposes, however, the highest of either the median or the average is used.
  • The median debt level of graduates used for disclosure purposes is based on all graduates, while the median debt level for program-eligibility purposes may be reduced if earnings data were not available on some students.20
  • The disclosures are median of federal loan debt separate from private and institutional loans, while the program-eligibility data use combined debt.
  • On the 2017 disclosure template that campuses are required to use, the median debt is only for those who completed on time, not all completers, so it will almost always be lower than the program eligibility data. The exclusion of some borrowers may also cause the data to be not available (due to too few students).
  • The disclosure may be specific to a campus while the program eligibility data may represent the program at multiple campuses.
  • Some data in the disclosures may be from more recent years than the data used for program eligibility purposes.
  • The debt figures used for program eligibility are capped at the total amount of tuition, fees, books, equipment, and supplies during students’ enrollment. In the disclosures, the debt figures are the total amount borrowed.

Also, many schools created new programs as the gainful employment rule was being considered. The program data may represent the older program while disclosure data (or lack of available data) may reflect the new program.21


  1. Those are the words used in the federal Higher Education Act, which governs the college financial aid programs run by the U.S. Department of Education. The guidelines for other federal programs, such as the GI Bill, are sometimes different.
  2. A degree program is usually at least two years long, involving a wide range of courses, leading to an associate’s, bachelor’s, master’s, or doctoral degree. Certificate programs, in contrast, are more narrowly focused on specific skills and are generally shorter in duration. There is no precise demarcation in federal law other than the requirement that the classifications be approved by the college’s accrediting agency.
  3. In 1950, President Truman recommended reforms, adopted by Congress, “to give greater assurance that every trade and vocational course under the Servicemen’s Readjustment Act [GI Bill] will provide a good quality training and will in each instance help a veteran to complete his occupational readjustment and find satisfactory employment.” An amendment to the Higher Education Act in 2008 allowed federal aid for liberal arts programs at a few colleges.
  4. The programs must have a vocational focus. In the 2015 data, there were 2,493 GE programs offered by public institutions, 463 offered by private nonprofit institutions, 5,676 offered by for-profit institutions, and five offered by foreign institutions.
  5. The rule uses the median or average earnings, whichever is higher. Since average earnings are frequently higher than the median in a population, some programs will actually have fewer than half of the graduates meeting the standard.
  6. The measure uses only students who received grants, loans or work-study from the U.S. Department of Education’s Title IV, Higher Education Act programs. There must be at least thirty graduates for a measure to be considered valid for program eligibility purposes.
  7. If the graduate’s loan payments can be repaid with 20 percent or less of the graduate’s discretionary income (income above 150 percent of the poverty level), or 8 percent of total income, whichever is greater. For the calculations, the assumed repayment period is ten years for certificate and associate’s degree programs, fifteen years for bachelor’s and master’s degree programs, and twenty years for doctoral and professional degree programs.
  8. If loan repayment would take more than 30 percent of discretionary income or 12 percent of total income (whichever is greater).
  9. Source: U.S. Department of Education, National Center for Education Statistics, 2011–12 National Postsecondary Student Aid Study.
  10. Assuming earnings of $48,000 (2014 average starting salary, according to the National Association of Colleges and Employers), and an interest rate on the student loans of 5 percent.  
  11. The amount the student borrowed, not including any accrued interest nor federal loans made to parents. Loan amounts are capped at the institution’s level of tuition, fees, books, equipment, and supplies.
  12. Schools must report any loans the schools makes to students and any the schools are or should be aware of.
  13. Except for medical and dental programs, which reach back three additional years to account for required internships. If a program does not have at least thirty graduates during the two academic years, then four years of graduates is used.  
  14. Students who graduated and those who withdrew are measured separately. Some students are excluded from the numerator and denominator of the debt burden calculations, such as if they are in the military, have enrolled in school elsewhere, or have died.
  15. The SSA does not divulge individual students’ earnings. Instead, if data are unavailable it informs the Department of Education of the number of students for whom there was no match. In determining the debt burden for program eligibility purposes, the same number of students are eliminated from the debt figures, starting with the highest debts.
  16. These “transitional rate” calculations will be used for the first five to seven years that the gainful employment rule is in effect, depending on the duration of the program. They are intended to account for school efforts to reduce student debt levels.
  17. At a majority of for-profit colleges (807 of 1541), all of the programs passed according to the data released in January 2017.
  18. A program with one failing year must provide the warning for two years; a program with three zone (or failing) years in a row must provide the warning for one year. During school appeals of program ratings warnings are not required (unless the result of prior ratings not being appealed).
  19. In addition, to reach thirty the cohort of students may be expanded to additional years of graduates.
  20. When that occurs, the highest debts are eliminated, since the Department of Education does not know which students were implicated (because SSA does not divulge individuals’ earnings information, only the medians and averages).
  21. The regulations prohibit financial aid from being used for a new program that is substantially similar to an older program that lost eligibility or was poised to lose eligibility due to its debt burden ratings under the gainful employment rule.