September 26, 2021

Possible changes to gainful employment signaled by the DOE

Recent discussions from the department of education indicate changes may be in the works.


Session 1: December 4-7, 2017


Issue Paper #1


Issue:                          Scope and Purpose

Statutory cites:           20 U.S.C. § 1221e-3; 20 U.S.C. § 3474; 20 U.S.C. § 1231a; 20 U.S.C. §§ 1001(b)(1), 1002(b)(1)(A)(i), (c)(1)(A); 20 U.S.C. § 1088(b)

 Regulatory cites:       34 CFR § 668.401

Summary of issue:     On October 31, 2014, the Department published final regulations establishing standards and other requirements for title IV-eligible programs that prepare students for gainful employment (GE) in a recognized occupation.   Those regulations went into effect on July 1, 2015.


The regulations established an accountability and transparency framework for GE programs.  The accountability framework conditions the eligibility of a GE program based on (1) the program’s performance under a debt-to-earnings (D/E) rate measure and (2) the institution’s certification that the program meets certain accrediting agency and State requirements.  The transparency framework provides students, prospective students, and their families with accurate and comparable information about a GE program to better inform their educational and financial decisions about enrolling or continuing in the program.  Finally, the GE regulations included reporting requirements to provide the Department with information required under both the accountability and transparency frameworks.  In adopting the accountability framework, the Department acted under its authority under sections 101, 102, and 481(b) of the HEA, which pertain solely to GE programs, among other authorities.  The Department also relied on its broader authority under the General Education Provisions Act and the Department of Education Organization Act.


A common criticism of the GE regulations is that one of the problems the rules aim to address—students being saddled with unaffordable levels of loan debt in relation to their earnings—is an issue across all institutions, and not just those that offer GE programs.  In addition, some have argued that many of the factors contributing to poor student outcomes, as measured by the D/E rates, are outside of the control of an institution.  Accordingly, some have suggested that the regulations should apply to all programs, not just GE programs, and that the loss of eligibility resulting from poor D/E rates is unfairly punitive.  Critics have also argued that the reporting and compliance requirements are overly burdensome.


In the issue papers that follow, we discuss in detail the individual components of the GE regulations.  Here we address broad issues of scope and purpose of the regulations.


Questions for consideration by the committee:

  • Should the regulations apply, in whole or in part, to all programs or just GE programs?
  • Should the Department retain, amend, or eliminate the accountability framework?
    • Should the Department retain, amend, or eliminate the D/E rates? For all programs or just GE programs?
    • If retained or amended, should the D/E rates measure be used to determine eligibility, result in other sanctions (e.g., warnings or other enhanced disclosures), and/or be used as a disclosure? If retained or amended for purposes of disclosure, should this pertain to all programs or just GE programs?
    • Should the Department retain, amend, or eliminate the certification requirements? For all programs or just GE programs?
  • Should the Department retain, amend, or eliminate the transparency framework? For all programs or just GE programs?
    • If D/E rates are removed from the accountability framework, should D/E rates be used for disclosures under the transparency framework?
  • Are program disclosures alone effective in helping enrolled and prospective students identify lower-performing programs with respect to job earnings?


Articles on this topic:

Important DOE Gainful Employment Regulations Info Update Jeri Prochaska, CSPEN

gainful emplyment

info Update Jeri Prochaska, CSPEN

Status of our Sector Webinar, we would like to share two new important pieces of information we received today from top-level Department of Education staff responsible for the interpretation and implementation of the GE regulations and metrics.

CSPEN has received word that sometime in October, not November as previously forecast by CSPEN and the Department’s own published timelines and Power Point slides, all schools with programs subject to the gainful employment regulations should expect to receive their Draft GE Debt-to-earnings (D/E) data.  While no specific dates were provided, the release could be as early as October 21st – following completion of the first two GE Reading Files and Submitting Challenges webinars, but are more likely to come sometime the week of October 24th. CSPEN also expects the 45 day challenge period to be announced separately either by the end of October or in early November as well.

We again remind you that it is vitally important for your institutions and those within your organization responsible for review of the Draft GE D/E data and possible submission of challenges to the data to strongly consider attending the workshops later this month.  For more information on these important webinars refer to (ANN-16-14) Subject:  Live Internet Webinars – Gainful Employment: Reading Your Draft GE Debt-to-Earnings (D/E) Rates Files and Submitting Challenges.

These same officials also shared that the changes being proposed as part of the September 13, 2016 Federal Register Notice (and the potential for any additional revisions based upon the comment period associate with this Notice which doesn’t close till November 14, 2016) are, in the view and interpretation of the Department, not subject to the Master Calendar and thus all of the revisions – including those based upon the comments – will be implemented as part of the 2017 Disclosure template requirements effective January 31, 2017

From for-profit colleges to student loans, at what point does sensible policy start to become political bullying?


We can be remarkably two­faced as a nation when it comes to our higher education system. One day it’s the greatest in the world and the next it fails to meet students’ and employers’ needs and is a financial rip­off. It gets exhausting to keep track of whether we’re really good or really bad at all of this. Mark Twain once said we shouldn’t let the truth get in the way of a good story. There are a number of things about college that pundits and policymakers know but won’t discuss or even address, be it to protect their political stance


1. Public higher education isn’t really cheaper or better-performing than private higher education There’s how much something costs to make and how much people have to pay for it. Public colleges seem like cheaper alternatives to private non­profit and for­profit education but that’s only because taxpayers, depending on which state you’re from and which institution you attend, foot between 30 and 70 percent of the cost. Take that subsidy away and students at, say, the University of Georgia or Montana State University would be paying ­ and likely borrowing ­ one and a half to twice as much as they do now.

Link to article:


Gainful-Employment Rule Survives Court Challenge

gainful emplymentThe U.S. Education Department’s gainful-employment rule is one step closer to taking effect.

A federal judge on Tuesday rejected a serious legal challenge, brought by the Association of Private Sector Colleges and Universities, to the controversial rule. The lobbying group’slawsuit was the highest hurdle remaining for the proposed rule, which will judge career-oriented programs on their graduates’ ability to repay their student loans. The rule is slated to take effect on July 1.

The department originally introduced the rule in 2011. The effort was dealt a major setback a year later, when a section of the rule was thrown out as a result of an earlier court challenge by the association, the main lobbying group for for-profit colleges. The group’s second challenge, to a revised rule, used many of the same arguments, asserting that the department had exceeded its authority in issuing the rule and that the rule was capricious and arbitrary.

In his ruling on Tuesday, Judge John D. Bates of the U.S. District Court for the District of Columbia dismissed those claims, saying the association “throws a host of arbitrary-or-capricious arguments against the wall in hope of a different outcome. None of them stick.”

Arne Duncan, the secretary of education, said in a written statement that the ruling was “a win for America’s students and taxpayers.” He added that every student “who enrolls in college of any kind deserves a fair shot at a degree or credential that equips them for success,” and said the department would “continue to fight until that’s a reality.”

Also in a written statement, the private-sector association’s general counsel, Sally Stroup, said the group was “disappointed” in the court’s decision and was considering its options. “Indeed, as numerous commentators have observed, the primary impact of the regulation will be to deprive hundreds of thousands of students of access to higher education,” she added.

The final rule, which was released last fall, is expected to cause 1,400 programs, 99 percent of them at for-profit colleges, to be put at risk of losing eligibility for federal student aid.

The victory for the department occurred on the same day a committee of the U.S. Senate approved a spending bill that would ax the gainful-employment rule and the department’s college-ratings plan.

Link to Article on Chronicle:

Draft Gainful Employment Data Noisy, as Expected

gainful employmentViewpoint: Draft “Gainful Employment 2.0” data from the Department of Education (ED)
released on December 11 was predictably noisy for the private sector colleges, but we
continue to believe that the final rules are likely to be significantly weakened and will
face significant legal and legislative challenges. In addition, we note that gainful
employment data is reported on a multiyear lag, and believe that significant changes to
improve student ROI made by private sector schools over the past few years will greatly
improve regulatory metrics over time. While we continue to expect heightened
regulatory scrutiny of the sector, a gradually narrowing range of potential negative
regulatory outcomes should support multiple expansion for the postsecondary stocks in
the coming years.
Key Points (supporting data tables located at the end of this note):
• Individual institutions were not identified, but ED’s data indicated that 13% of all
programs would fail the proposed metrics and an additional 7% of all programs
would be caught in the debt to income “caution zone,” requiring debt-to-income
improvement. This compares unfavorably with the 6% of all programs that
would have failed under the 2011 final rule (“Gainful Employment 1.0”).
• Six percent of programs would fail the debt-to-income standards, the same as in
the 2011 rule.

Fourteen percent of all programs would fail (exceed the 30% default threshold)
the recently introduced program-level cohort default rate (pCDR) metric. We
note that 8.3% of the failing programs belong to not-for-profit colleges (for
which certificate programs are subject to gainful employment regulations). Notfor-
profit colleges account for 17.1% of the total population of reported default
rates, so the proportion of failing programs is roughly half of that of private
sector colleges, but still meaningful enough to ring alarm bells among
constituents of not-for-profit colleges who, to this point, have largely viewed
gainful employment as a “for-profit issue” only. We believe pCDR will ultimately
be an out for schools (included as an “or” rather than “and” metric in the final
• The concept of a repayment rate threshold, introduced before the last set of
hearings, was eliminated in this draft. We believe providing quantitative support
for the “right” level of repayment will prove challenging for ED, particularly in
light of ED-approved programs like loan forbearance, deferment, hardship, or
income-based repayment, which encourage students to delay or reduce loan
payments. We are uncertain if a repayment threshold will be included in the final
rule, but if so, believe this will also be an “or” metric.

Recapping the Gainful Employment Process
On December 11, ED released a third draft of gainful employment rules for this fall’s negotiated rulemaking (NegReg) sessions.
The first three-day session began Monday, September 9, with a panel of experts discussing draft rules; the second three-day
session began November 18; and the third (and likely final) one-day session will take place on December 13.
• The previous iteration of the rule, finalized in 2011, was challenged by an industry group and vacated in 2012 by a
federal judge who found the metrics “arbitrary,” so ED was forced to start the process over. If no consensus is reached
by the panel, ED will move forward with new rules, which would likely go into effect in 2015, potentially eliminating
Title IV student loan eligibility for programs at some schools in 2019 and beyond.
• The draft language, though very similar to the prior rule, appears more onerous for the sector this time around;
however, we note that the initially proposed rules from the previous gainful employment NegReg were watered down
significantly in the final language, with debt-to-income ceilings rising from 8% to 12% and repayment floors falling
from 45% to 35%, for example.
• In particular, the use of “and” rather than “or” forces the schools to pass all metrics, not just one; the re-introduction
of a “caution zone” for programs close to failing; the elimination of an extended debt amortization schedule for
bachelor’s and graduate programs; and the elimination of a transition period in which generally higher BLS incomes
could be substituted for actual earnings are negative changes for the schools in the space. The table at the end of this
note offers the details on the new rule and the schools’ debt-to-income and CDR exposures.

The schools have already begun adapting to potential rules by freezing or cutting tuitions or the number of credits
required for graduation as well as reducing exposures to low-salary fields like criminal justice or certain fine arts
studies, while also screening out unprepared students who are more likely to default or not repay loans. As a result,
we believe regulatory metrics will likely improve in the years leading up to the instatement of any potential rules.
• We believe the political climate has shifted significantly since the gainful employment NegReg process began in 2009,
and believe there is more political support for the private sector schools, particularly among Republicans, who now
view further ED regulations as anti-business. Although NegReg remains a nonlegislative process, Congress controls
funding for ED, and we believe the rules are significantly more likely to be softened than toughened following this fall’s
sessions and the ensuing public comment period. We also note that the schools successfully appealed the prior rules
and are likely to appeal again, so it could be a lengthy process to put the rules in place (if they are put in place at all).


Timo Connor, CFA

William Blair & Company, L.L.C.

link to report

From the financial community Updated Sector Thoughts as Gainful Employment Saga Continues

william blair 2

Updated Sector Thoughts as Gainful Employment Saga Continues

Viewpoint: The second set of negotiations for “Gainful Employment 2.0” resulted in no
consensus, as expected, but rather a contentious few days between advocates with little
common ground followed by a decision to extend the rule-making sessions into December,
with the Department of Education agreeing to provide data and support for its proposed
student loan default and repayment metrics in the meantime. We believe that most
investors have begun and will continue to ignore the tail risk the rule presents to private
sector schools in light of the significant regulatory risk that is already embedded in the
stocks, the extended duration of the gainful employment negotiations (four years and
counting, with no potential program closures until 2019 or later), the increasing likelihood
of a successful legal or regulatory challenge from the private sector schools that would
block some or all pieces of the final rule, the numerous positive changes already made in
the sector to improve student return on investment and school regulatory profiles, and the
recent strength in fundamentals and associated recovery in the stocks

Where Do Things Stand With Gainful Employment?
The Higher Education Act (the governing document for postsecondary schools that access
the government’s Title IV student loan program) states that for-profit college (both
certificate and degree) programs and nondegree (certificate) programs at nonprofit
colleges must prepare students for “gainful employment.” In 2009, a few key staffers
(who are no longer involved in the process) at the Department of Education (Ed) saw big
enrollment and profit growth and anecdotal evidence of student abuse at for-profit
colleges and decided that something needed to be done. In a bit of an end-around attack,
they reinterpreted the simple phrase “gainful employment” into a set of rules that created
complex student loan debt-to-income and repayment thresholds for for-profit college
students, which, if not met, could result in a loss of access to Title IV loans (which
accounts for about 80% of the sector’s revenue).

In a perfect storm for the sector, the introduction of potentially game-changing regulation
coincided with peak U.S. unemployment (and the end of an increase in college
applications associated with these job losses); the lapping of significant Pell grant and
Title IV loan limit

expansions from 2007 to 2009; the tail-end of a dramatic spike in forprofit
school capacity, programs, and tuitions along with an influx of private equity
dollars into the sector; and the beginning of a national conversation questioning the value
of a college degree as student loan debt surged near $1 trillion.
With the threat of largely unquantifiable legislation and the associated change in the
playing field, the enterprise value for the 15 publicly traded companies in the sector
dropped from $46 billion in the first quarter of 2010 to $8 billion in late 2012 as new
enrollment declined and total enrollment and profitability followed (enrollment is down
roughly 30% from peak levels and operating margins are down from the mid-20s to the
low double digits). Not until early this year did the sector show signs of a recovery, with
starts inflecting toward positive (and turning positive for a third of the schools) on price
reductions and a tailwind from a bit more regulatory clarity, and an investor recognition
that the schools were adapting business models and the 30% of the market capitalization
that lay in net cash was safe. The stocks have outperformed the market by 60% this year.

In the four years since gainful employment rule-making was introduced, Ed negotiated a set of harsh debt-to-income and
repayment draft rules in 2010, introduced a much softer final rule in 2011, released supporting data in 2012 that saw most of
the schools pass the tests with flying colors on surprisingly strong debt-to-income metrics, and then later in 2012 saw a
private sector college lawsuit strike the rule down on a federal judge’s view that Ed’s proposed repayment metric was
Ed went back to the drawing board and began another round of negotiated rule-making in fall 2013. Ed’s most recent
proposal, as in 2010, was a set of harsh debt-to-income and loan repayment standards. A (likely softened) final rule is
expected to be released late in 2014 with the rules going into effect in 2015. At-risk programs could be eliminated in 2019 and
Is There Risk for the Stocks?
Unlike in 2010 and 2011, when education stocks hung on every move from the Department of Education and legislative
opponent Senator Tom Harkin (D-Iowa) and 10% moves on policy speculation were a frequent event, over the past year, the
stocks have become immune to policy noise, good or bad. We note that attendance from both the buy- and sell-side at the
latest round of negotiations was a fraction of that seen in previous rounds. In many ways, the stocks have been left for dead
and remain uninvestable in the eyes of many long-only investors who were burned by the sector in past years. In that context,
we remain long-biased on the space, and note that:
1. New enrollment is gradually improving, with a third of the stocks in the space growing starts, a third in the down
single-digit range, and the rest getting “less worse.”
2. Most schools in the space have increased the value proposition of their degrees through brand-building efforts,
stronger retention and graduation, improved job placement rates, price cuts, enrollment restrictions like mandatory
orientation, low-ROI program elimination, and even money-back policies on first classes.
3. Public colleges have increased prices in real terms in excess of 5% annually over the past decade, and the increases
have continued despite declining enrollment, offering for-profit schools a bit of a price umbrella.
4. Most schools in the space have moved out (either partly or entirely) of the lead aggregator channel, which has
sometimes produced low quality student inquiries and at times resulted in high dropout rates (churn).
5. Retention increases at the schools have been largely masked by the graduation “bubble,” a result of the large incoming
classes of students in the 2008 to 2010 period reaching the end of their tenure at the schools, but these retention
gains should eventually allow total enrollment to grow well in excess of new enrollment and produce strong
incremental margins even on moderate top-line growth.
6. “Halo” schools like Grand Canyon University (LOPE $44.15; Outperform), which offers a traditional ground campus
and Division 1 athletic programs, and Capella University (CPLA $64.30; Outperform), one of the highest-quality online
degrees in the country (as recognized by its accreditor), are repairing the sector’s image among both policy-makers
and investors.
7. Many schools in the space have cut significant cost out of the business, but the magnitude of the cost cuts has varied
widely, leading us to believe there is significant further cost-cutting potential and margin leverage ahead for many
8. The potential range of negative regulatory outcomes has narrowed significantly, with the focus on gainful
employment and 90/10 (a legislative effort to exclude military funding dollars from the 10% of nonfederal money
required by this ratio) resulting in a much more manageable set of outcomes than the wide range of a few years ago
(with proposed marketing spending or even operating margin caps).
9. The sector trades at just over six times EBITDA, a significant discount in a market where inexpensive stocks are
increasingly hard to come by.

But we note that from an operator’s perspective, gainful employment still presents substantial risk—in its most punitive form,
the proposed rules could result in the closure of more than 10% of for-profit programs and likely costly changes even to
passing programs. While we believe most management teams remain in a holding pattern and are not making any operational
changes in the near term, we believe the rulemaking

Link to full report:

Timo Connor, CFA

William Blair & Company, L.L.C.

Key Points From the Fourth Day of Gainful Employment 2.0 Negotiations


Key Points From the Fourth Day of Gainful Employment 2.0 Negotiations
The fourth day of negotiations for gainful employment 2.0 offered little news or common
ground from the public- and private-sector college participants, and we expect the
Department of Education to proceed with unilateral action and produce a set of studentloan-
debt-to-income-and-repayment thresholds that will look similar to the first version
of gainful employment, released in 2011 but subsequently struck down by a federal judge
following a private-sector industry appeal.
Key Points
• Consensus remains unlikely to be reached through negotiation given the wide gap
between the private sector and public college representatives in attendance. Both
sides appeared to be positioning as if they expect the Department of Education (ED)
to proceed on its own in writing a final rule, particularly given the wide variance in
the draft rules proposed thus far and the lack of data and objectivity supporting the
process to date. We believe ED remains committed to releasing a final rule in 2014
that will go into effect in 2015. While it is unlikely that ED will combine gainful
employment rule-making with Higher Education Act (HEA) reauthorization, we
believe private-sector participants (with Republican support) will likely mount both
a legal challenge of the rules as well as a legislative challenge through the HEA
reauthorization process, which began in October but will likely take years to finalize.
• Public college advocates in particular appear more interested in derailing the
negotiating process than reaching a consensus, likely because they view a
unilateral approach to rule-making by ED in the likely event consensus is not
reached through negotiation as a positive scenario for most public colleges.
• Private-sector advocates, realizing their voice is being largely ignored at the
negotiating table, are pushing for a broadening of the rule to include all colleges
and are trying to raise questions on the legitimacy of ED’s major assumptions and
the quality and availability of the data supporting these assumptions. This is the
likely foundation for a formal legal challenge.
• Advocates of community colleges, for which certificate programs are subject to
gainful employment rules, appear to be gradually realizing that these rules could
harm their schools as well, and we expect this realization to become a potential
sticking point for ED in implementing a punitive rule (closing even a few
community college programs would be politically unpopular).
• The major wrinkle in the latest proposals from ED is the reinclusion of student loan
repayment metrics, which were included in the final rule proposed in 2011, but not
in the initial draft rules for gainful employment 2.0, released in August.
November 18, 2013

Based on commentary in the hearings today, we believe ED is now focused on including some form of a default/repayment metric as well as a debt-to-income metric. We note that the repayment test included in the

previous set of rules did not withstand legal review and was the major reason the initial set of rules was overturned,
so we are a bit surprised ED is heading back in this direction and believe it will need to show stronger quantitative
support for the metric to withstand another legal challenge.
• We believe the rules will likely be softened in the final iteration, as they were the first time around, with ED unlikely to
want to go through another extended legal battle with the private-sector colleges. And even though rule-making is not
a legislative process, a take-no-prisoners approach seems unlikely given the administration’s continued focus on
increasing the number of college graduates in the United States and the damage to the private sector that has already
been inflicted by the threat of the rules (enrollment is down 20% to 30% across the sector).

Author:  Timo Connor,
William Blair & Company, L.L.C.

Timo Connor, CFA, joined William Blair & Company in 2010 and focuses on education services and technology. Previously, he worked as a fixed-income analyst at Bank of America and BNY Mellon. Mr. Connor received a B.A. in economics from Northwestern University.

second session of gainful employment negotiated rulemaking is rescheduled for November 18-20

dept of education






The U.S. Department of Education has announced that the second session of gainful employment negotiated rulemaking is rescheduled for November 18-20, 2013. The negotiated rulemaking committee will convene from 9:00 am to 5:00 pm on each of the three days of the session at the Department’s offices on 1990 K Street, N.W. in Washington, D.C.

The Department postponed the second session, originally scheduled for October 21-23, 2013, because of the shutdown of the Federal government.

As you know, the government closure impacted the schedule of the negotiated rulemaking sessions. After round one of these negotiations, the Department created a series of working groups on specific issues. The Department is expected to combine some of the input from the first round of discussions with some of the recommendations from the working groups to create a revised draft regulation. With the second round of negotiated rulemaking scheduled for November 18-20, we anticipate a revised draft regulation to be released prior to those meetings. The next draft will send an important signal of how much the Department is willing to engage around the proposed regulation.

Gainful Employment negotiated rule-making is rescheduled for November 18-20, 2013

dept of education

The U.S. Department of Education has announced that the second session of gainful employment negotiated rulemaking is rescheduled for November 18-20, 2013. The negotiated rulemaking committee will convene from 9:00 am to 5:00 pm on each of the three days of the session at the Department’s offices on 1990 K Street, N.W. in Washington, D.C.

The Department postponed the second session, originally scheduled for October 21-23, 2013, because of the shutdown of the Federal government.

Government shutdown results in the cancellation of Rule making session scheduled for October 21-23rd


Negotiated Rulemaking 2013-2014 — Gainful Employment cancelled or at least postponed


Session 1: September 9-11, 2013
Session 2: October 21-23, 2013 * — CANCELLED

*Because of the federal government shutdown due to a lapse in appropriations, the second Gainful Employment negotiated rulemaking session that was scheduled for October 21-23 has been cancelled. Once the government reopens, the session will be rescheduled. Please monitor this website or the Federal Register for information about the rescheduling of Session 2.