U.S. Chamber of Commerce: What is the Gainful Employment Rule Really About?

March 10, 2014
Written by Cheryl A. Oldham

It is true that the cost to attend college continues to grow – rising faster than any other sector of American society. However, research still supports the notion that a college education leads to greater economic returns to the individual and to society. Furthermore, virtually all middle-class jobs now require postsecondary skills and credentials. Therefore, we want more people to attend college, have access to greater opportunity, and achieve the American dream. Yet the price tag is high and thus the debt—particularly for low-income students—continues to grow.

The administration is right to be concerned and to consider appropriate ways for the federal government to play a role in mitigating this burden for students and families. We agree. What we don’t agree with is its misguided approach, outlined in the Chamber's letter to the OMB and the Department of Education.

Under the auspices of addressing college costs and student debt, the Department of Education is making its second attempt (after the first was struck down by a federal judge) at defining gainful employment. And again, only for-profit higher education institutions (and a few community college programs) must meet the department’s measures. It’s unclear how the tax status of an institution has anything to do with the quality of education, but I digress.

Four years ago, the administration put forth a vigorous argument in support of a definition of gainful employment that included a 12% debt-to-earnings ratio. That is to say, the annual debt payments of a program’s graduates would be capped at 12% of their earnings. This time around, the department has proposed an even tougher standard and lowered the ratio to 8%.

If a graduate’s annual debt payments are greater than 8%, the program from which the student graduated from would lose eligibility for federal aid even if every graduate pays back his or her loans!

What’s ironic is that the department’s own National Center for Education Statistics report from October 2013 found that 26% of bachelor’s degree recipients at public four-year institutions faced monthly loan payments greater than 12% of their monthly income. Thirty-nine percent of private non-profit institutions exceeded the 12% threshold as compared to 35% at for-profit colleges.
As is clear from this report, traditional higher education institutions and programs of study, if subject to this rule, would not be able to meet the debt-to-earnings test. If the administration truly wished to tackle the issue of cost and debt in higher education, it would look at the entire sector.

Is the administration prepared to say that public and not-for-profit private institutions don’t have a gainful employment problem? Their own numbers say that they do.

So what is really going on here? The gainful employment rule is about ideology and the notion that private enterprise and education do not belong together. We disagree.

The for-profit sector serves close to 3 million students—mostly non-traditional. Many are adult students with families and full time jobs who are attending school to improve their life situation. Non-traditional institutions of higher education are providing them the opportunity to do so.

This rule will shutter programs serving hundreds of thousands of students who will not be able to find comparable programs that are equally convenient, will accept them and their credits, and that have the capacity to properly serve them. Students affected by this misguided rule will have no choice but to drop out of school and abandon their dreams.

Having an effective higher education system is essential to providing a strong foundation for both individual success and U.S. competitiveness. The proposed gainful employment rule would have a chilling effect on private sector innovation and result in reduced access, fewer choices, and less opportunity for students. Clearly, this is not in line with the administration’s stated goals of once again leading the world in the number of college graduates.

At a time when there are 4 million open jobs across the country, partially due to a workforce that lacks the skills needed by employers, we need to be expanding options and access to higher education for students, not limiting them. Employers all across this country need the assurance that America’s education system is preparing students for the 21st century economy. Not just traditional students, but all of those who attend institutions of higher education with the desire for a better life for themselves and their families.

The gainful employment rule will do nothing to lower costs and will only deny many of these students this opportunity.

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