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Submitted URL: https://app.elqassets.strategiced.com/e/er?s=1738732214&lid=3956&elqTrackId=0167f0ca486c43439ee6e758a846a687&elq=cf36b0e29936437eb24e0...
Effective URL: https://www.federalregister.gov/documents/2023/05/19/2023-09647/financial-value-transparency-and-gainful-employment-ge-financial...
Submission: On June 05 via api from US — Scanned from DE
Effective URL: https://www.federalregister.gov/documents/2023/05/19/2023-09647/financial-value-transparency-and-gainful-employment-ge-financial...
Submission: On June 05 via api from US — Scanned from DE
Form analysis 7 forms found in the DOM
GET /topics
<form class="facet-explorer-search" data-autocomplete="{"endpoint":"/agencies/suggestions?term="}" action="/topics" accept-charset="UTF-8" method="get"><input name="utf8" type="hidden" value="✓">
<input class="form-control fr-table-form ui-autocomplete-input" placeholder="try 'Agricultural Marketing Service'" data-autocomplete="autocomplete" autocomplete="off">
</form>GET /topics
<form class="facet-explorer-search" data-autocomplete="{"endpoint":"/topics/suggestions?term="}" action="/topics" accept-charset="UTF-8" method="get"><input name="utf8" type="hidden" value="✓">
<input class="form-control fr-table-form ui-autocomplete-input" placeholder="try 'Antidumping'" data-autocomplete="autocomplete" autocomplete="off">
</form>GET /document_issues/search
<form id="date_selector" action="/document_issues/search" accept-charset="UTF-8" method="get"><input name="utf8" type="hidden" value="✓">
<label>Go to a specific date:</label>
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<input type="submit" name="commit" value="Go" data-disable-with="Go">
</form>GET /public_inspection_issues/search
<form id="date_selector" action="/public_inspection_issues/search" accept-charset="UTF-8" method="get"><input name="utf8" type="hidden" value="✓">
<label>Go to a specific date:</label>
<input type="text" name="date" id="date" value="" placeholder="MM/DD/YYYY" class="browse_search">
<input type="submit" name="commit" value="Go" data-disable-with="Go">
</form>GET /documents/search
<form class="search-form formtastic conditions" novalidate="novalidate" action="/documents/search" accept-charset="UTF-8" method="get"><input name="utf8" type="hidden" value="✓">
<label for="term">Search the Federal Register</label>
<input class="search-term" placeholder="Search Documents" aria-label="Search Documents" type="text" name="conditions[term]" id="conditions_term">
<button name="button" type="submit" class="search-submit" id="conditions_submit" aria-label="Search"><span class="icon-fr2 icon-fr2-Search "></span></button>
</form>POST /my/clippings
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</form>POST https://api.regulations.gov/v4/comments
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<div class="notice message comment_reloaded hidden"> It appears that you have attempted to comment on this document before so we've restored your progress. <br>
<a href="#" id="comment-start-over">Start over</a>.
</div>
<fieldset class="inputs">
<ol>
<li class="input hidden">
<input type="hidden" name="comment[secret]" id="comment_secret">
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<li data-max-size="5000" data-size-warn-at="250" class="validate-required-js text input required" id="comment_comment_input"><label for="comment_comment" class="label">Comment<abbr title="required">*</abbr></label><textarea rows="20"
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</li>
<li class="select input optional" id="comment_category_input"><label for="comment_category" class="label">What is your comment about?</label><select name="comment[category]" id="comment_category">
<option value="" label=" "></option>
</select>
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<li class="public file input optional">
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<input id="fileupload" type="file" name="comment_attachment[attachment]" data-tooltip="Files attached to this comment will be publically viewable on Regulations.gov" multiple="">
</div>
<p class="inline-hints"> Note: You can attach your comment as a file and/or attach supporting documents to your comment.
<a href="" class="fr_modal_link attachment_requirements" data-modal-title="Attachment Requirements" data-modal-data="{"maxSize":"10 MB","fileTypes":["bmp","docx","gif","jpeg","jpg","pdf","png","pptx","rtf","sgml","tif","tiff","txt","wpd","xlsx","xml"],"maxAttachments":20}" data-modal-template-name="regulations-dot-gov-attachment-requirements-template">Attachment Requirements</a>.
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<table class="attachments">
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</li>
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<label for="comment_email" class="label">Tell us about yourself! I am...<abbr title="required">*</abbr></label>
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<div class="bootstrap-scope submitter-type-selector">
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<span class="icon-fr2 icon-fr2-users "></span><br>
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<input type="radio"> Anonymous
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<br>
<br>
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<div class="submitter-section-js cj-hidden" data-submitter-type="individual">
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<option value="NH">New Hampshire</option>
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Financial Value Transparency and Gainful Employment (GE), Financial
Responsibility, Administrative Capability, Certification Procedures, Ability to
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ED-2023-OPE-0089
Supporting Documents:
1. GE Data 3* – Dataset
2. GE Data 2* – Data Codebook
3. GE Data 1* – Description
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* ENHANCED CONTENT - TABLE OF CONTENTS
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* AGENCY:
* ACTION:
* SUMMARY:
* DATES:
* ADDRESSES:
* FOR FURTHER INFORMATION CONTACT:
* SUPPLEMENTARY INFORMATION:
* Calculating Earnings Premium Measure (§ 668.404)
* Student Disclosure Acknowledgments (§ 668.407)
* Financial Responsibility—Reporting Requirements (§ 668.171)(f)(i)(iii)
* Provisional Certification (§ 668.13(c))
* Approved State Process (§ 668.156(f))
* Executive Summary
* Purpose of This Regulatory Action
* Financial Value Transparency and Gainful Employment (§ 600.10, 600.21,
668.2, 668.43, 668.91, 668.401, 668.402, 668.403, 668.404, 668.405,
668.406, 668.407, 668.408, 668.409, 668.601, 668.602, 668.603, 668.604,
668.605, and 668.606)
* Financial Responsibility (§§ 668.15, 668.23, and 668, subpart L §§ 171,
174, 175, 176 and 177)
* Administrative Capability (§ 668.16)
* Certification Procedures (§§ 668.2, 668.13, and 668.14)
* Ability To Benefit (§§ 668.2, 668.32, 668.156, and 668.157)
* Background
* Financial Value Transparency and Gainful Employment (§§ 600.10, 600.21,
668.2, 668.43, 668.91, 668.401, 668.402, 668.403, 668.404, 668.405,
668.406, 668.407, 668.408, 668.409, 668.601, 668.602, 668.603, 668.604,
668.605, and 668.606)
* Financial Responsibility (§§ 668.15, 668.23, 668.171, and 668.174 Through
668.177) (Section 498(c) of the HEA)
* Administrative Capability (§ 668.16)
* Certification Procedures (§§ 668.2, 668.13, and 668.14)
* Ability To Benefit (§§ 668.2, 668.32, 668.156, and 668.157)
* Reliance Interests
* Public Participation
* Negotiated Rulemaking
* Summary of Proposed Changes
* Financial Value Transparency and Gainful Employment (§§ 600.10, 600.21,
668.2, 668.43, 668.91, 668.401 Through 668.409, 668.601 Through 668.606)
(Sections 101 and 102 of the HEA)
* Financial Responsibility (§§ 668.15, 668.23, 668.171, and 668.174 Through
668.177) (Section 498(c) of the HEA)
* Administrative Capability (§ 668.16) (Section 498(a) of the HEA)
* Certification Procedures (§§ 668.2, 668.13, and 668.14) (Section 498 of
the HEA)
* ATB (§§ 668.2, 668.32, 668.156, and 668.157 (Section 484(d) of the HEA)
* Significant Proposed Regulations
* Financial Value Transparency and Gainful Employment
* Financial Value Transparency Scope and Purpose (§ 668.401)
* Financial Value Transparency Framework (§ 668.402)
* D/E Rates
* Earnings Premium (EP)
* Calculating D/E Rates (§ 668.403)
* Minimum Number of Students Completing the Program
* Amortization
* Loan Debt
* Loan Debt Cap
* Attribution of Loan Debt
* Exclusions
* Calculating Earnings Premium Measure (§ 668.404)
* Process for Obtaining Data and Calculating D/E Rates and Earnings Premium
Measure (§ 668.405)
* Determination of the Debt to Earnings Rates and Earnings Premium Measure
(§ 668.406)
* Student Disclosure Acknowledgments (§ 668.407)
* Reporting Requirements (§ 668.408)
* Severability (§ 668.409)
* Gainful Employment (GE) Scope and Purpose (§ 668.601)
* Gainful Employment Criteria (§ 668.602)
* Ineligible Gainful Employment Programs (§ 668.603)
* Certification Requirements for GE Programs (§ 668.604)
* Warnings and Acknowledgments (§ 668.605)
* Severability (§ 668.606)
* Date, Extent, Duration, and Consequence of Eligibility (§ 600.10(c)(1)(v))
* Updating Application Information (§ 600.21(a)(11))
* General Definitions (§ 668.2)
* Institutional and Programmatic Information (§ 668.43)
* Initial and Final Decisions (§ 668.91)
* Financial Responsibility (§§ 668.15, 668.23, and 668, Subpart L §§ 171,
174, 175, 176 and 177) (§ 498(c) of the HEA)
* Factors of Financial Responsibility (§ 668.15)
* Compliance Audits and Audited Financial Statements (§ 668.23)
* Financial Responsibility—General Requirements (§ 668.171)
* Financial Responsibility—Mandatory Triggering Events (§ 668.171)
* Financial Responsibility—Discretionary Triggering Events (§ 668.171)
* Financial Responsibility—Recalculating the Composite Score (§ 668.171)
* Financial Responsibility—Reporting Requirements (§ 668.171)
* Directed Questions
* Financial Responsibility—Public Institutions (§ 668.171)
* Financial Responsibility—Audit Opinions and Disclosures (§ 668.171)
* Financial Responsibility—Past Performance (§ 668.174)
* Financial Responsibility—Past Performance (§ 668.174)
* Financial Responsibility—Alternative Standards and Requirements
(§ 668.175)
* Financial Responsibility—Change in Ownership Requirements (§ 668.176)
* Standards of Administrative Capability (§ 668.16)
* Administrative Capability—Financial Aid Counseling (§ 668.16(h))
* Administrative Capability—Debarment or Suspension (§ 668.16(k))
* Administrative Capability—Negative Actions (§ 668.16(n))
* Administrative Capability—High School Diploma (§ 668.16(p))
* Administrative Capability—Career Services (§ 668.16(q))
* Administrative Capability—Accessible Clinical or Externship Opportunities
(§ 668.16(r))
* Administrative Capability—Disbursing Funds (§ 668.16(s))
* Administrative Capability—Gainful Employment (§ 668.16(t))
* Administrative Capability—Misrepresentation (§ 668.16(u))
* Certification Procedures (§§ 668.2, 668.13, 668.14)
* General Definitions (§ 668.2)
* Period of Participation (§ 668.13(b)(3))
* Provisional Certification (§ 668.13(c))
* Directed Question
* Supplementary Performance Measures (§ 668.13(e))
* Signing a Program Participation Agreement (§ 668.14(a))
* Entering Into a Program Participation Agreement (§ 668.14(b)(5), (17),
(18), (26))
* Entering Into a Program Participation Agreement (§ 668.14(b)(32–34))
* Conditions That May Apply to Provisionally Certified Institutions
(§ 668.14(e)).
* Conditions for Initially Certified Nonprofit Institutions, or Institutions
That Have Undergone a Change of Ownership and Seek To Convert to Nonprofit
Status (§ 668.14(g)).
* Ability To Benefit
* General Definitions (§ 668.2)
* Student Eligibility—General (§ 668.32)
* Approved State Process (§ 668.156)
* Directed Questions
* Eligible Career Pathway Program (§ 668.157)
* Executive Orders 12866 and 13563
* Regulatory Impact Analysis
* 1. Need for Regulatory Action
* Summary
* Overview of Postsecondary Programs Supported by Title IV, HEA
* Outcome Differences Across Programs
* Consequences of Attending Low Financial Value Programs
* 2. Summary of Key Provisions
* 3. Analysis of the Financial Value Transparency and GE Regulations
* Methodology
* Data Used in This RIA
* Methodology for D/E Rates Calculations
* Methodology for EP Rate Calculation
* Analysis of Data Coverage
* Explanation of Terms
* Results of the Financial Value Transparency Measures for Programs Not
Covered by Gainful Employment
* Results of GE Accountability for Programs Subject to the Gainful
Employment Rule
* Program-Level Results
* Program Ineligibility
* Institution-Level Aanalysis of GE Program Accountability Provisions
* Regulation Targets Low-Performing GE Programs
* Student Demographic Analysis
* Methodology for Student Demographic Analysis
* Student Demographics Descriptive Analysis
* Student Demographics Regression Analysis
* Gender Differences
* Conclusions of Student Demographic Analysis
* Alternative Options Exist for Students To Enroll in High-Value Programs
* Measuring Students' Alternative Options
* Potential Alternative Programs Have Better Outcomes Than Failing Programs
* Transfer Causes Net Enrollment Increase in Some Sectors
* 4. Discussion of Costs, Benefits, and Transfers
* Description of Baseline
* Transparency and Gainful Employment
* Benefits
* Benefits to Students
* Benefits to Institutions
* Benefits to State and Local Governments
* Benefits to Federal Government
* Costs
* Costs to Students
* Costs to Institutions
* Costs to States and Local Governments
* Costs to Federal Government
* Transfers
* Financial Responsibility
* Benefits
* Costs
* Administrative Capability
* Benefits
* Students
* Federal Government
* Costs
* Certification Procedures
* Benefits
* Students
* Costs
* Ability To Benefit
* Benefits
* Costs
* 5. Methodology for Budget Impact and Estimates of Costs, Benefits, and
Transfers
* Assumptions
* Enrollment Growth Assumptions
* Program Performance Transition Assumptions
* Student Response Assumptions
* Student Borrowing Assumptions
* Methodology for Net Budget Impact
* Methodology for Costs, Benefits, and Transfers
* Earnings Gain Benefit
* Fiscal Externality Benefit
* Instructional Spending Cost and Transfer
* Student Aid Transfers
* 6. Net Budget Impacts
* Gainful Employment and Financial Transparency
* Other Provisions
* 7. Accounting Statement
* Primary Estimates
* Sensitivity Analysis
* Varying Levels of Student Transition
* No Program Improvement
* Alternative Earnings Gain
* Additional Sensitivity Analysis
* Financial Responsibility Triggers
* 8. Distributional Consequences
* 9. Alternatives Considered
* Financial Value Transparency and Gainful Employment
* D/E Rate Only
* Alternative Earnings Thresholds
* No Reporting, Disclosure, and Acknowledgment for Non-GE Programs
* Small Program Rates
* Alternative Components of the D/E Rates Measure
* Discretionary Earnings Rate
* Pre- and Post-Earnings Comparison
* Financial Responsibility
* Administrative Capability
* Certification Procedures
* Ability To Benefit
* Clarity of the Regulations
* 10. Regulatory Flexibility Act Analysis
* Description of the Reasons That Action by the Agency Is Being Considered
* Succinct Statement of the Objectives of, and Legal Basis for, the
Regulations
* Description of and, Where Feasible, an Estimate of the Number of Small
Entities To Which the Proposed Regulations Would Apply
* Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements of the Proposed Regulations, Including an Estimate
of the Classes of Small Entities That Would Be Subject to the Requirements
and the Type of Professional Skills Necessary for Preparation of the
Report or Record
* Identification, to the Extent Practicable, of All Relevant Federal
Regulations That May Duplicate, Overlap or Conflict With the Proposed
Regulations
* Alternatives Considered
* 11. Paperwork Reduction Act of 1995
* Intergovernmental Review
* Assessment of Educational Impact
* List of Subjects
* 34 CFR Part 600
* 34 CFR Part 668
* PART 600—INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT OF 1965,
AS AMENDED
* PART 668—STUDENT ASSISTANCE GENERAL PROVISIONS
* Subpart Q—Financial Value Transparency
* Subpart Q—Financial Value Transparency
* Subpart S—Gainful Employment (GE)
* Subpart S—Gainful Employment
* Footnotes
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Docket Title Document ID Comments Financial Value Transparency and Gainful
Employment (GE), Financial Responsibility, Administrative Capability,
Certification Procedures, Ability to Benefit (ATB) ED-2023-OPE-0089-0001
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Start Preamble Start Printed Page 32300
AGENCY:
Office of Postsecondary Education, Department of Education.
ACTION:
Notice of proposed rulemaking.
SUMMARY:
The Secretary is proposing new regulations to promote transparency, competence,
stability, and effective outcomes for students in the provision of postsecondary
education. Using the terminology of past regulatory proposals, these regulations
seek to make improvements in the areas of gainful employment (GE); financial
value transparency; financial responsibility; administrative capability;
certification procedures; and Ability to Benefit (ATB).
DATES:
We must receive your comments on or before June 20, 2023.
ADDRESSES:
Comments must be submitted via the Federal eRulemaking Portal at
regulations.gov. Information on using Regulations.gov, including instructions
for finding a rule on the site and submitting comments, is available on the site
under “FAQ.” If you require an accommodation or cannot otherwise submit your
comments via regulations.gov, please contact one of the program contact persons
listed under FOR FURTHER INFORMATION CONTACT . The Department will not accept
comments submitted by fax or by email or comments submitted after the comment
period closes. To ensure that the Department does not receive duplicate copies,
please submit your comment only once. Additionally, please include the Docket ID
at the top of your comments.
Privacy Note: The Department's policy is to generally make comments received
from members of the public available for public viewing in their entirety on the
Federal eRulemaking Portal at http://www.regulations.gov. Therefore, commenters
should be careful to include in their comments only information about themselves
that they wish to make publicly available. Commenters should not include in
their comments any information that identifies other individuals or that permits
readers to identify other individuals. If, for example, your comment describes
an experience of someone other than yourself, please do not identify that
individual or include information that would facilitate readers identifying that
individual. The Department reserves the right to redact at any time any
information in comments that identifies other individuals, includes information
that would facilitate readers identifying other individuals, or includes threats
of harm to another person.
Start Further Info
FOR FURTHER INFORMATION CONTACT:
For financial value transparency and GE: Joe Massman. Telephone: (202) 453–7771.
Email: Joe.Massman@ed.gov. For financial responsibility: Kevin Campbell.
Telephone: (214) 661–9488. Email: Kevin.Campbell@ed.gov. For administrative
capability: Andrea Drew. Telephone: (202) 987–1309. Email: Andrea.Drew@ed.gov.
For certification procedures: Vanessa Gomez. Telephone: (202) 453–6708. Email:
Vanessa.Gomez@ed.gov. For ATB: Aaron Washington. Telephone: (202) 987–0911.
Email: Aaron.Washington@ed.gov. The mailing address for the contacts above is
U.S. Department of Education, Office of Postsecondary Education, 400 Maryland
Avenue SW, 5th floor, Washington, DC 20202.
If you are deaf, hard of hearing, or have a speech disability and wish to access
telecommunications relay services, please dial 7–1–1.
End Further Info End Preamble Start Supplemental Information
SUPPLEMENTARY INFORMATION:
Directed Questions: The Department invites you to submit comments on all aspects
of the proposed regulations, as well as the Regulatory Impact Analysis. The
Department is particularly interested in comments on questions posed throughout
the Preamble, which are collected here for the convenience of commenters, with a
reference to the section in which they appear. The Department is also interested
in comments on questions posed in the Regulatory Impact Analysis.
CALCULATING EARNINGS PREMIUM MEASURE (§ 668.404)
We recognize that it may be more challenging for some programs serving students
in economically disadvantaged locales to demonstrate that graduates surpass the
earnings threshold when the earnings threshold reflects the median statewide
earnings, including locales with higher earnings. We invite public comments
concerning the possible use of an established list, such as list of persistent
poverty counties compiled by the Economic Development Administration, to
identify such locales, along with comments on what specific adjustments, if any,
the Department should make to the earnings threshold to accommodate in a fair
and data-informed manner programs serving those populations.
STUDENT DISCLOSURE ACKNOWLEDGMENTS (§ 668.407)
The Department is aware that in some cases, students may transfer from one
program to another or may not immediately declare a major upon enrolling in an
eligible non-GE program. We welcome public comments about how to best address
these situations with respect to acknowledgment requirements. The Department
also understands that many students seeking to enroll in non-GE programs may
place high importance on improving their earnings and would benefit if the
regulations provided for acknowledgements when a non-GE program is low-earning.
We further welcome public comments on whether the acknowledgement requirements
should apply to all programs, or to GE programs and some subset of non-GE
programs, that are low-earning.
The Department is also aware that some communities face unequal access to
postsecondary and career opportunities, due in part to the lasting impact of
historical legal prohibitions on educational enrollment and employment.
Moreover, institutions established to serve these communities, as reflected by
their designation under law, have often had lower levels of government
investment. The Department welcomes comments on how we might consider these
factors, in accord with our legal obligations and authority, as we seek to
ensure that all student loan borrowers can make informed decisions and afford to
repay their loans.
FINANCIAL RESPONSIBILITY—REPORTING REQUIREMENTS (§ 668.171)(F)(I)(III)
We specifically invite comments as to whether an investigation as described in
§ 668.171(f)(1)(iii) warrants inclusion in the final regulations as either a
mandatory or discretionary financial trigger. We also invite comment as to what
actions associated with the investigation would have to occur to initiate the
financial trigger.
PROVISIONAL CERTIFICATION (§ 668.13(C))
Proposed § 668.13(c)(2)(ii) requires reassessment of provisionally certified
institutions that have significant consumer protection concerns ( i.e., those
arising from claims under consumer protection laws) by the end of their second
year of receiving certification. We invite comment about whether to maintain the
proposed two- Start Printed Page 32301 year limit or extend recertification to
no more than three years for provisionally certified schools with major consumer
protection issues.
APPROVED STATE PROCESS (§ 668.156(F))
As agreed by Committee consensus, we propose a success rate calculation under
proposed § 668.156(f). To further inform the final regulations, we specifically
request comments on the proposed 85 percent threshold, the comparison groups in
the calculation, the components of the calculation, and whether the success rate
itself is an appropriate outcome indicator for the State process.
EXECUTIVE SUMMARY
PURPOSE OF THIS REGULATORY ACTION
The financial assistance students receive under the title IV, HEA programs for
postsecondary education and training represent a significant annual expenditure
by the Federal government. When used effectively, Federal aid for postsecondary
education and training is a powerful tool for promoting social and economic
mobility. However, many programs fail to effectively enhance students' skills or
increase their earnings, leaving them no better off than if they had never
pursued a postsecondary credential and with debt they cannot afford.
The Department is also aware of a significant number of instances where
institutions shut down with no warning and is concerned about the impact of such
events for students. For instance, one recent study shows that, of closures that
took place over a 16-year period, 70 percent of the students at such
institutions (100,000 individuals) received insufficient warning that the
closures were coming.[1] These closures often come at a significant cost to
taxpayers. Students who were enrolled at or close to the time of closure and did
not graduate from the shuttered institution may receive a discharge of their
Federal student loans. The cost of such discharges is rarely fully reimbursed
because once the institution closes there are often few assets to use for
repaying Federal liabilities. For example, the Department recouped less than 2
percent of the $550 million in closed school discharges awarded between January
2, 2014, to June 30, 2021, to students who attended private for-profit
colleges.[2] While these closures may have occurred without notice for the
students, they were often preceded by months if not years of warning signs.
Unfortunately, existing regulations do not provide the Department the necessary
authority to rely on those indicators of risk to take action and unfortunately,
despite observing these signs, the Department has lacked authority under
existing regulations to take action based on those indicators of risk in order
to secure financial protection before the institution runs out of money and
closes.
The Department's inability to act also has implications for students. Students
whose colleges close tend to have high default rates and are highly unlikely to
continue their educational journeys elsewhere. Those who enrolled well before
the point of closure may have been misled into taking on loans through
admissions and recruitment efforts based on misrepresentations about the ability
of attendees to obtain employment or transfer credit. Acting more swiftly in the
future to obtain financial protection would help either deter risky
institutional behavior or ensure the Department has more funds in place to
offset the cost to taxpayers of closed schools or borrower defense discharges.
There are also institutions that operate title IV, HEA programs without the
administrative capability necessary to successfully serve students, for example,
where institutions that lack the resources needed to deliver on promises made
about career services and externships or where institutions employ principals,
affiliates, or other individuals who exercise substantial control over an
institution who have a record of misusing title IV, HEA aid funds. A lack of
administrative capability can also result in insufficient institutional controls
over verifying students' high school diplomas, which are a key criterion for
title IV, HEA eligibility.
Furthermore, there have been instances where institutions have exhibited
material problems yet remained fully certified to participate in the Federal
student aid programs. This full certification status can limit the ability of
the Department to remedy problems identified through monitoring until it is
potentially too late to improve institutional behavior or prevent a school
closure that ends up wasting taxpayer resources in the form of loan discharges,
as well as the lost time, resources, and foregone opportunities of students.
To address these concerns, the Department convened a negotiated rulemaking
committee, the Institutional and Programmatic Eligibility Committee (Committee),
that met between January 18, 2022, and March 18, 2022, to consider proposed
regulations for the Federal Student Aid programs authorized under title IV of
the HEA (title IV, HEA programs) (see the section under Negotiated Rulemaking
for more information on the negotiated rulemaking process). The Committee
operated by consensus, defined as no dissent by any member at the time of a
consensus check. Consensus checks were taken by issue, and the Committee reached
consensus on the topic of ATB.
These proposed regulations address five topics: financial value transparency and
GE, financial responsibility, administrative capability, certification
procedures, and ATB.
Proposed regulations for financial value transparency would address concerns
about the rising cost of postsecondary education and training and increased
student borrowing by establishing an accountability and transparency framework
to encourage eligible postsecondary programs to produce acceptable debt and
earnings outcomes, apprise current and prospective students of those outcomes,
and provide better information about program price. Proposed regulations for GE
would establish eligibility and certification requirements to address ongoing
concerns about educational programs that are required by statute to provide
training that prepares students for gainful employment in a recognized
occupation, but instead are leaving students with unaffordable levels of loan
debt in relation to their earnings. These programs often lead to default or
provide no earnings benefit beyond that provided by a high school education,
thus failing to fulfill their intended goal of preparing students for gainful
employment. GE programs include nearly all educational programs at for-profit
institutions of higher education, as well as most non-degree programs at public
and private non-profit institutions.
The proposed financial responsibility regulations establish additional factors
that will be viewed by the Department as indicators of an institution's lack of
financial responsibility. When one of the factors occurs, the Department may
seek financial protection from the institution, most commonly through a letter
of credit. The indicators of a lack of financial responsibility proposed in this
NPRM are events that put an institution at a higher risk of financial
instability and sudden closure. Particular emphasis will be made regarding
events that bring about a major change in an institution's composite score, the
metric used to Start Printed Page 32302 determine an entity's financial strength
based on its audited financial statement as described in § 668.172 and
Appendices A and B in subpart L of part 668. Other examples of high-risk events
that could trigger a finding of a lack of financial responsibility are when an
institution is threatened with a loss of State authorization or loses
eligibility to participate in a Federal educational assistance program other
than those administered by the Department.
The events linked to the proposed financial triggers are often observed in
institutions facing possible or probable closure due to financial instability.
By allowing the Department to take certain actions in response to specified
financial triggers, the proposed regulations provide the Department with tools
to minimize the impact of an institution's financial decline or sudden closure.
The additional financial protections established in these regulations are
critical to offset potential losses sustained by taxpayers when an institution
closes and better ensure the Department may take actions in advance of a
potential closure to better protect taxpayers against the financial costs
resulting from an institutional closure. These protections would also dissuade
institutions from engaging in overly risky behavior in the first place. We also
propose to simplify the regulations by consolidating the financial
responsibility requirements for changes in ownership under proposed part 668,
subpart L and removing and reserving current § 668.15.
We propose several additional standards in the administrative capability
regulations at § 668.16 to ensure that institutions can appropriately administer
the title IV, HEA programs. While current administrative capability regulations
include a host of requirements, the Department proposes to address additional
concerns which could indicate severe or systemic administrative problems that
negatively impact student outcomes and are not currently reflected in those
regulations. The Department already requires institutions to provide adequate
financial aid counseling to students, for instance. However, many institutions
provide financial aid information to students that is confusing and misleading.
The information that institutions provide often lacks accurate information about
the total cost of attendance, and groups all types of aid together instead of
clearly separating grants, loans, and work study aid. The proposed
administrative capability regulations would address these issues by specifying
required elements to be included in financial aid communications.
We also propose to add an additional requirement for institutions to provide
adequate career services to help their students find jobs, particularly where
the institution offers career-specific programs and makes commitments about job
assistance. Adequate services would be evaluated based on the number of students
enrolled in GE programs at the school, the number and distribution of career
services staff, the career services the institution promised to its students,
and the presence of partnerships between institutions and recruiters who
regularly hire graduates. We believe this requirement would help ensure that
institutions provide adequate career services to students. The proposed
revisions and additions to § 668.16 address these and other concerns that are
not reflected in current regulations.
The proposed certification procedures regulations would create a more rigorous
process for certifying institutions for initial and ongoing participation in the
title IV, HEA programs and better protect students and taxpayers through a
program participation agreement (PPA). The proposed revisions to § 668.2,
668.13, and 668.14 aim to protect the integrity of the title IV, HEA programs
and to protect students from predatory or abusive behaviors. For example, in
§ 668.14(e) we propose requiring institutions that are provisionally certified
and that we determine to be at risk of closure to submit an acceptable teach-out
plan or agreement to the Department, the State, and the institution's recognized
accrediting agency. This would ensure that the institution has an acceptable
plan in place that allows students to continue their education in the event the
institution closes.
Finally, the Department proposes revisions to current regulations for ATB. These
proposed changes to § 668.156 would clarify the requirements for the approval of
a State process. The State process is one of the three ATB alternatives (see the
Background section for a detailed explanation) that an individual who is not a
high school graduate could fulfill to receive title IV, HEA, Federal student aid
for enrollment in an eligible career pathway program. The proposed changes to
§ 668.157 add documentation requirements for eligible career pathway programs.
Summary of the Major Provisions of this Regulatory Action: The proposed
regulations would make the following changes.
FINANCIAL VALUE TRANSPARENCY AND GAINFUL EMPLOYMENT (§ 600.10, 600.21, 668.2,
668.43, 668.91, 668.401, 668.402, 668.403, 668.404, 668.405, 668.406, 668.407,
668.408, 668.409, 668.601, 668.602, 668.603, 668.604, 668.605, AND 668.606)
* Amend § 600.10(c) to require an institution seeking to establish the
eligibility of a GE program to add the program to its application.
* Amend § 600.21(a) to require an institution to notify the Secretary within 10
days of any change to information included in the GE program's certification.
* Amend § 668.2 to define certain terminology used in subparts Q and S,
including “annual debt-to-earnings rate,” “classification of instructional
programs (CIP) code,” “cohort period,” “credential level,” “debt-to-earnings
rates (D/E rates),” “discretionary debt-to-earnings rates,” “earnings
premium,” “earnings threshold,” “eligible non-GE program,” ”Federal agency
with earnings data,” “gainful employment program (GE program),”
“institutional grants and scholarships,” “length of the program,” “poverty
guideline,” “prospective student,” “student,” and “Title IV loan.”
* Amend § 668.43 to establish a Department website for the posting and
distribution of key information and disclosures pertaining to the
institution's educational programs, and to require institutions to provide
the information required to access that website to a prospective student
before the student enrolls, registers, or makes a financial commitment to the
institution.
* Amend § 668.91(a) to require that a hearing official must terminate the
eligibility of a GE program that fails to meet the required GE metrics,
unless the hearing official concludes that the Secretary erred in the
calculation.
* Add a new § 668.401 to provide the scope and purpose of newly established
financial value transparency regulations under subpart Q.
* Add a new § 668.402 to provide a framework for the Secretary to determine
whether a GE program or eligible non-GE program leads to acceptable debt and
earnings results, including establishing annual and discretionary D/E rate
metrics and associated outcomes, and establishing an earnings premium metric
and associated outcomes.
• Add a new § 668.403 to establish a methodology to calculate annual and
discretionary D/E rates, including parameters to determine annual loan payments,
annual earnings, loan debt Start Printed Page 32303 and assessed charges, as
well as to provide exclusions and specify when D/E rates will not be calculated.
* Add a new § 668.404 to establish a methodology to calculate a program's
earnings premium measure, including parameters to determine median annual
earnings, as well as to provide exclusions and specify when the earnings
premium measure will not be calculated.
* Add a new § 668.405 to establish a process by which the Secretary will obtain
the administrative and earnings data required to issue D/E rates and the
earnings premium measure.
* Add a new § 668.406 to require the Secretary to notify institutions of their
financial value transparency metrics and outcomes.
* Add a new § 668.407 to require current and prospective students to
acknowledge having seen the information on the disclosure website maintained
by the Secretary if an eligible non-GE program has failed the D/E rates
measure, to specify the content and delivery of such acknowledgments, and to
require that students must provide the acknowledgment before the institution
may disburse any title IV, HEA funds.
* Add a new § 668.408 to establish institutional reporting requirements for
students who enroll in, complete, or withdraw from a GE program or eligible
non-GE program and to define the timeframe for institutions to report this
information.
* Add a new § 668.409 to establish severability protections ensuring that if
any financial value transparency provision under subpart Q is held invalid,
the remaining provisions of that subpart and of other subparts would continue
to apply.
* Add a new § 668.601 to provide the scope and purpose of newly established GE
regulations under subpart S.
* Add a new § 668.602 to establish criteria for the Secretary to determine
whether a GE program prepares students for gainful employment in a recognized
occupation.
* Add a new § 668.603 to define the conditions under which a failing GE program
would lose title IV, HEA eligibility, to provide the opportunity for an
institution to appeal a loss of eligibility only on the basis of a
miscalculated D/E rate or earnings premium, and to establish a period of
ineligibility for failing GE programs that lose eligibility or voluntarily
discontinue eligibility.
* Add a new § 668.604 to require institutions to provide the Department with
transitional certifications, as well as to certify when seeking
recertification or the approval of a new or modified GE program, that each
eligible GE program offered by the institution is included in the
institution's recognized accreditation or, if the institution is a public
postsecondary vocational institution, the program is approved by a recognized
State agency.
* Add a new § 668.605 to require warnings to current and prospective students
if a GE program is at risk of a loss of title IV, HEA eligibility, to specify
the content and delivery requirements for such notifications, and to provide
that students must acknowledge having seen the warning before the institution
may disburse any title IV, HEA funds.
* Add a new § 668.606 to establish severability protections ensuring that if
any GE provision under subpart S is held invalid, the remaining provisions of
that subpart and of other subparts would continue to apply.
FINANCIAL RESPONSIBILITY (§§ 668.15, 668.23, AND 668, SUBPART L §§ 171, 174,
175, 176 AND 177)
* Remove and reserve § 668.15 thereby consolidating all financial
responsibility factors, including those governing changes in ownership, under
part 668, subpart L.
* Amend § 668.23(a) to require that audit reports are submitted in a timely
manner, which would be the earlier of 30 days after the date of the report or
six months after the end of the institution's fiscal year.
* Amend § 668.23(d) to require that financial statements submitted to the
Department must match the fiscal year end of the entity's annual return(s)
filed with the Internal Revenue Service. We would further amend § 668.23(d)
to require the institution to include a detailed description of related
entities with a level of detail that would enable the Department to readily
identify the related party. Such information must include, but is not limited
to, the name, location and a description of the related entity including the
nature and amount of any transactions between the related party and the
institution, financial or otherwise, regardless of when they occurred.
Section 668.23(d) would also be amended to require that any domestic or
foreign institution that is owned directly or indirectly by any foreign
entity holding at least a 50 percent voting or equity interest in the
institution must provide documentation of the entity's status under the law
of the jurisdiction under which the entity is organized. Additionally, we
would amend § 668.23(d) to require an institution to disclose in a footnote
to its financial statement audit the dollar amounts it has spent in the
preceding fiscal year on recruiting activities, advertising, and other
pre-enrollment expenditures.
* Amend § 668.171(b) to require institutions to demonstrate that they are able
to meet their financial obligations by noting additional cases that
constitute a failure to do so, including failure to make debt payments for
more than 90 days, failure to make payroll obligations, or borrowing from
employee retirement plans without authorization.
* Amend § 668.171(c) to revise the set of conditions that automatically require
posting of financial protection if the event occurs as prescribed in the
regulations. These mandatory triggers are designed to measure external events
that pose risk to an institution, financial circumstances that may not appear
in the institution's regular financial statements, or financial circumstances
that may not yet be reflected in the institution's composite score. Some
examples of these mandatory triggers include when, under certain
circumstances, there is a withdrawal of owner's equity by any means and when
an institution loses eligibility to participate in another Federal
educational assistance program due to an administrative action against the
institution.
* Amend § 668.171(d) to revise the set of conditions that may, at the
discretion of the Department, require posting of financial protection if the
event occurs as prescribed in the regulations. These discretionary triggers
are designed to measure external events or financial circumstances that may
not appear in the institution's regular financial statements and may not yet
be reflected in the institution's composite score. An example of these
discretionary triggers is when an institution is cited by a State licensing
or authorizing agency for failing to meet State or agency requirements.
Another example is when the institution experiences a significant fluctuation
between consecutive award years or a period of award years in the amount of
Federal Direct Loan or Federal Pell Grant funds that cannot be accounted for
by changes in those title IV, HEA programs.
* Amend § 668.171(f) to revise the set of conditions whereby an institution
must report to the Department that a triggering event, described in
§ 668.171(c) and (d), has occurred.
• Amend § 668.171(h) to adjust the language regarding an auditor's opinion of
doubt about the institution's ability to continue operations to clarify that the
Department may independently assess whether the auditor's concerns have Start
Printed Page 32304 been addressed or whether the opinion of doubt reflects a
lack of financial responsibility.
* Amend § 668.174(a) to clarify the language related to compliance audit or
program review findings that lead to a liability of greater than 5 percent of
title IV, HEA volume at the institution, so that the language more clearly
states that the timeframe of the preceding two fiscal years timeframe relates
to when the reports containing the findings in question were issued and not
when the reviews were actually conducted.
* Add a new proposed § 668.176 to consolidate financial responsibility
requirements for institutions undergoing a change in ownership under § 668,
subpart L.
* Redesignate the existing § 668.176, establishing severability, as § 668.177
with no change to the regulatory text.
ADMINISTRATIVE CAPABILITY (§ 668.16)
* Amend § 668.16(h) to require institutions to provide adequate financial aid
counseling and financial aid communications to advise students and families
to accept the most beneficial types of financial assistance available to
enrolled students that includes clear information about the cost of
attendance, sources and amounts of each type of aid separated by the type of
aid, the net price, and instructions and applicable deadlines for accepting,
declining, or adjusting award amounts.
* Amend § 668.16(k) to require that an institution not have any principal or
affiliate whose misconduct or closure contributed to liabilities to the
Federal government in excess of 5 percent of that institution's title IV, HEA
program funds in the award year in which the liabilities arose or were
imposed.
* Add § 668.16(n) to require that the institution has not been subject to a
significant negative action or a finding by a State or Federal agency, a
court, or an accrediting agency, where in which the basis of the action or
finding is repeated or unresolved, such as non-compliance with a prior
enforcement order or supervisory directive; and to further require that the
institution has not lost eligibility to participate in another Federal
educational assistance program due to an administrative action against the
institution.
* Amend § 668.16(p) to strengthen the requirement that institutions must
develop and follow adequate procedures to evaluate the validity of a
student's high school diploma.
* Add § 668.16(q) to require that institutions provide adequate career services
to eligible students who receive title IV, HEA program assistance.
* Add § 668.16(r) to require that an institution provide students with
accessible clinical, or externship opportunities related to and required for
completion of the credential or licensure in a recognized occupation, within
45 days of the successful completion of other required coursework.
* Add § 668.16(s) to require that an institution timely disburses funds to
students consistent with the students' needs.
* Add § 668.16(t) to require institutions to meet new standards for their GE
programs, as outlined in regulation.
* Add § 668.16(u) to require that an institution does not engage in
misrepresentations or aggressive and deceptive recruitment.
CERTIFICATION PROCEDURES (§§ 668.2, 668.13, AND 668.14)
* Amend § 668.2 to add a definition of “metropolitan statistical area.”
* Amend § 668.13(b)(3) to eliminate the provision that requires the Department
to approve participation for an institution if it has not acted on a
certification application within 12 months so the Department can take
additional time where it is needed.
* Amend § 668.13(c)(1) to include additional events that lead to provisional
certification, such as if an institution triggers one of the new financial
responsibility triggers proposed in this rule.
* Amend § 668.13(c)(2) to require provisionally certified schools that have
major consumer protection issues to recertify after no more than two years.
* Add a new § 668.13(e) to establish supplementary performance measures the
Secretary may consider in determining whether to certify or condition the
participation of the institution.
* Amend § 668.14(a)(3) to require an authorized representative of any entity
with direct or indirect ownership of a private institution to sign a PPA.
* Amend § 668.14(b)(17) to include all Federal agencies and add State attorneys
general to the list of entities that have the authority to share with each
other and the Department any information pertaining to the institution's
eligibility for or participation in the title IV, HEA programs or any
information on fraud, abuse, or other violations of law.
* Amend § 668.14(b)(26)(ii) to limit the number of hours in a GE program to the
greater of the required minimum number of clock hours, credit hours, or the
equivalent required for training in the recognized occupation for which the
program prepares the student, as established by the State in which the
institution is located, or the required minimum number of hours required for
training in another State, if the institution provides documentation of that
State meeting one of three qualifying requirements to use a State in which
the institution is not located that is substantiated by the certified public
accountant who prepares the institution's compliance audit report as required
under § 668.23.
* Amend § 668.14(b)(32) to require all programs that are designed to lead to
employment in occupations requiring completion of a program that is
programmatically accredited as a condition of State licensure to meet those
requirements.
* Amend § 668.14(e) to establish a non-exhaustive list of conditions that the
Secretary may apply to provisionally certified institutions, such as the
submission of a teach-out plan or agreement.
* Amend § 668.14(f) to establish conditions that may apply to institutions that
undergo a change in ownership seeking to convert from a for-profit
institution to a nonprofit institution.
* Amend § 668.14(g) to establish conditions that may apply to an initially
certified nonprofit institution, or an institution that has undergone a
change of ownership and seeks to convert to nonprofit status.
ABILITY TO BENEFIT (§§ 668.2, 668.32, 668.156, AND 668.157)
* Amend § 668.2 to add a definition of “eligible career pathway program.”
* Amend § 668.32 to differentiate between the title IV, HEA aid eligibility of
non-high school graduates that enrolled in an eligible program prior to July
1, 2012, and those that enrolled after July 1, 2012.
* Amend § 668.156(b) to separate the State process into an initial two-year
period and a subsequent period for which the State may be approved for up to
five years.
• Amend § 668.156(a) to strengthen the Approved State process regulations to
require that: (1) The application contain a certification that each eligible
career pathway program intended for use through the State process meets the
proposed definition of an eligible career pathway program in regulation; (2) The
application describe the criteria used to determine student eligibility for
participation in the State process; (3) The withdrawal rate for a postsecondary
institution listed for the first time on a State's application not exceed 33
percent; (4) That upon initial Start Printed Page 32305 application the
Secretary will verify that a sample of the proposed eligible career pathway
programs meet statutory and regulatory requirements; and (5) That upon initial
application the State will enroll no more than the greater of 25 students or one
percent of enrollment at each participating institution.
* Amend § 668.156(c) to remove the support services requirements from the State
process which include: orientation, assessment of a student's existing
capabilities, tutoring, assistance in developing educational goals,
counseling, and follow up by teachers and counselors.
* Amend the monitoring requirement in § 668.156(c)(4) to provide a
participating institution that did not achieve the 85 percent success rate up
to three years to achieve compliance.
* Amend § 668.156(c)(6) to prohibit an institution from participating in the
State process for title IV, HEA purposes for at least five years if the State
terminates its participation.
* Amend § 668.156 to clarify that the State is not subject to the success rate
requirement at the time of the initial application but is subject to the
requirement for the subsequent period, reduce the required success rate from
the current 95 percent to 85 percent, and specify that the success rate be
calculated for each participating institution. Also, amend the comparison
groups to include the concept of “eligible career pathway programs.”
• Amend § 668.156 to require that States report information on race, gender,
age, economic circumstances, and educational attainment and permit the Secretary
to release a Federal Register notice with additional information that the
Department may require States to submit.
* Amend § 668.156 to update the Secretary's ability to revise or terminate a
State's participation in the State process by (1) providing the Secretary the
ability to approve the State process once for a two-year period if the State
is not in compliance with a provision of the regulations and (2) allowing the
Secretary to lower the success rate to 75 percent if 50 percent of the
participating institutions across the State do not meet the 85 percent
success rate.
* Add a new § 668.157 to clarify the documentation requirements for eligible
career pathway programs.
Costs and benefits: The Department estimates that the proposed regulations would
generate benefits to students, postsecondary institutions, and the Federal
government that exceed the costs. The Department also estimates substantial
transfers, primarily in the form of reduced net title IV, HEA spending by the
Federal government. Net benefits are created primarily by shifting students from
low-financial-value to high-financial-value programs or, in some cases, away
from low-financial-value postsecondary programs to non-enrollment. This shift
would be due to improved and standardized market information about all
postsecondary programs that would facilitate better decision making by current
and prospective students and their families; the public, taxpayers, and the
government; and institutions. Furthermore, the GE component would improve the
quality of options available to students by directly eliminating the ability of
low-financial-value GE programs to receive title IV, HEA funds. This enrollment
shift and improvement in program quality would result in higher earnings for
students, which would generate additional tax revenue for Federal, State, and
local governments. Students would also benefit from lower accumulated debt and
lower risk of default. The proposed regulations would also generate substantial
transfers, primarily in the form of title IV, HEA aid shifting between students,
postsecondary institutions, and the Federal government, generating a net budget
savings for the Federal government. Other components of this proposed regulation
related to financial responsibility would provide benefits to the Department and
taxpayers by increasing the amount of financial protection available before an
institution closes or incurs borrower defense liabilities. This would also help
dissuade unwanted behavior and benefit institutions that are in stronger
financial shape by dissuading struggling institutions from engaging in
questionable behaviors to gain a competitive advantage in increasing enrollment.
Similarly, the changes to administrative capability and certification procedures
would benefit the Department in increasing its quality of oversight of
institutions so that students have more valuable options when they enroll.
Finally, the ATB regulations would provide needed clarity to institutions and
States on how to serve students who do not have a high school diploma.
The primary costs of the proposed regulations related to the financial value
transparency and GE accountability requirements are the additional reporting
required by institutions, the time for students to acknowledge having seen
disclosures, and additional spending at institutions that accommodate students
who would otherwise have decided to attend failing programs. The proposed
regulations may also dissuade some students from enrolling that otherwise would
have benefited from doing so. For the financial responsibility portion of the
proposed regulations, costs would be primarily related to the expense of
providing financial protection to the Department as well as transfers that arise
from shifting the cost and burden of closed school discharges from the taxpayer
to the institution and the entities that own it. Costs related to certification
procedures and administrative capability would be related to any necessary steps
to comply with the added requirements. Finally, States and institutions would
have some added administrative expenses to administer the proposed
ability-to-benefit processes.
Invitation to Comment: We invite you to submit comments regarding these proposed
regulations. To ensure that your comments have maximum effect in developing the
final regulations, we urge you to clearly identify the specific section or
sections of the proposed regulations that each of your comments addresses and to
arrange your comments in the same order as the proposed regulations.
We invite you to assist us in complying with the specific requirements of
Executive Orders 12866 and 13563 and their overall requirement of reducing
regulatory burden that might result from these proposed regulations. Please let
us know of any further ways we could reduce potential costs or increase
potential benefits while preserving the effective and efficient administration
of the Department's programs and activities. The Department also welcomes
comments on any alternative approaches to the subjects addressed in the proposed
regulations.
During and after the comment period, you may inspect public comments about these
proposed regulations on the Regulations.gov website.
Assistance to Individuals with Disabilities in Reviewing the Rulemaking Record:
On request, we will provide an appropriate accommodation or auxiliary aid to an
individual with a disability who needs assistance to review the comments or
other documents in the public rulemaking record for these proposed regulations.
If you want to schedule an appointment for this type of accommodation or
auxiliary aid, please contact one of the persons listed under FOR FURTHER
INFORMATION CONTACT . Start Printed Page 32306
BACKGROUND
FINANCIAL VALUE TRANSPARENCY AND GAINFUL EMPLOYMENT (§§ 600.10, 600.21, 668.2,
668.43, 668.91, 668.401, 668.402, 668.403, 668.404, 668.405, 668.406, 668.407,
668.408, 668.409, 668.601, 668.602, 668.603, 668.604, 668.605, AND 668.606)
Postsecondary education and training generate important benefits both to the
students pursuing new knowledge and skills and to the Nation overall. Higher
education increases wages and lowers unemployment risk,[3] and leads to myriad
non-financial benefits including better health, job satisfaction, and overall
happiness.[4] In addition, increasing the number of individuals with
postsecondary education creates social benefits, including productivity
spillovers from a better educated and more flexible workforce,[5] increased
civic participation,[6] improvements in health and well-being for the next
generation,[7] and innumerable intangible benefits that elude quantification.
The improvements in productivity and earnings lead to increases in tax revenues
from higher earnings and lower rates of reliance on social safety net programs.
These downstream increases in net revenue to the government can be so large that
public investments in higher education more than pay for themselves.[8]
These benefits are not guaranteed, however. Research has demonstrated that the
returns, especially the gains in earnings students enjoy as a result of their
education, vary dramatically across institutions and among programs within those
institutions.[9] As we illustrate in the Regulatory Impact Analysis of this
proposed rule, even among the same types of programs—that is, among programs
with similar academic levels and fields of study—both the costs and the outcomes
for students differ widely. Most postsecondary programs provide benefits to
students in the form of higher wages that help them repay any loans they may
have borrowed to attend the program. But too many programs fail to increase
graduates' wages, having little, or even negative, effects on graduates'
earnings.[10] At the same time, too many programs charge much higher tuition
than similar programs with comparable outcomes, leading students to borrow much
more than they could have had they attended a more affordable option.
With college tuition consistently rising faster than inflation, and given the
growing necessity of a postsecondary credential to compete in today's economy,
it is critical for students, families, and taxpayers alike to have accurate and
transparent information about the possible financial consequences of their
postsecondary program career options when choosing whether and where to enroll.
Providing information on the typical earnings outcomes, borrowing amounts, cost
of attendance, and sources of financial aid—and providing it directly to
prospective students in a salient way at a key moment in their decision-making
process—would help students make more informed choices and would allow taxpayers
and college stakeholders to better monitor whether public and private resources
are being well used. For many students these financial considerations would,
appropriately, be just one of many factors used in deciding whether and where to
enroll.
For programs that consistently produce graduates with very low earnings, or with
earnings that are too low to repay the amount the typical graduate borrows to
complete a credential, additional measures are needed to protect students from
financial harm. Although making information available has been shown to improve
consequential financial choices across a variety of settings, it is a limited
remedy, especially for more vulnerable populations that may have less support in
interpreting and acting upon the relevant information.[11 12] We believe that
providing more detailed information about the debt and earnings outcomes of
specific educational programs would assist students in making better informed
choices about whether and where to enroll.
To address these issues, the Department proposes to amend §§ 600.10, 600.21,
668.2, 668.13, 668.43, and 668.98, and to establish subparts Q and S of part
668. Through this proposed regulatory action, the Department seeks to establish
the following requirements:
(1) In subpart Q, a financial value transparency framework that would increase
the quality and availability of information provided directly to students about
the costs, sources of financial aid, and outcomes of students enrolled in all
eligible programs. The framework establishes measures of the earnings premium
that typical program graduates experience relative to the earnings of typical
high school graduates, as well as the debt service burden for typical graduates.
It also establishes performance benchmarks for each measure, denoting a
threshold level of performance below which the program may have adverse
financial consequences to students. This information would be made available via
a website maintained by the Department, and in some cases students and
prospective students would be required to acknowledge viewing these disclosures
before receiving title IV, HEA funds to attend programs with poor outcomes.
Further, the website would provide the public, taxpayers, and the government
with relevant information to better safeguard the Federal investment in these
programs. Finally, the transparency framework would provide institutions with
meaningful information that they could use to benchmark their performance to
other institutions and improve student outcomes in these programs.
(2) In subpart S, we propose an accountability framework for career training
programs (also referred to as gainful employment, or GE, programs) Start Printed
Page 32307 that uses the same earnings premium and debt-burden measures to
determine whether a GE program remains eligible for title IV, HEA program funds.
The GE eligibility criteria are designed to define what it means to prepare
students for gainful employment in a recognized occupation, and they tie program
eligibility to whether GE programs provide education and training to their title
IV, HEA students that lead to earnings beyond those of high school graduates and
sufficient to allow students to repay their student loans. GE programs that fail
the same measure in any two out of three consecutive years for which the measure
is calculated would lose eligibility for participation in title IV, HEA
programs.
Sections 102(b) and (c) of the HEA define, in part, a proprietary institution
and a postsecondary vocational institution as one that provides an eligible
program of training that prepares students for gainful employment in a
recognized occupation. Section 101(b)(1) of the HEA defines an institution of
higher education, in part, as any institution that provides not less than a
one-year program of training that prepares students for gainful employment in a
recognized occupation. The statute does not further specify this requirement,
and through multiple reauthorizations of the HEA, Congress has neither further
clarified the concept of gainful employment, nor curtailed the Secretary's
authority to further define this requirement through regulation, including when
Congress exempted some liberal arts programs offered by proprietary institutions
from the gainful employment requirement in the Higher Education Opportunity Act
of 2008.
The Department previously issued regulations on this topic three times. In 2011,
the Department published a regulatory framework to determine the eligibility of
a GE program based on three metrics: (1) Annual debt-to-earnings (D/E) rate, (2)
Discretionary D/E rate, and (3) Loan repayment rate. We refer to that regulatory
action as the 2011 Prior Rule (76 FR 34385). Following a legal challenge, the
program eligibility measures in the 2011 Prior Rule were vacated on the basis
that the Department had failed to adequately justify the loan repayment rate
metric.[13] In 2014, the Department issued new GE regulations, which based
eligibility determinations on only the annual and discretionary D/E rates as
accountability metrics, rather than the loan repayment rate metric that had been
the core source of concern to the district court in previous litigation, and
included disclosure requirements about program outcomes. We refer to that
regulatory action as the 2014 Prior Rule (79 FR 64889). The 2014 Prior Rule was
upheld by the courts except for certain appeal procedures used to demonstrate
alternate program earnings.[14 15 16]
The Department rescinded the 2014 Prior Rule in 2019 based on its judgments and
assessments at the time, citing: the inconsistency of the D/E rates with the
requirements of other repayment options; that the D/E rates failed to properly
account for factors other than program quality that affect student earnings and
other outcomes; a lack of evidence for D/E thresholds used to differentiate
between “passing,” “zone,” and “failing” programs; that the disclosures required
by the 2014 Prior Rule included some data, such as job placement rates, that
were deemed unreliable; that the rule failed to provide transparency regarding
debt and earnings outcomes for all programs, leaving students considering
enrollment options about both non-profit and proprietary institutions without
information; and relatedly, that a high percentage of GE programs did not meet
the minimum cohort size threshold and were therefore not included in the
debt-to-earnings calculations.[17] In light of the Department's reasoning at the
time, the 2019 Prior Rule ( i.e., the action to rescind the 2014 Prior Rule)
eliminated any accountability framework in favor of non-regulatory updates to
the College Scorecard on the premise that transparency could encourage market
forces to bring accountability to bear.
This proposed rule departs from the 2019 rescission, as well as the 2014 Prior
Rule, for reasons that are previewed here and elaborated on throughout this
preamble.[18] At the highest level, the Department remains concerned about the
same problems documented in the 2011 and 2014 Prior Rules. Too many borrowers
struggle to repay their loans, evidenced by the fact that over a million
borrowers defaulted on their loans in the year prior to the payment pause that
was put in place due to the COVID–19 pandemic. The Regulatory Impact Analysis
(RIA) shows these problems are more prevalent among programs where graduates
have high debts relative to their income, and where graduates have low earnings.
While both existing and proposed changes to income-driven repayment plans
(“IDR”) for Federal student loans partially shield borrowers from these risks,
such after-the-fact protections do not address underlying program failures to
prepare students for gainful employment in the first place, and they exacerbate
the impact of such failures on taxpayers as a whole when borrowers are unable to
pay. Not all borrowers participate in these repayment plans and, where they do,
the risks of nonpayment are shifted to taxpayers when borrowers' payments are
not sufficient to fully pay back the loans they borrowed. This is because
borrowers with persistently low incomes who enroll in IDR—and thereby make
payments based on a share of their income that can be as low as $0—will see
their remaining balances forgiven at taxpayer expense after a specified number
of years ( e.g., 20 or 25) in repayment.
The Department recognizes that, given the high cost of education and
correspondingly high need for student debt, students, families, institutions,
and the public have an acute interest in ensuring that higher education
investments are justified through positive repayment and earnings outcomes for
graduates. The statute acknowledges there are differences across programs and
colleges and this means we have different tools available to promote these goals
in different contexts. Recognizing this fact, for programs that the statute
requires to prepare students for gainful employment in a recognized occupation,
we propose reinstating a version of the debt-to-earnings requirement established
under the 2014 Prior Rule and adding an earnings premium metric to the GE
accountability framework. At the same time, we propose expanding disclosure
requirements to all eligible programs and institutions to ensure all students
have the benefit of access to accurate information on the financial consequences
of their education program choices.
First, the proposed rule incorporates a new accountability metric—an earnings
premium (EP)—that captures a distinct aspect of the value provided by a program.
The earnings premium measures the extent to which the typical graduate of a
program out-earns the typical individual with only a high school diploma or
equivalent in the same State the program is located. In Start Printed Page 32308
order to be considered a program that prepares students for gainful employment
in a recognized occupation, we propose that programs must both have graduates
whose typical debt levels are affordable, based on a similar debt-to-earnings
(D/E) test as used in the 2014 Prior Rule, and also have a positive earnings
premium.
Second, we propose to calculate and require disclosures of key information about
the financial consequences of enrolling in higher education programs for almost
all eligible programs at all institutions. As we elaborate below and in the RIA,
we believe this will help students understand differences in the costs,
borrowing levels, and labor market outcomes of more of the postsecondary options
they might be considering. It is particularly important for students who are
considering or attending a program that may carry a risk of adverse financial
outcomes to have access to comparable information across all sectors so they can
explore other options for enrollment and potentially pursue a program that is a
better financial value.
As further explained in the significant proposed regulations section of this
Notice and in the RIA, there are several connected reasons for adding the EP
metric to the proposed rule.[19] First, the Department believes that, for
postsecondary career training programs to be deemed as preparing students for
gainful employment, they should enable students to secure employment that
provides higher earnings than what they might expect to earn if they did not
pursue a college credential. This position is consistent with the ordinary
meaning of the phrase “gainful employment” and the purposes of the title IV, HEA
programs, which generally require students who receive assistance to have
already completed a high school education,[20] and then require GE programs “to
prepare” those high school graduates for “gainful employment” in a recognized
occupation.[21] Clearly, GE programs are supposed to add to what high school
graduates already have achieved in their preparation for gainful employment, not
leave them where they started. We propose to measure that gain, in part, with an
administrable test that is pegged to earnings beyond a typical high school
graduate. This approach is likewise supported by the fact that the vast majority
of students cite the opportunity for a good job or higher earnings as a key, if
not the most important, reason they chose to pursue a college degree.[22]
Furthermore, the EP metric that we propose would set only reasonable
expectations for programs that are supposed to help students move beyond a high
school baseline. The median earnings of high school graduates is about $25,000
nationally, which corresponds to the earnings level of a full-time worker at an
hourly wage of about $12.50 (lower than the State minimum wage in 15
States).[23] While the 2014 Prior Rule emphasized that borrowers should be able
to earn enough to afford to repay their debts, the Department recognizes that
borrowers need to be able to afford more than ”just” their loan payments, and
that postsecondary programs should help students reach a minimal level of labor
market earnings. Exceeding parity with the earnings of students who never attend
college is a modest expectation.
Another benefit of adding the EP metric is that it helps protect students from
the adverse borrowing outcomes prevalent among programs with very low earnings.
Research conducted since the 2014 Prior Rule as well as new data analyses shown
in this RIA illustrate that, for borrowers with low earnings, even small amounts
of debt (including levels of debt that would not trigger failure of the D/E
rates) can be unmanageable. Default rates tend to be especially high among
borrowers with lower debt levels, often because these borrowers left their
programs and as a result have very low earnings.[24] Analyses in this RIA show
that the default rate among students in programs that pass the D/E thresholds
but fail the earnings premium are very high—even higher than programs that fail
the D/E measure but pass the earnings premium measure.
Finally, as detailed further below, the EP measure helps protect taxpayers.
Borrowers 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.
While the EP and D/E metrics are related, they measure distinct dimensions of
gainful employment, further supporting the proposal to require that programs
pass both measures. For example, programs that have median earnings of graduates
above the high school threshold might still be so expensive as to require
excessive borrowing that students will struggle to repay. And, on the other
hand, even if debt levels are low relative to a graduate's earnings, those
earnings might still be no higher than those of the typical high school graduate
in the same State.
As noted above, the D/E metrics and thresholds in the proposed rule mirror those
in the 2014 Prior Rule and are based on both academic research about debt
affordability and industry practice. Analyses in the Regulatory Impact Analysis
(RIA) of this proposed rule illustrate that borrowers who attended programs that
fail the D/E rates are more likely to struggle with their debt. For example,
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 11.19 percent of all students who default within 3 years of
entering repayment. GE programs represent 15.2 percent of title IV, HEA
enrollments overall, but 49.6 percent of title IV, HEA enrollments within the
programs that fail the D/E standards and 65.6 percent of the defaulters. These
facts, in part, motivate the Department's proposal to calculate and disclose D/E
and EP rates for all programs under proposed subpart Q, while establishing
additional accountability for GE programs with persistently low performance in
the form of loss of title IV, HEA eligibility under proposed subpart S.
In addition to ensuring that career training programs ensure that graduates
attain at least a minimal level of earnings and have borrowing levels that are
manageable, the two metrics in the proposed rule also protect taxpayers from the
costs of low financial value programs. For example, the RIA presents estimates
of loan repayment under the hypothetical assumption that all borrowers pay on
either (1) the most generous repayment plan or (2) the most generous plan that
would be available under the income-driven repayment rule proposed by the
Department in January (88 FR 1894). These analyses show that both D/E rates and
the Start Printed Page 32309 earnings premium metrics are strongly correlated
with an estimated subsidy rate on Federal loans, which measures the share of a
disbursed loan that will not be repaid, and thus provides a proxy for the cost
of loans to taxpayers. In short, the D/E and earnings premium metrics are well
targeted to programs that generate a disproportionate share of the costs to
taxpayers and negative borrower outcomes that the Department seeks to improve.
We have also reconsidered the concerns raised in the 2019 Prior Rule about the
effect of some repayment options on debt-to-earnings rates. We recognize that
some repayment plans offered by the Department allow borrowers to repay their
loans as a fraction of their income, and that this fraction is lower for some
plans than the debt-to-earnings rate used to determine ineligibility under this
proposed rule and the 2014 Prior Rule. For example, under the Revised
Pay-As-You-Earn (REPAYE) income-driven repayment plan, borrowers' monthly
payments are set at 10 percent of their discretionary income, defined as income
in excess of 150 percent of the Federal poverty guideline (FPL). Noting that
many borrowers continue to struggle to repay, the Department has proposed more
generous terms, allowing borrowers to pay 5 percent of their discretionary
income (now redefined as income in excess of 225 percent of the FPL) to repay
undergraduate loans, and 10 percent of their discretionary income to repay
graduate loans.[25]
Income driven repayment plans are aimed at alleviating the burden of high debt
for students who experience unanticipated circumstances, beyond an institution's
control, that adversely impact their ability to repay their debts. While the
Department believes it is critical to reduce the risk of unexpected barriers
that borrowers face, and to protect borrowers from delinquency, default and the
associated adverse credit consequences, it would be negligent to lower our
accountability standards across the entire population as a result and to permit
institutions to encumber students with even more debt while expecting taxpayers
to pay more for poor outcomes related to the educational programs offered by
institutions. Instead, we view the D/E rates as an appropriate measure of what
students can borrow and feasibly repay. Put another way, the D/E provisions
proposed in this rule define a maximum amount of borrowing as a function of
students' earnings that would leave the typical program graduate in a position
to pay off their debt without having to rely on payment assistance programs like
income-driven repayment plans.
The concerns raised by the 2019 Prior Rule about the effect of student
demographics on the debt and earnings measures used in the 2014 Prior Rule
(which we also propose to use in this NPRM) are addressed at length in this
NPRM's RIA. The Department has considered that discrimination based on gender
identity or race and ethnicity may influence the aggregate outcomes of programs
that disproportionately enroll members of those groups. However, our analyses,
and an ever-increasing body of academic research, strongly rebut the claim that
differences across programs are solely or primarily a reflection of the
demographic or other characteristics of the students enrolled.[26] Moreover,
consistent with recurring allegations in student complaints and qui tam lawsuits
(a type of lawsuit through which private individuals who initiate litigation on
behalf of the government can receive for themselves all or part of the damages
or penalties recovered by the government), through our compliance oversight
activities including program reviews, the Department has concluded that many
institutions aggressively recruit individuals with low income, women, and
students of color into programs with substandard quality and poor outcomes and
then claim their outcomes are poor because of the “access” they provide to such
individuals. An analysis of the effects on access presented in the RIA
demonstrates that more than 90 percent of students enrolled in failing programs
have at least one non-failing option within the same geographic area, credential
level, and broad field. These alternative programs usually entail lower
borrowing, higher earnings, or both.
The Department has also reconsidered concerns raised in the 2019 Prior Rule
about the basis for proposed thresholds for debt-to-earnings rates. We have
re-reviewed the research underpinning those thresholds. This includes
considering concerns raised by one researcher about the way the Department
interpreted one of her studies in the 2019 Prior Rule.[27] From this, we have
proposed using one set of thresholds that are based upon research and industry
practice. This departs from prior approaches that distinguished between programs
in a “zone” versus “failing.”
The 2019 Prior Rule also raised concerns about the inclusion of potentially
unreliable metrics. We agree with this conclusion with respect to job placement
and thus do not propose including job placement rates among the proposed
disclosures required from institutions.[28] Because inconsistencies in how
institutions calculate job placement rates limit their usefulness to students
and the public in comparing institutions and programs, until we find a
meaningful and comparable measure, the Department does not rely upon job
placement rates in this proposed rule.
The Department also considered concerns raised in the 2019 Prior Rule that the
accountability framework was flawed because many programs did not have enough
graduates to produce data. Since many programs produce only a small number of
graduates each year, it is unavoidable that the Department will not be able to
publish debt and earnings based aggregate statistics for such programs to
protect the privacy of the individual students attending them or to ensure that
the data from those programs are adequately reliable. As further explained in
our discussion of proposed § 668.405, the IRS adds a small amount of statistical
noise to earnings data for privacy protection purposes, which would be greater
for populations smaller than 30.
While the Department is mindful of the fractions of programs likely covered, we
also are concentrating on the numbers of people who may benefit from the
metrics: enrolled students, prospective students, their families, and others.
Despite the data limitations noted above, under the proposed regulations, we
estimate that programs representing 69 and 75 percent of all title IV, HEA
enrollment in eligible non-GE programs and GE programs, Start Printed Page 32310
respectively, would have debt and earnings measures available to produce the
metrics. We further estimate the share of enrollment that would additionally be
covered under the four-year cohort approach (discussed later in this NPRM) by
examining the share of enrollment in programs that have fewer than 30 graduates
in our data for a two-year cohort, but at least 30 in a four-year cohort. Under
this approach, we estimate that an additional 13 percent of eligible non-GE
enrollment and 8 percent of GE enrollment would be covered. All told, the
metrics could be produced for programs that enroll approximately 82 percent of
all students. These students are enrolled in 34 percent of all eligible non-GE
programs and 26 percent of all GE programs.[29]
The metrics that we could calculate, therefore, would show results for
postsecondary education programs that are attended by the large majority of
enrolled students. Those numbers would be directly relevant to those students.
And it seems reasonable to further conclude that the covered programs will be
the primary focus of attention for the majority of prospective students, as
well. The programs least likely to be covered will be the smallest in terms of
the number of completers (and likely enrollment), which is correlated with the
breadth of interest among those considering enrolling in those programs. We
acknowledge that these programs represent potential options for future and even
current enrollees, and that relatively small programs might be different in
various ways from programs with larger enrollments. At the same time, the
Department does not view the fraction of programs covered by D/E and EP as the
most important metric. The title IV, HEA Federal student aid programs, after
all, provide aid to students directly, making the share of students covered a
natural focus of concern. The Department believes that the benefits of providing
this information to millions of people about programs that account for the
majority of students far outweighs the downside of not providing data on the
smallest programs. Furthermore, even for students interested in smaller
programs, the outcome measures for other programs at the same institution may be
of interest.
The Department continues to agree with the stance taken in the 2019 Prior Rule
that publishing metrics that help students, families, and taxpayers understand
the financial value of all programs is important. Prospective students often
consider enrollment options at public, for profit, and non-profit institutions
simultaneously and deserve comparable information to assess the financial
consequences of their choices. A number of research studies show that such
information, when designed well, delivered by a trusted source, and provided at
the right time can help improve choices and outcomes.[30] However, as further
discussed under “§ 668.401 Financial value transparency scope and purpose,”
merely posting the information on the College Scorecard website has had a
limited impact on enrollment choices. Consequently, our proposed rule, in
subpart Q below, outlines a financial value transparency framework that proposes
measures of debt-to-earnings and earnings premiums that would be calculated for
nearly all programs at all institutions. To help ensure students are aware of
these outcomes when financial considerations may be particularly important, the
framework includes a requirement that all students receive a link to program
disclosures including this information, and that students seeking to enroll in
programs that do not meet standards on the relevant measures would need to
acknowledge viewing that information prior to the disbursement of title IV, HEA
funds.
At the same time, the Department believes that the transparency framework alone
is not sufficient to protect students and taxpayers from programs with
persistently poor financial value outcomes.[31 32] The available information
continues to suggest that graduates of some GE programs have earnings below what
could be reasonably expected for someone pursuing postsecondary education. In
the Regulatory Impact Analysis, the Department shows that about 460,000 students
per year, comprising 16 percent of all title IV, HEA recipients enrolled in GE
programs annually, attend GE programs where the typical graduate earns less than
the typical high school graduate, and an additional 9 percent of those enrolled
in GE programs have unmanageable debt.[33] These rates are much higher among GE
programs than eligible non-GE programs, where 4 percent of title IV, HEA
enrollment is in programs with zero or negative earnings premiums and 2 percent
are in programs with unsustainable debt levels.
Researchers have found that while providing information alone can be important
and consequential in some settings, barriers to information and a lack of
support for interpreting and acting upon information can limit its impact on
students' education choices, particularly among more vulnerable populations.[34]
We are also concerned about evidence from Federal and State investigations and
qui tam lawsuits indicating that a number of institutions offering GE programs
engage in aggressive and deceptive marketing and recruiting practices. As a
result of these practices, prospective students and their families are
potentially being pressured and misled into critical decisions regarding their
educational investments that are against their interests.
We therefore propose an additional level of protection for GE programs that
disproportionately leave students with unsustainable debt levels or no gain in
earnings. We accordingly include an accountability framework in subpart S that
links debt and earnings outcomes to GE program eligibility for title IV, HEA
student aid programs. Since these programs are intended to prepare students for
gainful employment in recognized occupations, tying eligibility to a minimally
acceptable level of financial value is natural and supported by the relevant
statutes; and as detailed above and in the RIA, these programs account for a
disproportionate share of students who complete programs with very low earnings
and unmanageable debt. This approach has been supported by a number of
researchers who have recently suggested reinstating the 2014 GE rule with an
added layer of accountability through a high school Start Printed Page 32311
earnings metric.[35] We further explain the debt-to-earnings (D/E) and earnings
premium (EP) metrics in discussions above and below.
Consistent with our statutory authority, this proposed rule limits the linking
of debt and earnings outcomes to program eligibility for programs that are
defined as preparing students for gainful employment in a recognized occupation
rather than a larger set of programs. The differentiation between GE and non-GE
programs in the HEA reflects that eligible non-GE programs serve a broader array
of goals beyond career training. Conditioning title IV, HEA eligibility for such
programs to debt and earnings outcomes not only would raise questions of legal
authority, it could increase the risk of unintended educational consequences.
However, for purposes of program transparency, we propose to calculate and
disclose debt and earnings outcomes for all programs along with other measures
of the true costs of programs for students. Since students consider both GE and
non-GE programs when selecting programs, providing comparable information for
students would help them find the program that best meets their needs across any
sector.
While we propose reinstating the consequential accountability provisions,
including sanctions of eligibility loss, proposed in the 2011 and 2014 Prior
Rules, we depart from those regulations in several ways in addition to those
already mentioned above. First, we decided against using measures of loan
repayment, like the one proposed in the 2011 Prior Rule. Even with an acceptable
basis for setting such a threshold, we recognize that changes to the repayment
options available to borrowers may cause repayment rates to change, and as a
result such a measure may be an imperfect, or unstable, proxy for students'
outcomes and program quality.
We also propose changes relative to the 2014 Prior Rule, including elimination
of the “zone” and changes to appeals processes. Based on the Department's
analyses and experience administering the 2014 Rule, these provisions added
complexity and burden in administering the rule but did not further their stated
goals and instead unnecessarily limited the Department's ability to remove
low-value programs from eligibility. We further explain those choices below.[36]
Finally, the Department proposes to measure earnings using only the median of
program completers' earnings, rather than the maximum of the mean or median of
completers' earnings. This approach reflects an updated assessment that the
median is a more appropriate measure, indicating the earnings level exceeded by
a majority of the programs' graduates. The mean can be less representative of
program quality since it may be elevated or lowered by just a few ”outlier”
completers with atypically high or low earnings outcomes. Furthermore, in
aggregate National or State measures of earnings, mean earnings are always
higher than median earnings due to the right skew of earnings distributions and
the presence of a long right tail, when a small number of individuals earn
substantially more than the typical person does.[37] As a result, using mean
values, rather than medians, would substantially increase the state-level
earnings thresholds derived from the earnings of high school graduates.
Aggregated up to the State level, the mean earnings of those in the labor force
with a high school degree is about 16 percent higher than the median earnings.
By State, this difference between mean and median earnings ranges from 9 percent
(in Delaware and Vermont) to 28 percent (in Louisiana).
The use of means as a comparison earnings measure within a State would set a
much higher bar for programs, driven largely by the presence of high-earning
outliers. In contrast, the use of mean earnings, rather than medians, for
individual program data typically has a more muted effect. Using 2014 GE data,
the typical increase from the use of mean, rather than median earnings, is about
3 percent across programs. Further, some programs have lower earnings when
measured using a mean rather than median. Programs at the 25th percentile in
earnings difference have a mean that is 3 percent less than the median, and
programs at the 75th percentile have a mean than is 12 percent higher than the
median. On balance, we believe that using median earnings for both the measure
of program earnings and the earnings threshold measure used to calculate the
earnings premium leads to a more representative comparison of earnings outcomes
for program graduates.
FINANCIAL RESPONSIBILITY (§§ 668.15, 668.23, 668.171, AND 668.174 THROUGH
668.177) (SECTION 498(C) OF THE HEA)
Section 498(c) of the HEA requires the Secretary to determine whether an
institution has the financial responsibility to participate in the title IV, HEA
programs on the basis of whether the institution is able to:
* Provide the services described in its official publications and statements;
* Provide the administrative resources necessary to comply with the
requirements of the law; and
* Meet all of its financial obligations.
In 1994, the Department made significant changes to the regulations governing
the evaluation of an institution's financial responsibility to improve our
ability to implement the HEA's requirement. The Department strengthened the
factors used to evaluate an institution's financial responsibility to reflect
statutory changes made in the 1992 amendments to the HEA.
In 1997, we further enhanced the financial responsibility factors with the
creation of part 668, subpart L that established a financial ratio requirement
using composite scores and performance-based financial responsibility standards.
The implementation of these new and enhanced factors limited the applicability
of the previous factors in § 668.15 to only situations where an institution is
undergoing a change in ownership.
These proposed regulations would remove the outdated regulations from § 668.15
and reserve that section. Proposed regulations in a new § 668.176, under subpart
L, would be specific to institutions undergoing a change in ownership and detail
the precise financial requirements for that process. Upon implementation, all
financial responsibility factors for institutions, including institutions
undergoing a change in ownership, would reside in part 668, subpart L.
In 2013, the Office of Management and Budget's Circular A–133, which governed
independent audits of public and nonprofit, private institutions of higher
education and postsecondary vocational institutions, was replaced with
regulations at 2 CFR part 200—Uniform Administrative Requirements, Cost
Principles, And Audit Requirements For Federal Awards. In § 668.23, we would
replace all references to Circular A–133 with the current reference, 2 CFR part
200—Uniform Administrative Requirements, Cost Principles, And Audit Requirements
For Federal Awards. Start Printed Page 32312
Audit guides developed by and available from the Department's Office of
Inspector General contain the requirements for independent audits of for-profit
institutions of higher education, foreign schools, and third-party servicers.
Traditionally, these audits have had a submission deadline of six months
following the end of the entity's fiscal year. These proposed regulations would
establish a submission deadline that would be the earlier of two dates:
* Thirty days after the date of the later auditor's report with respect to the
compliance audit and audited financial statements; or
* Six months after the last day of the entity's fiscal year.
The Department primarily monitors institutions' financial responsibility through
the “composite score” calculation, a formula derived through a final rule
published in 1997 that relies on audited financial statements and a series of
tests of institutional performance. The composite score is only applied to
private nonprofit and for-profit institutions. Public institutions are generally
backed by the full faith and credit of the State or equivalent governmental
entity and, if so, are not evaluated using the composite score test or required
to post financial protection.
The composite score does not effectively account for some of the ways in which
institutions' financial difficulties may manifest, however, because institutions
submit audited financial statements after the end of an institution's fiscal
year. An example of this would be when the person or entity that owns the school
makes a short-term cash contribution to the school, thereby increasing the
school's composite score in a way that allows what would have been a failing
composite score to pass. We have seen examples of this activity occurring when
that same owner withdraws the same or similar amount after the end of the fiscal
year and after the calculation of a passing composite score based on the
contribution. The effect is that the institution passes just long enough for the
score to be reviewed and then goes back to failing. This is the type of
manipulation that the proposed regulation seeks to address.
As part of the 2016 Student Assistance General Provisions, Federal Perkins Loan
Program, Federal Family Education Loan Program, William D. Ford Federal Direct
Loan Program, and Teacher Education Assistance for College and Higher Education
Grant Program regulations [38] (referred to collectively as the 2016 Final
Borrower Defense Regulations), the Department introduced, as part of the
financial responsibility framework, “triggering events” to serve as indicators
of an institution's lack of financial responsibility or the presence of
financial instability. These triggers were used in conjunction with the
composite score and already existing standards of financial responsibility and
offset the limits inherent in the composite score calculation. Some of the
existing standards include that:
* The institution's Equity, Primary Reserve, and Net Income ratios yield a
composite score of at least 1.5;
* The institution has sufficient cash reserves to make required returns of
unearned title IV, HEA program funds;
* The institution is able to meet all of its financial obligations and
otherwise provide the administrative resources required to comply with title
IV, HEA program requirements; and
* The institution or persons affiliated with the institution are not subject to
a condition of past performance as outlined in 34 CFR 668.174.
The triggering events introduced in the 2016 Final Borrower Defense Regulations
were divided into two categories: mandatory and discretionary.
Some required an institution to post a letter of credit or provide other
financial protection when that triggering event occurred. This type of mandatory
trigger included when an institution failed to demonstrate that at least 10
percent of its revenue derived from sources other than the title IV, HEA program
funds (the 90/10 rule). Other mandatory triggers required a recalculation of the
institution's composite score, which would result in a request for financial
protection only if the newly calculated score was less than 1.0. An example of
the latter type of trigger was when an institution's recalculated composite
score was less than 1.0 due to its being required to pay any debt or incur any
liability arising from a final judgment in a judicial proceeding or from an
administrative proceeding or determination, or from a settlement.
The 2016 Final Borrower Defense Regulations also introduced discretionary
triggers that only required financial protection from the institution if the
Department determined it was necessary. An example of such a trigger was if an
institution had been cited by a State licensing or authorizing agency for
failing that entity's requirements. In that case, the Department could require
financial protection if it believed that the failure was reasonably likely to
have a material adverse effect on the financial condition, business, or results
of operations of the institution.
In 2019, as part of the Student Assistance General Provisions, Federal Family
Education Loan Program, and William D. Ford Federal Direct Loan Program [39]
(2019 Final Borrower Defense Regulations) the Department revised many of these
triggers, moving some from being mandatory to being discretionary; eliminating
some altogether; and linking some triggers to post-appeal or final events. An
example of a mandatory 2016 trigger that was removed entirely in 2019 was when
an institution's recalculated composite score was less than 1.0 due to its being
sued by an entity other than a Federal or State authority for financial relief
on claims related to the making of Direct Loans for enrollment at the
institution or the provision of educational services. In amending the financial
responsibility requirements in the 2019 Final Borrower Defense Regulations, the
Department reasoned that it was removing triggers that were speculative, such as
triggers based on the estimated dollar value of a pending lawsuit, and limiting
triggers to events that were known and quantified, such as triggers based on the
actual liabilities incurred from a defense to repayment discharge. The rationale
for the 2019 Final Borrower Defense Regulations was also based on the idea that
some of the 2016 triggers were not indicators of the institution's actual
financial condition or ability to operate. However, after implementing the
financial responsibility changes from the 2019 Final Borrower Defense
Regulations, the Department has repeatedly encountered institutions that
appeared to be at significant risk of closure where we lacked the ability to
request financial protection due to the more limited nature of the triggers. To
address this fact, these proposed regulations would reinstate or expand
mandatory and discretionary triggering events that would require an institution
to post financial protection, usually in the form of a letter of credit.
Discretionary triggers would provide the Department flexibility on whether to
require a letter of credit based on the financial impact the triggering event
has on the institution, while the specified mandatory triggering conditions
would either automatically require the institution to obtain financial surety or
require that the composite score be recalculated to determine if an institution
would have to provide surety because it no longer passes. These proposed new
triggers would increase Start Printed Page 32313 the Department's ability to
monitor institutions for issues that may negatively impact their financial
responsibility and to better protect students and taxpayers in cases of
institutional misconduct and closure.
ADMINISTRATIVE CAPABILITY (§ 668.16)
Under section 487(c)(1)(B) of the HEA, the Secretary is authorized to issue
regulations necessary to provide reasonable standards of financial
responsibility, and appropriate institutional administrative capability to
administer the title IV, HEA programs, in matters not governed by specific
program provisions, including any matter the Secretary deems necessary to the
administration of the financial aid programs. Section 668.16 specifies the
standards that institutions must meet in administering title IV, HEA funds to
demonstrate that they are administratively capable of providing the education
they promise and of properly managing the title IV, HEA programs. In addition to
having a well-organized financial aid office staffed by qualified personnel, a
school must ensure that its administrative procedures include an adequate system
of internal checks and balances. The Secretary's administrative capability
regulations protect students and taxpayers by requiring that institutions have
proper procedures and adequate administrative resources in place to ensure fair,
legal, and appropriate conduct by title IV, HEA participating schools. These
procedures are required to ensure that students are treated in a fair and
transparent manner, such as receiving accurate and complete information about
financial aid and other institutional features and receiving adequate services
to support a high-quality education. A finding that an institution is not
administratively capable does not necessarily result in immediate loss of access
to title IV aid. A finding of a lack of administrative capability generally
results in the Department taking additional proactive monitoring steps, such as
placing the institution on a provisional PPA or HCM2 as necessary.
Through program reviews, the Department has identified administrative capability
issues that are not adequately addressed by the existing regulations. The
Department proposes to amend § 668.16 to clarify the characteristics of
institutions that are administratively capable. The proposed changes would
benefit students in several ways.
First, we propose to improve the information that institutions provide to
applicants and students to understand the cost of the education being offered.
Specifically, we propose to require institutions to provide students financial
aid counseling and information that includes the institution's cost of
attendance, the source and type of aid offered, whether it must be earned or
repaid, the net price, and deadlines for accepting, declining, or adjusting
award amounts. We believe that these proposed changes would make it easier for
students to compare costs of the schools that they are considering and
understand the costs they are taking on to attend an institution.
Additionally, the Department proposes that institutions must provide students
with adequate career services and clinical or externship opportunities, as
applicable, to enable students to gain licensure and employment in the
occupation for which they are prepared. We propose that institutions must
provide adequate career services to create a pathway for students to obtain
employment upon successful completion of their program. Institutions must have
adequate career service staff and established partnerships with recruiters and
employers. With respect to clinical and externship opportunities where required
for completion of the program, we propose that accessible opportunities be
provided to students within 45 days of completing other required coursework.
We also propose that institutions must disburse funds to students in a timely
manner to enable students to cover institutional costs. This proposed change is
designed to allow students to remain in school and reduce withdrawal rates
caused by delayed disbursements.
The Department proposes that an institution that offers GE programs is not
administratively capable if it derives more than half of its total title IV, HEA
funds in the most recent fiscal year from GE programs that are failing.
Similarly, an institution is not administratively capable if it enrolls more
than half of its students who receive title IV, HEA aid in programs that are
failing under the proposed GE metrics. Determining that these institutions are
not administratively capable would allow the Department to take additional
proactive monitoring steps for institutions that could be at risk of seeing
significant shares of their enrollment or revenues associated with ineligible
programs in the following year. This could include placing the institution on a
provisional PPA or HCM2.
The Department also proposes to prohibit institutions from engaging in
aggressive and deceptive recruitment and misrepresentations. These practices are
defined in Part 668 Subpart F and Subpart R. The former was amended by the
borrower defense regulations published on November 1, 2022 (87 FR 65904), while
the latter was created in that regulation. Both provisions are scheduled to go
into effect on July 1, 2023. The scope and definition of misrepresentations was
first discussed during the 2009–2010 negotiated rulemaking session. We are now
proposing to include aggressive and deceptive recruitment tactics or conduct as
one of the types of activities that constitutes substantial misrepresentation by
an eligible institution.
We propose that institutions must confirm that they have not been subject to
negative action by a State or Federal agency and have not lost eligibility to
participate in another Federal educational assistance program due to an
administrative action against the institution. Additionally, we propose that
institutions certify when they sign their PPA that no principal or affiliate has
been convicted of or pled nolo contender or guilty to a crime related to the
acquisition, use, or expenditure of government funds or has been determined to
have committed fraud or any other material violation of law involving those
funds.
Finally, the Department proposes procedures that we believe would be adequate to
verify the validity of a student's high school diploma. This standard was last
addressed during negotiated rulemaking in 2010. In these proposed regulations,
we identify specific documents that can be used to verify the validity of a high
school diploma if the institution or the Secretary has reason to believe that
the high school diploma is not valid. We also propose criteria to help
institutions with identifying a high school diploma that is not valid.
CERTIFICATION PROCEDURES (§§ 668.2, 668.13, AND 668.14)
Certification is the process by which a postsecondary institution applies to
initially participate or continue participating in the title IV, HEA student aid
programs. To receive certification, an institution must meet all applicable
statutory and regulatory requirements in HEA section 498. Currently,
postsecondary institutions use the Electronic Application for Approval to
Participate in Federal Student Financial Aid Programs (E-App) to apply for
designation as an eligible institution, initial participation, recertification,
reinstatement, or change in ownership, or to update a current Start Printed Page
32314 approval. Once an institution submits its application, we examine three
major factors about the school—institutional eligibility, administrative
capability, and financial responsibility.
Once an institution has demonstrated that it meets all institutional title IV
eligibility criteria, it must enter into a PPA to award and disburse Federal
student financial assistance. The PPA defines the terms and conditions that the
institution must meet to begin and continue participation in the title IV
programs. Institutions can be fully certified, provisionally certified, or
temporarily certified under their PPAs. Full certification constitutes the
standard level of oversight applied to an institution under which financial and
compliance audits must be completed and institutions are generally subject to
the same standard set of conditions.
Provisionally certified institutions are subject to more frequent oversight (
i.e., a shorter timeframe for certification), and have one or more conditions
applied to their PPA depending on specific concerns about the school. For
instance, we may require that an institution seek approval from the Department
before adding new locations or programs. Institutions that are temporarily
certified are subject to very short-term, month-to-month approvals and a variety
of conditions to enable frequent oversight and reduce risk to students and
taxpayers.
We notify institutions six months prior to the expiration of their PPA, and
institutions must submit a materially complete application before the PPA
expires. The Department certifies the eligibility of institutions for a period
of time that may not exceed three years for provisional certification or six
years for full certification. The Department may place conditions on the
continued participation in the title IV, HEA programs for provisionally
certified institutions.
As part of the 2020 final rule for Distance Education and Innovation,[40] the
Department decided to automatically grant an institution renewal of
certification if the Secretary did not grant or deny certification within 12
months of the expiration of its current period of participation. At the time, we
believed this regulation would encourage prompt processing of applications,
timely feedback to institutions, proper oversight of institutions, and speedier
remedies of deficiencies. However, HEA section 498 does not specify a time
period in which certification applications need to be approved, and we have
since determined that the time constraint established in the final rule for
Distance Education and Innovation negatively impacted our ability to protect
program integrity. Furthermore, a premature decision to grant or deny an
application when unresolved issues remain under review creates substantial
negative consequences for students, institutions, taxpayers, and the Department.
Accordingly, we propose to eliminate the provision that automatically grants an
institution renewal of certification after 12 months without a decision from the
Department. Eliminating this provision would allow us to take additional time to
investigate institutions thoroughly prior to deciding whether to grant or deny a
certification application and ensure institutions are approved only when we have
determined that they are in compliance with Federal rules.
Our proposed changes to the certification process would better address
conditions that create significant risk for students and taxpayers, such as
institutions that falsely certify students' eligibility to receive a loan and
subsequently close. Students expect their programs to be properly certified and
for their institutions to continue operating through the completion of their
programs and beyond. In fact, the value of an educational degree is heavily
determined by the reputation of the issuer, thus when institutions mislead
students about their certification status, students may invest their money and
time in a program that they will not be able to complete, which ultimately
creates financial risk for students and taxpayers.
Our proposed changes would also address institutions undergoing changes in
ownership while being at risk of closure. We propose to add new events that
would require institutions to be provisionally certified and add several
conditions to provisional PPAs to increase oversight to better protect students.
For example, we propose that institutions that we determine to be at risk of
closure must submit an acceptable teach-out plan or agreement to the Department,
the State, and the institution's recognized accrediting agency. This would
ensure that the institution has an acceptable plan in place that allows students
to continue their education in the event the institution closes.
We also propose that, as part of the institution's PPA, the institution must
demonstrate that a program that prepares a student for gainful employment in a
recognized occupation and requires programmatic accreditation or State
licensure, meets the institution's home State or another qualifying State's
programmatic and licensure requirements. Another State's requirements could only
be used if the institution can document that a majority of students resided in
that other State while enrolled in the program during the most recently
completed award year or if a majority of students who completed the program in
the most recently completed award year were employed in that State. In addition,
if the other State is part of the same metropolitan statistical area [41] as the
institution's home State and a majority of students, upon enrollment in the
program during the most recently completed award year, stated in writing that
they intended to work in that other State, then that other State's programmatic
and licensure requirements could also be used to demonstrate that the program
prepares a student for gainful employment in a recognized occupation. For any
programmatic and licensure requirements that come from a State other than the
home State, the institution must provide documentation of that State meeting one
of three aforementioned qualifying requirements and the documentation provided
must be substantiated by the certified public accountant who prepares the
institution's compliance audit report as required under § 668.23. In addition,
we propose to require that institutions inform students about the States where
programs do and do not meet programmatic and licensure requirements. The
Department is proposing these regulations because we believe students deserve to
have relevant information to make an informed decision about programs they are
considering. We also believe programs funded in part by taxpayer dollars should
meet the requirements for the occupation for which they prepare students as a
safeguard of the financial investment in these programs.
Additionally, as discussed in the 2022 final rule on changes in ownership,[42]
the Department has seen an increase in the number of institutions applying for
changes in ownership and has determined that it is necessary to reevaluate the
relevant policies to accommodate the increased complexity of changes in
ownership arrangements and increased risk to students and to taxpayers that
arises when institutions Start Printed Page 32315 do not provide adequate
information to the Department. For example, approving a new owner who does not
have the financial and other necessary resources to successfully operate the
institution jeopardizes the education of students and increases the likelihood
of closure. Consequently, we propose a more rigorous process for certifying
institutions to help address this issue. Namely, we propose to mitigate the risk
of institutions failing to meet Federal requirements and creating risky
financial situations for students and taxpayers by applying preemptive
conditions for initially certified nonprofit institutions and institutions that
have undergone a change of ownership and seek to convert to nonprofit status.
These preemptive conditions would help us monitor risks associated with some
for-profit college conversions, such as the risk of improper benefit to the
school owners and affiliated persons and entities. Examples of such benefits
include having additional time to submit annual compliance audit and financial
statements and avoiding the 90/10 requirements that for-profit colleges must
comply with. Under these proposed regulations, we would monitor and review the
institution's IRS correspondence and audited financial statements for improper
benefit from the conversion to nonprofit status.
Lastly, we recognize that private entities may exercise control over proprietary
and private, nonprofit institutions, and we propose to increase coverage of an
institution's liabilities by holding these entities to the same standards and
liabilities as the institution. For instance, owners of private, nonprofit
universities and teaching hospitals may greatly influence the institution's
operations and should be held liable for losses incurred by the institution.
ABILITY TO BENEFIT (§§ 668.2, 668.32, 668.156, AND 668.157)
Prior to 1991, students without a high school diploma or its equivalent were not
eligible for title IV, HEA aid. In 1991, section 484(d) of the HEA was amended
to allow students without a high school diploma or its recognized equivalent to
become eligible for title IV, HEA aid if they could pass an independently
administered examination approved by the Secretary (Pub. L. 102–26) (1991
amendments). These examinations were commonly referred to as “ability to benefit
tests” or “ATB tests.”
In 1992, Public Law 102–325 amended section 484(d) to provide students without a
high school diploma or its recognized equivalent an additional alternative
pathway to title IV, HEA aid eligibility through a State-defined process (1992
amendments). The State could prescribe a process by which a student who did not
have a high school diploma or its recognized equivalent could establish
eligibility for title IV, HEA aid. The Department required States to apply to
the Secretary for approval of such processes. Unless the Secretary disapproved a
State's proposed process within six months after the submission to the Secretary
for approval, the process was deemed to be approved. In determining whether to
approve such a process, the HEA requires the Secretary to consider its
effectiveness in enabling students without a high school diploma or its
equivalent to benefit from the instruction offered by institutions utilizing the
process. The Secretary must also consider the cultural diversity, economic
circumstances, and educational preparation of the populations served by such
institutions.
In 1995, the Department published final regulations [43] to implement the
changes made to section 484(d). Under the final rule, in § 668.156, the
Department would approve State processes if (1) the institutions participating
in the State process provided services to students, including counseling and
tutoring, (2) the State monitored participating institutions, which included
requiring corrective action for deficient institutions and termination for
refusal to comply, and (3) the success rate of students admitted under the State
process was within 95 percent of the success rates of high school graduates who
were enrolled in the same educational programs at the institutions that
participated in the State process.
In 2008, Public Law 110–315 (2008 amendments) further amended section 484(d) of
the HEA to allow students without a high school diploma or its recognized
equivalent a third alternative pathway to title IV, HEA aid eligibility:
satisfactory completion of six credit hours or the equivalent coursework that
are applicable toward a degree or certificate offered by the institution of
higher education.
In 2011, the Consolidated Appropriations Act of 2012 (Pub. L. 112–74) (2011
amendments) further amended section 484(d) by repealing the ATB alternatives
created by the 1991, 1992, and 2008 amendments. Notably, Congress stipulated
that the amendment only applied “to students who first enroll in a program of
study on or after July 1, 2012.”
In 2014, Public Law 113–235 amended section 484(d) (2014 amendments) to create
three ATB alternatives, effectively restoring significant elements of the
alternatives that were in the statute prior to the enactment of the 2011
amendments, using substantially identical text. However, the 2014 amendments
made a significant change to the ATB processes in that they required students to
be enrolled in eligible career pathway programs, in contrast to the pre-2011
statutory framework which permitted students to enroll in any eligible program.
In 2015, Public Law 114–113 amended the definition of an “eligible career
pathway program” in section 484(d) to match the definition in Public Law
113–128, the Workforce Innovation and Opportunity Act (2015 amendments).
Specifically, the 2015 amendments defined the term “eligible career pathway
program” as a program that combines rigorous and high-quality education,
training, and other services and that:
* Aligns with the skill needs of industries in the economy of the State or
regional economy involved;
• Prepares an individual to be successful in any of a full range of secondary or
postsecondary education options, including apprenticeships registered under the
Act of August 16, 1937 (commonly known as the “National Apprenticeship Act”; 50
Stat. 664, chapter 663; 29 U.S.C. 50 et seq.);
* Includes counseling to support an individual in achieving the individual's
education and career goals;
* Includes, as appropriate, education offered concurrently with and in the same
context as workforce preparation activities and training for a specific
occupation or occupational cluster;
* Organizes education, training, and other services to meet the particular
needs of an individual in a manner that accelerates the educational and
career advancement of the individual to the extent practicable;
* Enables an individual to attain a secondary school diploma or its recognized
equivalent, and at least one recognized postsecondary credential; and
* Helps an individual enter or advance within a specific occupation or
occupational cluster.
The Department proposes to amend §§ 668.2, 668.32, 668.156, and 668.157. These
proposed changes would amend the requirements for approval of a State process
and establish a regulatory Start Printed Page 32316 definition of “eligible
career pathway programs.”
As discussed, fulfilling one of the three ATB alternatives grants a student
without a high school diploma or its recognized equivalent access to title IV,
HEA aid for enrollment in an eligible career pathway program. Although the
Department released Dear Colleague Letters GEN 15–09 (May 15, 2015) [44] and GEN
16–09 (May 9, 2016) [45] explaining the statutory changes, the current ATB
regulations do not reflect the 2014 amendments to the HEA that require a student
to enroll in an eligible career pathway program in addition to fulfilling one of
the ATB alternatives. We are now proposing to codify those changes in
regulation.
Specifically, we propose to: (1) add a definition of “eligible career pathway
program”; (2) make technical updates to student eligibility; (3) amend the State
process to allow for time to collect outcomes data while establishing new
safeguards against inadequate State processes; (4) establish documentation
requirements for institutions that wish to begin or maintain title IV, HEA
eligible career pathway programs; and (5) establish a verification process for
career pathway programs to ensure regulatory compliance.
RELIANCE INTERESTS
Given that the Department proposes to adopt rules that are significantly
different from the current rules, we have considered whether those current
rules, including the 2019 Prior Rule, engendered serious reliance interests that
must be accounted for in this rulemaking. For a number of reasons, we do not
believe that such reliance interests exist or, if they do exist, that they would
justify changes to the proposed rules.
First of all, the Department's prior regulatory actions would not have
encouraged reasonable reliance on any particular regulatory position. The 2019
Prior Rule was written to rescind the 2014 Prior Rule at a point where no
gainful employment program had lost eligibility due to failing outcome measures.
Furthermore, as various circumstances have changed, in law and otherwise, and as
more information and further analyses have emerged, the Department's position
and rules have changed since the 2011 Prior Rule. With respect to the proposed
regulations in this NPRM, the Department provided notice of its intent to
regulate on December 8, 2021. As the proposed regulations would not be effective
before July 1, 2024, we believe institutions will have had sufficient time to
take any internal actions necessary to comply with the final regulations.
Even if relevant actors might have relied on some prior regulatory position
despite this background, the extent of alleged reliance would have to be
supported by some kind of evidence. The Department aims to ensure that any
asserted reliance interests are real and demonstrable rather than theoretical
and speculative. Furthermore, to affect decisions about the rules, reliance
interests must be added to a broader analysis that accords with existing
statutes. Legitimate and demonstrable reliance interests, to the extent they
exist, should be considered as one factor among a number of counter-balancing
considerations, within applicable law and consistent with sound policy. We do
not view any plausible reliance interests as nearly strong enough to alter our
proposals in this NPRM.
In any event, the Department welcomes public comment on whether there are
serious, reasonable, legitimate, and demonstrable reliance interests that the
Department should account for in the final rule.
PUBLIC PARTICIPATION
The Department has significantly engaged the public in developing this NPRM,
including through review of oral and written comments submitted by the public
during five public hearings. During each negotiated rulemaking session, we
provided opportunities for public comment at the end of each day. Additionally,
during each negotiated rulemaking session, non-Federal negotiators obtained
feedback from their stakeholders that they shared with the negotiating
committee.
On May 26, 2021, the Department published a notice in the >Federal Register (86
FR 28299) announcing our intent to establish multiple negotiated rulemaking
committees to prepare proposed regulations on the affordability of postsecondary
education, institutional accountability, and Federal student loans.
The Department proposed regulatory provisions for the Institutional and
Programmatic Eligibility Committee (Committee) based on advice and
recommendations submitted by individuals and organizations in testimony at three
virtual public hearings held by the Department on June 21 and June 23–24, 2021.
The Department also accepted written comments on possible regulatory provisions
that were submitted to the Department by interested parties and organizations as
part of the public hearing process. You may view the written comments submitted
in response to the May 26, 2021, and the October 4, 2021, >Federal Register
notices on the Federal eRulemaking Portal at www.regulations.gov, within docket
ID ED–2021–OPE–0077. Instructions for finding comments are also available on the
site under “FAQ.”
You may view transcripts of the public hearings at www2.ed.gov/ policy/
highered/ reg/ hearulemaking/ 2021/ index.html.
NEGOTIATED RULEMAKING
Section 492 of the HEA requires the Secretary to obtain public involvement in
the development of proposed regulations affecting programs authorized by title
IV of the HEA. After obtaining extensive input and recommendations from the
public, including individuals and representatives of groups involved in the
title IV, HEA programs, the Department, in most cases, must engage in the
negotiated rulemaking process before publishing proposed regulations in the
>Federal Register . If negotiators reach consensus on the proposed regulations,
the Department agrees to publish without substantive alteration a defined group
of proposed regulations on which the negotiators reached consensus—unless the
Secretary reopens the process or provides a written explanation to the
participants stating why the Secretary has decided to depart from the agreement
reached during negotiations. You can find further information on the negotiated
rulemaking process at: www2.ed.gov/ policy/ highered/ reg/ hearulemaking/ 2021/
index.html.
On December 8, 2021, the Department published a notice in the >Federal Register
(86 FR 69607) announcing its intention to establish a Committee, the
Institutional and Programmatic Eligibility Committee, to prepare proposed
regulations for the title IV, HEA programs. The notice set forth a schedule for
Committee meetings and requested nominations for individual negotiators to serve
on the negotiating Committee and announced the topics that Committee would
address.
The Committee included the following members, representing their respective
constituencies:
• Accrediting Agencies: Jamienne S. Studley, WASC Senior College and Start
Printed Page 32317 University Commission, and Laura Rasar King (alternate),
Council on Education for Public Health.
• Civil Rights Organizations: Amanda Martinez, UnidosUS.
• Consumer Advocacy Organizations: Carolyn Fast, The Century Foundation, and
Jaylon Herbin (alternate), Center for Responsible Lending.
• Financial Aid Administrators at Postsecondary Institutions: Samantha Veeder,
University of Rochester, and David Peterson (alternate), University of
Cincinnati.
• Four-Year Public Institutions of Higher Education: Marvin Smith, University of
California, Los Angeles, and Deborah Stanley (alternate), Bowie State
University.
• Legal Assistance Organizations that Represent Students and/or Borrowers:
Johnson Tyler, Brooklyn Legal Services, and Jessica Ranucci (alternate), New
York Legal Assistance Group.
• Minority-Serving Institutions: Beverly Hogan, Tougaloo College (retired), and
Ashley Schofield (alternate), Claflin University.
• Private, Nonprofit Institutions of Higher Education: Kelli Perry, Rensselaer
Polytechnic Institute, and Emmanual A. Guillory (alternate), National
Association of Independent Colleges and Universities (NAICU).
• Proprietary Institutions of Higher Education: Bradley Adams, South College,
and Michael Lanouette (alternate), Aviation Institute of Maintenance/Centura
College/Tidewater Tech.
• State Attorneys General: Adam Welle, Minnesota Attorney General's Office, and
Yael Shavit (alternate), Office of the Massachusetts Attorney General.
• State Higher Education Executive Officers, State Authorizing Agencies, and/or
State Regulators of Institutions of Higher Education and/or Loan Servicers:
Debbie Cochrane, California Bureau of Private Postsecondary Education, and David
Socolow (alternate), New Jersey's Higher Education Student Assistance Authority
(HESAA).
• Students and Student Loan Borrowers: Ernest Ezeugo, Young Invincibles, and
Carney King (alternate), California State Senate.
• Two-Year Public Institutions of Higher Education: Anne Kress, Northern
Virginia Community College, and William S. Durden (alternate), Washington State
Board for Community and Technical Colleges.
• U.S. Military Service Members, Veterans, or Groups Representing them: Travis
Horr, Iraq and Afghanistan Veterans of America, and Barmak Nassirian
(alternate), Veterans Education Success.
• Federal Negotiator: Gregory Martin, U.S. Department of Education.
The Department also invited nominations for two advisors. These advisors were
not voting members of the Committee; however, they were consulted and served as
a resource. The advisors were:
* David McClintock, McClintock & Associates, P.C. for issues with auditing
institutions that participate in the title IV, HEA programs.
* Adam Looney, David Eccles School of Business at the University of Utah, for
issues related to economics, as well as research, accountability, and/or
analysis of higher education data.
The Committee met for three rounds of negotiations, the first of which was held
over four days, while the remaining two were five days each. At its first
meeting, the Committee reached agreement on its protocols and proposed agenda.
The protocols provided, among other things, that the Committee would operate by
consensus. The protocols defined consensus as no dissent by any member of the
Committee and noted that consensus checks would be taken issue by issue. During
its first week of sessions, the legal aid negotiator petitioned the Committee to
add a Committee member representing the civil rights constituency to distinguish
that constituency from the legal aid constituency. The Committee subsequently
reached consensus on adding a member from the constituency group, Civil Rights
Organizations.
The Committee reviewed and discussed the Department's drafts of regulatory
language, as well as alternative language and suggestions proposed by Committee
members. During each negotiated rulemaking session, we provided opportunities
for public comment at the end of each day. Additionally, during each negotiated
rulemaking session, non-Federal negotiators obtained feedback from their
stakeholders that they shared with the negotiating committee.
At the final meeting on March 18, 2022, the Committee reached consensus on the
Department's proposed regulations on ATB. The Department has published the
proposed ATB amendatory language without substantive alteration to the
agreed-upon proposed regulations.
For more information on the negotiated rulemaking sessions please visit
www2.ed.gov/ policy/ highered/ reg/ hearulemaking/ 2021/ index.html.
SUMMARY OF PROPOSED CHANGES
The proposed regulations would make the following changes to current
regulations.
FINANCIAL VALUE TRANSPARENCY AND GAINFUL EMPLOYMENT (§§ 600.10, 600.21, 668.2,
668.43, 668.91, 668.401 THROUGH 668.409, 668.601 THROUGH 668.606) (SECTIONS 101
AND 102 OF THE HEA)
* Amend § 600.10(c) to require an institution seeking to establish the
eligibility of a GE program to add the program to its application.
* Amend § 600.21(a) to require an institution to notify the Secretary within 10
days of any change to the information included in the GE program's
certification.
* Amend § 668.2 to define certain terminology used in subparts Q and S,
including “annual debt-to-earnings rate,” “classification of instructional
programs (CIP) code,” “cohort period,” “credential level,” “debt-to-earnings
rates (D/E rates),” “discretionary debt-to-earnings rates,” “earnings
premium,” “earnings threshold,” “eligible non-GE program,” “Federal agency
with earnings data,” “gainful employment program (GE program),”
“institutional grants and scholarships,” “length of the program,” “poverty
guideline,” “prospective student,” “student,” and “Title IV loan.”
* Amend § 668.43 to establish a Department website for the posting and
distribution of key information and disclosures pertaining to the
institution's educational programs, and to require institutions to provide
the information required to access the website to a prospective student
before the student enrolls, registers, or makes a financial commitment to the
institution.
* Amend § 668.91(a) to require that a hearing official must terminate the
eligibility of a GE program that fails to meet the GE metrics, unless the
hearing official concludes that the Secretary erred in the calculation.
* Add a new § 668.401 to provide the scope and purpose of newly established
financial value transparency regulations under subpart Q.
* Add a new § 668.402 to provide a framework for the Secretary to determine
whether a GE program or eligible non-GE program leads to acceptable debt and
earnings results, including establishing annual and discretionary D/E rate
metrics and associated outcomes, and establishing an earnings premium metric
and associated outcomes.
• Add a new § 668.403 to establish a methodology to calculate annual and Start
Printed Page 32318 discretionary D/E rates, including parameters to determine
annual loan payments, annual earnings, loan debt, and assessed charges, as well
as to provide exclusions and specify when D/E rates will not be calculated.
* Add a new § 668.404 to establish a methodology to calculate a program's
earnings premium measure, including parameters to determine median annual
earnings, as well as to provide exclusions and specify when the earnings
threshold measure will not be calculated.
* Add a new § 668.405 to establish a process by which the Secretary will obtain
the administrative and earnings data required to calculate the D/E rates and
the earnings premium measure.
* Add a new § 668.406 to require the Secretary to notify institutions of their
financial value transparency metrics and outcomes.
* Add a new § 668.407 to require current and prospective students to
acknowledge having seen the information on the disclosure website maintained
by the Secretary if an eligible non-GE program has failed the D/E rates
measure, to specify the content and delivery of such acknowledgments, and to
require that students must provide the acknowledgment before the institution
may disburse any title IV, HEA funds.
* Add a new § 668.408 to establish institutional reporting requirements for
students who enroll in, complete, or withdraw from a GE program or eligible
non-GE program and to establish the timeframe for institutions to report this
information.
* Add a new § 668.409 to establish severability protections ensuring that if
any financial value transparency provision under subpart Q is held invalid,
the remaining provisions continue to apply.
* Add a new § 668.601 to provide the scope and purpose of newly established GE
regulations under subpart S.
* Add a new § 668.602 to establish criteria for the Secretary to determine
whether a GE program prepares students for gainful employment in a recognized
occupation.
* Add a new § 668.603 to define the conditions under which a failing GE program
would lose title IV, HEA eligibility, to provide the opportunity for an
institution to appeal a loss of eligibility only on the basis of a
miscalculated D/E rate or earnings premium, and to establish a period of
ineligibility for failing GE programs that lose eligibility or voluntarily
discontinue eligibility.
* Add a new § 668.604 to require institutions to provide the Department with
transitional certifications, as well as to certify when seeking
recertification or the approval of a new or modified GE program, that each
eligible GE program offered by the institution is included in the
institution's recognized accreditation or, if the institution is a public
postsecondary vocational institution, the program is approved by a recognized
State agency.
* Add a new § 668.605 to require warnings to current and prospective students
if a GE program is at risk of losing title IV, HEA eligibility, to specify
the content and delivery requirements for such notifications, and to provide
that students must acknowledge having seen the warning before the institution
may disburse any title IV, HEA funds.
* Add a new § 668.606 to establish severability protections ensuring that if
any GE provision under subpart S is held invalid, the remaining provisions
would continue to apply.
FINANCIAL RESPONSIBILITY (§§ 668.15, 668.23, 668.171, AND 668.174 THROUGH
668.177) (SECTION 498(C) OF THE HEA)
* Remove all regulations currently under § 668.15 and reserve that section.
* Amend § 668.23 to establish a new submission deadline for compliance audits
and audited financial statements not subject to the Single Audit Act, Chapter
75 of title 31, United States Code, to be the earlier of 30 days after the
date of the auditor's report, with respect to the compliance audit and
audited financial statements, or 6 months after the last day of the entity's
fiscal year.
* Replace all references to the “Office of Management and Budget Circular
A–133” in § 668.23 with the updated reference, “2 CFR part 200—Uniform
Administrative Requirements, Cost Principles, And Audit Requirements For
Federal Awards.”
* Amend § 668.23(d)(1) to require that financial statements submitted to the
Department must match the fiscal year end of the entity's annual return(s)
filed with the Internal Revenue Service.
* Add new language to § 668.23(d)(2)(ii) that would require a domestic or
foreign institution that is owned directly or indirectly by any foreign
entity to provide documentation stating its status under the law of the
jurisdiction under which it is organized.
* Add new § 668.23(d)(5) that would require an institution to disclose in a
footnote to its financial statement audit the dollar amounts it has spent in
the preceding fiscal year on recruiting activities, advertising, and other
pre-enrollment expenditures.
* Amend § 668.171(b)(3)(i) so that an institution would be deemed unable to
meet its financial or administrative obligations if, in addition to the
already existing factors, it fails to pay title IV, HEA credit balances, as
required.
* Further amend § 668.171(b)(3) to establish that an institution would not be
able to meet its financial or administrative obligations if it fails to make
a payment in accordance with an existing undisputed financial obligation for
more than 90 days; or fails to satisfy payroll obligations in accordance with
its published schedule; or it borrows funds from retirement plans or
restricted funds without authorization.
* Amend § 668.171(c) to establish additional mandatory triggering events that
would determine if an institution is able to meet its financial or
administrative obligations. If any of the mandatory trigger events occur, the
institution would be deemed unable to meet its financial or administrative
obligations and the Department would obtain financial protection.
* Amend § 668.171(d) to establish additional discretionary triggering events
that would assist the Department in determining if an institution is able to
meet its financial or administrative obligations. If any of the discretionary
triggering events occur, we would determine if the event is likely to have a
material adverse effect on the financial condition of the institution, and if
so, would obtain financial protection.
* Amend § 668.171(e) to recognize the liability or liabilities as an expense
when recalculating an institution's composite score after a withdrawal of
equity.
* Amend § 668.171(f) to require an institution to notify the Department,
typically no later than 10 days, after any of the following occurs:
The institution incurs a liability as described in proposed
§ 668.171(c)(2)(i)(A);
The institution is served with a complaint linked to a lawsuit as described in
§ 668.171(c)(2)(i)(B) and an updated notice when such a lawsuit has been pending
for at least 120 days;
The institution receives a civil investigative demand, subpoena, request for
documents or information, or other formal or informal inquiry from any
government entity;
As described in proposed § 668.171(c)(2)(x), the institution makes a
contribution in the last quarter of its fiscal year and makes a distribution in
the first or second quarter of the following fiscal year;
As described in proposed § 668.171(c)(2)(vi) or (d)(11), the U.S Securities and
Exchange Commission (SEC) or an exchange where the entity's Start Printed Page
32319 securities are listed takes certain disciplinary actions against the
entity;
As described in proposed § 668.171(c)(2)(iv), (c)(2)(v), or (d)(9), the
institution's accrediting agency or a State, Federal or other oversight agency
notifies it of certain actions being initiated or certain requirements being
imposed;
As described in proposed § 668.171(c)(2)(xi), there are actions initiated by a
creditor of the institution;
A proprietary institution, for its most recent fiscal year, does not receive at
least 10 percent of its revenue from sources other than Federal educational
assistance programs as provided in § 668.28(c)(3) (This notification deadline
would be 45 days after the end of the institution's fiscal year);
As described in proposed § 668.171(c)(2)(ix) or (d)(10), the institution or one
of its programs loses eligibility for another Federal educational assistance
program;
As described in proposed § 668.171(d)(7), the institution discontinues an
academic program;
The institution fails to meet any one of the standards in § 668.171(b);
As described in proposed § 668.171(c)(2)(xii), the institution makes a
declaration of financial exigency to a Federal, State, Tribal, or foreign
governmental agency or its accrediting agency;
As described in proposed § 668.171(c)(2)(xiii), the institution or an owner or
affiliate of the institution that has the power, by contract or ownership
interest, to direct or cause the direction of the management of policies of the
institution, is voluntarily placed, or is required to be placed, into
receivership;
The institution is cited by another Federal agency for not complying with
requirements associated with that agency's educational assistance programs and
which could result in the institution's loss of those Federal education
assistance funds;
The institution closes more than 50 percent of its locations or any number of
locations that enroll more than 25 percent of its students. Locations for this
purpose include the institution's main campus and any additional location(s) or
branch campus(es) as described in § 600.2;
As described in proposed § 668.171(d)(2), the institution suffers other
defaults, delinquencies, or creditor events;
* Amend § 668.171(g) to require public institutions to provide documentation
from a government entity that confirms that the institution is a public
institution and is backed by the full faith and credit of that government
entity to be considered as financially responsible.
* Amend § 668.171(h) to provide that an institution is not financially
responsible if the institution's audited financial statements include an
opinion expressed by the auditor that was adverse, qualified, disclaimed, or
if they include a disclosure about the institution's diminished liquidity,
ability to continue operations, or ability to continue as a going concern.
* Amend § 668.174(a) to clarify that an institution would not be financially
responsible if it has had an audit finding in either of its two most recent
compliance audits that resulted in the institution being required to repay an
amount greater than 5 percent of the funds the institution received under the
title IV, HEA programs or if we require it to repay an amount greater than 5
percent of its title IV, HEA program funds in a Department-issued Final Audit
Determination Letter, Final Program Review Determination, or similar final
document in the institution's current fiscal year or either of its preceding
two fiscal years.
* Add § 668.174(b)(3) to state that an institution is not financially
responsible if an owner who exercises substantial control, or the owner's
spouse, has been in default on a Federal student loan, including parent PLUS
loans, in the preceding five years unless certain conditions are met when the
institution first applies to participate in Title IV, HEA programs, or when
the institution undergoes a change in ownership.
* Amend § 668.175(c) to clarify that we would consider an institution that did
not otherwise satisfy the regulatory standards of financial responsibility,
or that had an audit opinion or disclosure about the institution's liquidity,
ability to continue operations, or ability to continue as a going concern, to
be financially responsible if it submits an irrevocable letter of credit to
the Department in an amount we determine. Furthermore, the proposed
regulation would clarify that if the institution's failure is due to any of
the factors in § 668.171(b), it must remedy the issues that gave rise to the
failure.
* Add § 668.176 to specify the financial responsibility standards for an
institution undergoing a change in ownership. The proposed regulations would
consolidate financial responsibility requirements in subpart L of part 668
and remove the requirements that currently reside in § 668.15.
* Add a new § 668.177 to contain the severability statement that currently
resides in § 668.176.
ADMINISTRATIVE CAPABILITY (§ 668.16) (SECTION 498(A) OF THE HEA)
* Amend § 668.16(h) to require institutions to provide adequate financial aid
counseling and financial aid communications to enrolled students that advises
students and families to accept the most beneficial types of financial
assistance available to them and includes clear information about the cost of
attendance, sources and amounts of each type of aid separated by the type of
aid, the net price, and instructions and applicable deadlines for accepting,
declining, or adjusting award amounts.
* Amend § 668.16(k) to require that an institution not have any principal or
affiliate that has been subject to specified negative actions, including
being convicted of or pleading nolo contendere or guilty to a crime involving
governmental funds.
* Add § 668.16(n) to require that the institution has not been subject to a
significant negative action or a finding by a State or Federal agency, a
court or an accrediting agency, where the basis of the action is repeated or
unresolved, such as non-compliance with a prior enforcement order or
supervisory directive; and the institution has not lost eligibility to
participate in another Federal educational assistance program due to an
administrative action against the institution.
* Amend § 668.16(p) to strengthen the requirement that institutions must
develop and follow adequate procedures to evaluate the validity of a
student's high school diploma.
* Add § 668.16(q) to require that institutions provide adequate career services
to eligible students who receive title IV, HEA program assistance.
* Add § 668.16(r) to require that an institution provide students with
accessible clinical, or externship opportunities related to and required for
completion of the credential or licensure in a recognized occupation, within
45 days of the successful completion of other required coursework.
* Add § 668.16(s) to require that an institution disburse funds to students in
a timely manner consistent with the students' needs.
* Add § 668.16(t) to require institutions that offer GE programs to meet
program standards as outlined in regulation.
• Add § 668.16(u) to require that an institution does not engage in
misrepresentations or aggressive recruitment. Start Printed Page 32320
CERTIFICATION PROCEDURES (§§ 668.2, 668.13, AND 668.14) (SECTION 498 OF THE HEA)
* Amend § 668.2 to add a definition of “metropolitan statistical area.”
* Amend § 668.13(b)(3) to eliminate the provision that requires the Department
to approve participation for an institution if it has not acted on a
certification application within 12 months so the Department can take
additional time where it is needed.
* Amend § 668.13(c)(1) to include additional events that lead to provisional
certification.
* Amend § 668.13(c)(2) to require provisionally certified schools that have
major consumer protection issues to recertify after two years.
* Add a new § 668.13(e) to establish supplementary performance measures the
Secretary may consider in determining whether to certify or condition the
participation of the institution.
* Amend § 668.14(a)(3) to require an authorized representative of any entity
with direct or indirect ownership of a proprietary or private nonprofit
institution to sign a PPA.
* Amend § 668.14(b)(17) to provide that all Federal agencies and State
attorneys general have the authority to share with each other and the
Department any information pertaining to an institution's eligibility for
participation in the title IV, HEA programs or any information on fraud,
abuse, or other violations of law.
* Amend § 668.14(b)(18)(i) and (ii) to add to the list of reasons for which an
institution or third-party servicer may not employ, or contract with,
individuals or entities whose prior conduct calls into question the ability
of the individual or entity to adhere to a fiduciary standard of conduct. We
also propose to prohibit owners, officers, and employees of both institutions
and third-party servicers from participating in the title IV, HEA programs if
they have exercised substantial control over an institution, or a direct or
indirect parent entity of an institution, that owes a liability for a
violation of a title IV, HEA program requirement and is not making payments
in accordance with an agreement to repay that liability.
* Amend § 668.14(b)(18)(i) and (ii) to add to the list of situations in which
an institution may not knowingly contract with or employ any individual,
agency, or organization that has been, or whose officers or employees have
been, ten-percent-or-higher equity owners, directors, officers, principals,
executives, or contractors at an institution in any year in which the
institution incurred a loss of Federal funds in excess of 5 percent of the
institution's annual title IV, HEA program funds.
* Amend § 668.14(b)(26)(ii)(A) to limit the number of hours in a gainful
employment program to the greater of the required minimum number of clock
hours, credit hours, or the equivalent required for training in the
recognized occupation for which the program prepares the student, as
established by the State in which the institution is located, if the State
has established such a requirement, or as established by any Federal agency
or the institution's accrediting agency.
* Amend § 668.14(b)(26)(ii)(B) as an exception to paragraph (A) that limits the
number of hours in a gainful employment program to the greater of the
required minimum number of clock hours, credit hours, or the equivalent
required for training in the recognized occupation for which the program
prepares the student, as established by another State if: the institution
provides documentation, substantiated by the certified public accountant that
prepares the institution's compliance audit report as required under
§ 668.23, that a majority of students resided in that other State while
enrolled in the program during the most recently completed award year or that
a majority of students who completed the program in the most recently
completed award year were employed in that State; or if the other State is
part of the same metropolitan statistical area as the institution's home
State and a majority of students, upon enrollment in the program during the
most recently completed award year, stated in writing that they intended to
work in that other State.
* Amend § 668.14(b)(32) to require all programs that prepare students for
occupations requiring programmatic accreditation or State licensure to meet
those requirements and comply with all State consumer protection laws.
* Amend § 668.14(b)(33) to require institutions to not withhold transcripts or
take any other negative action against a student related to a balance owed by
the student that resulted from an error in the institution's administration
of the title IV, HEA programs, returns of funds under the Return of Title IV
Funds process, or any fraud or misconduct by the institution or its
personnel.
* Amend § 668.14(b)(34) to prohibit institutions from maintaining policies and
procedures to encourage, or conditioning institutional aid or other student
benefits in a manner that induces, a student to limit the amount of Federal
student aid, including Federal loan funds, that the student receives, except
that the institution may provide a scholarship on the condition that a
student forego borrowing if the amount of the scholarship provided is equal
to or greater than the amount of Federal loan funds that the student agrees
not to borrow.
* Amend § 668.14(e) to establish a non-exhaustive list of conditions that the
Secretary may apply to provisionally certified institutions.
* Amend § 668.14(f) to establish conditions that may apply to institutions that
undergo a change in ownership seeking to convert from a for-profit
institution to a nonprofit institution.
* Amend § 668.14(g) to establish conditions that may apply to an initially
certified nonprofit institution, or an institution that has undergone a
change of ownership and seeks to convert to nonprofit status.
ATB (§§ 668.2, 668.32, 668.156, AND 668.157 (SECTION 484(D) OF THE HEA)
* Amend § 668.2 to codify a definition of “eligible career pathway program.”
* Amend § 668.32(e) to differentiate between the title IV, HEA aid eligibility
of non-high school graduates who enrolled in an eligible program prior to
July 1, 2012, and those that enrolled after July 1, 2012.
* Amend § 668.156(b) to separate the State process into an initial two-year
period and a subsequent period for which the State may be approved for up to
five years.
* Amend § 668.156(a) to strengthen the Approved State process regulations to
require that: (1) The application contains a certification that each eligible
career pathway program intended for use through the State process meets the
proposed definition of an “eligible career pathway program”; (2) The
application describes the criteria used to determine student eligibility for
participation in the State process; (3) The withdrawal rate for a
postsecondary institution listed for the first time on a State's application
does not exceed 33 percent; (4) Upon initial application the Secretary will
verify that a sample of the proposed eligible career pathway programs are
valid; and (5) Upon initial application the State will enroll no more than
the greater of 25 students or one percent of enrollment at each participating
institution.
• Remove current § 668.156(c) to remove the support services requirements from
the State process—orientation, assessment of a student's existing capabilities,
tutoring, assistance in developing educational goals, Start Printed Page 32321
counseling, and follow up by teachers and counselors—as these support services
generally duplicate the requirements in the proposed definition of “eligible
career pathway programs.”
* Amend the monitoring requirement in current § 668.156(d), now redesignated
proposed § 668.156(c) to provide a participating institution that has failed
to achieve the 85 percent success rate up to three years to achieve
compliance.
* Amend current § 668.156(d), now redesignated proposed § 668.156(c) to require
that an institution be prohibited from participating in the State process for
title IV, HEA purposes for at least five years if the State terminates its
participation.
* Amend current § 668.156(b), now redesignated proposed § 668.156(e) to clarify
that the State is not subject to the success rate requirement at the time of
the initial application but is subject to the requirement for the subsequent
period, reduce the required success rate from the current 95 percent to 85
percent, and specify that the success rate be calculated for each
participating institution. Also, amend the comparison groups to include the
concept of “eligible career pathway programs.”
• Amend current § 668.156(b), now redesignated proposed § 668.156(e) to require
that States report information on race, gender, age, economic circumstances, and
education attainment and permit the Secretary to publish a notice in the Federal
Register with additional information that the Department may require States to
submit.
* Amend current § 668.156(g), now redesignated proposed § 668.156(j) to update
the Secretary's ability to revise or terminate a State's participation in the
State process by (1) providing the Secretary the ability to approve the State
process once for a two-year period if the State is not in compliance with a
provision of the regulations and (2) allowing the Secretary to lower the
success rate to 75 percent if 50 percent of the participating institutions
across the State do not meet the 85 percent success rate.
* Add a new § 668.157 to clarify the documentation requirements for eligible
career pathway programs.
SIGNIFICANT PROPOSED REGULATIONS
We discuss substantive issues under the sections of the proposed regulations to
which they pertain. Generally, we do not address proposed regulatory provisions
that are technical or otherwise minor in effect.
FINANCIAL VALUE TRANSPARENCY AND GAINFUL EMPLOYMENT
Authority for This Regulatory Action: The Department's authority to pursue
financial value transparency in GE programs and eligible non-GE programs and
accountability in GE programs is derived primarily from three categories of
statutory enactments: first, the Secretary's generally applicable rulemaking
authority, which includes provisions regarding data collection and
dissemination, and which applies in part to title IV, HEA; second,
authorizations and directives within title IV, HEA regarding the collection and
dissemination of potentially useful information about higher education programs,
as well as provisions regarding institutional eligibility to benefit from title
IV; and third, the further provisions within title IV, HEA that address the
limits and responsibilities of gainful employment programs.
As for crosscutting rulemaking authority, Section 410 of the General Education
Provisions Act (GEPA) grants the Secretary authority to make, promulgate, issue,
rescind, and amend rules and regulations governing the manner of operation of,
and governing the applicable programs administered by, the Department.[46] This
authority includes the power to promulgate regulations relating to programs that
we administer, such as the title IV, HEA programs that provide Federal loans,
grants, and other aid to students, whether to pursue eligible non-GE programs or
GE programs. Moreover, section 414 of the Department of Education Organization
Act (DEOA) authorizes the Secretary to prescribe those rules and regulations
that the Secretary determines necessary or appropriate to administer and manage
the functions of the Secretary or the Department.[47]
Moreover, Section 431 of GEPA grants the Secretary additional authority to
establish rules to require institutions to make data available to the public
about the performance of their programs and about students enrolled in those
programs. That section directs the Secretary to collect data and information on
applicable programs for the purpose of obtaining objective measurements of the
effectiveness of such programs in achieving their intended purposes, and also to
inform the public about Federally supported education programs.[48] This
provision lends additional support for the proposed reporting and disclosure
requirements, which will enable the Department to collect data and information
for the purpose of developing objective measures of program performance, not
only for the Department's use in evaluating programs but also to inform the
public—including enrolled students, prospective students, their families,
institutions, and others—about relevant information related to those
Federally-supported programs.
As for provisions within title IV, HEA, several of them address the effective
delivery of information about higher education programs. In addition to older
methods of information dissemination, for example, section 131 of the Higher
Education Opportunity Act, as amended, and [49] taken together, several
provisions declare that the Department's websites should include information
regarding higher education programs, including college planning and student
financial aid,[50] the cost of higher education in general, and the cost of
attendance with respect to all institutions of higher education participating in
title IV, HEA programs.[51] Those authorizations and directives expand on more
traditional methods of delivering important information to students, prospective
students, and others, including within or alongside application forms or
promissory notes for which acknowledgments by signatories are typical and
longstanding.[52] Educational institutions have been distributing information to
students at the direction of the Department and in accord with the applicable
statutes for decades.[53]
The proposed rules also are supported by the Department's statutory
responsibilities to observe eligibility limits in the HEA. Section 498 of the
HEA requires institutions to establish eligibility to provide title IV, HEA
funds Start Printed Page 32322 to their students. Eligible institutions must
also meet program eligibility requirements for students in those programs to
receive title IV, HEA assistance.
One type of program for which certain types of institutions must establish
program-level eligibility is “a program of training to prepare students for
gainful employment in a recognized occupation.” [54 55] Section 481 of the HEA
articulates this same requirement by defining, in part, an “eligible program” as
a “program of training to prepare students for gainful employment in a
recognized profession.” [56] The HEA does not more specifically define ”training
to prepare,” “gainful employment,” ”recognized occupation,” or ”recognized
profession” for purposes of determining the eligibility of GE programs for
participation in title IV, HEA. At the same time, the Secretary and the
Department have a legal duty to interpret, implement, and apply those terms in
order to observe the statutory eligibility limits in the HEA. In the
section-by-section discussion below, we explain further the Department's
interpretation of the GE statutory provisions and how those provisions should be
implemented and applied.
The statutory eligibility limits for GE programs are one part of the foundation
of authority for disclosures and/or warnings from institutions to prospective
and enrolled GE students. In the GE setting, the Department has not only a
statutory basis for pursuing the effective dissemination of information to
students about a range of GE program attributes and performance metrics,[57] the
Department also has authority to use certain metrics to determine that an
institution's program is not eligible to benefit, as a GE program, from title
IV, HEA assistance. When an institution's program is at risk of losing
eligibility based on a given metric, there should be no real doubt that the
Department may require the institution that operates the at-risk program to
alert prospective and enrolled students that they may not be able to receive
title IV, HEA assistance at the program in question. Without a direct
communication from the institution to prospective and enrolled students, the
students themselves risk losing the ability to make educational decisions with
the benefit of critically relevant information about programs, contrary to the
text, purpose, and traditional understandings of the relevant statutes.
The above authorities collectively empower the Secretary to promulgate
regulations to (1) Require institutions to report information about GE programs
and eligible non-GE programs to the Secretary; (2) Require institutions to
provide disclosures or warnings to students regarding programs that do not meet
financial value measures established by the Department; and (3) Define the
gainful employment requirement in the HEA by establishing measures to determine
the eligibility of GE programs for participation in title IV, HEA. Where helpful
and appropriate, we will elaborate on the relevant statutory authority in our
overviews and section-by-section discussions below.
FINANCIAL VALUE TRANSPARENCY SCOPE AND PURPOSE (§ 668.401)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add subpart Q, which would establish a
financial value transparency framework for the Department to calculate measures
of the financial value of eligible programs, categorize programs based on those
measures as low-earning or high-debt-burden, provide information about the
financial value of programs to students, and require, when applicable,
acknowledgments from students who are enrolled—and prospective students who are
seeking to enroll—in programs with high debt burdens. The proposed regulations
would establish rules and procedures for institutions to report information to
the Department and for the Department to calculate these measures. The
regulations would apply to all educational programs that participate in the
title IV, HEA programs except for approved prison education programs and
comprehensive transition and postsecondary programs. Proposed § 668.401 would
establish the scope and purpose of these financial value transparency
regulations in subpart Q.
Reasons: The Department recognizes that with the high cost of attendance for
postsecondary education and resulting need for high levels of student borrowing,
students, families, institutions, and the public have a strong interest in
ensuring that higher education investments are justified through their benefits
to students and society.
Choosing whether and where to pursue a postsecondary education is one of the
most important and consequential investments individuals make during their
lifetimes. The considerations are not purely, or in many cases even primarily,
financial in nature: an education requires time away from other pursuits, the
possibility of increased family stress, and the hard work required to master new
knowledge. Aside from the potential for improved career prospects and higher
earnings, a college education has also been shown to improve health, life
satisfaction, and civic engagement among other non-financial benefits.[58]
The financial consequences of the choice of whether and where to enroll in
higher education, however, are substantial. In the 2020–21 award year, the
average cost of attendance for first-time, full-time degree seeking
undergraduate student across all 4-year institutions was $27,200, and the top 25
percent of students paid more than $44,800. According to NCES data, median total
debt at graduation among students who borrow for degrees was around $23,000 for
undergraduates competing in 2017–18 [59] and $67,000 for graduate students,[60]
with the top 25 percent of students leaving school with more than $33,000 [61]
and $118,000,[62] respectively. There is significant heterogeneity in debt
outcomes and costs across programs, even among credentials at the same level and
in the same field.
The typical college graduate enjoys substantial financial benefits in the form
of increased earnings from their degree. Research has shown that the typical
bachelor's degree recipient earns twice what a typical high school graduate
earns over the course of their career.[63] But here too, there are enormous
Start Printed Page 32323 earnings differences across different credential levels
and fields of study, and across similar programs at different institutions.[64]
For example, measures of institutional productivity (assessed using wage and
salary earnings, employment in the public or nonprofit sector, and innovation in
terms of contributions to research and development) vary substantially within
institutions of similar selectivity, especially among less-selective
institutions.[65] Typical returns to enrollment vary widely across selected
fields, even after accounting for individual student characteristics that may
affect selection into a given major or pre-enrollment earnings. These
differences are large and consequential over an individual's lifetime. For
example, one study found that even after controlling for differences in the
characteristics of enrolled students, students at four-year institutions in
Texas who majored in high-earning fields earned $5,000 or more per quarter more
than students who majored in the lowest earning field of study even 16 to 20
years after college.[66] Similarly, another study found that those who earned
master's degrees in Ohio experienced earnings increases ranging from a 24
percent increase for degrees in high earning fields such as health to
essentially no increase, relative to baseline earnings, for some lower-value
fields.[67]
Surveys of current and prospective college students indicate that overwhelming
majorities of students consider the financial outcomes of college as among the
very most important reasons for pursuing a postsecondary credential. A national
survey of college freshmen at baccalaureate institutions consistently finds
students identifying “to get a good job” as the most common reason why students
chose their college.[68] Another survey of a broader set of students found
financial concerns dominate in the decision to go to college with the top three
reasons identified being “to improve my employment opportunities,” “to make more
money,” and “to get a good job.” [69]
Great strides have been made in providing accurate and comparable information to
students about their college options in the last decade. The College Scorecard,
launched in 2015, provided information on the earnings and borrowing outcomes of
students at nearly all institutions participating in the title IV, HEA aid
programs. Recognizing the important variation in these outcomes across programs
of study, even within the same institution, program-level information was added
to the Scorecard in 2019. The dissemination of this information has dramatically
improved the information available on the financial value of different programs,
and enabled a new national conversation on whether, how, and for whom higher
education institutions provide financial benefit.[70]
Still, the Department recognizes that merely posting the information on the
College Scorecard website has had a limited impact on student choice. For
example, one study [71] found the College Scorecard influenced the college
search behavior of some higher income students but had little effect on lower
income students. Similarly, a randomized controlled trial inviting high school
students to examine program-level data on costs and earnings outcomes had little
effect on students' college choices, possibly due to the fact that few students
accessed the information outside of school-led sessions.[72]
It is critical to provide students and families access to information that is
consistently calculated and presented across programs and institutions,
especially for key metrics like program-level net price estimates. When
institutions report net price to students, there can be substantial variation in
how the prices are calculated,[73] and in how institutions characterize these
values, making it difficult for prospective students to compare costs across
programs and institutions.[74]
Applicants' use of data at key points during the college decision-making process
has been a consistent challenge with other transparency-focused initiatives that
the Department administers. Students can often receive information concerning
their eligibility for financial aid that is inconsistent or difficult to
compare.[75] The College Navigator also provides critical data on college
pricing, completion rates, default rates, and other indicators, but there is
little evidence that it affects college search processes or enrollment
decisions. Similarly, we also administer lists of institutions with the highest
prices and changes in price measured in a few ways, but there is no indication
that the presence of such lists alters institutional or borrower behavior.[76]
A broader set of research has, however, illustrated that providing information
on the financial value of college options can have meaningful impacts on college
choices. The difference in effectiveness of information interventions has been
studied extensively and informs our proposed approach to the financial
transparency framework.[77] To affect Start Printed Page 32324 college
decision-making, information must be timely, personalized, and easy to
understand.
The timing of when applicants receive information about institutions and
programs is critical—data should be available at key points during the college
search process and applicants should have sufficient time and resources to
process new information. Informational interventions work best when they arrive
at the right moment and are offered with additional guidance and support.[78]
For example, unemployment insurance (UI) recipients who received letters
informing them of Pell Grant availability and institutional support were 40
percent more likely to enroll in postsecondary education.[79] Families who
received information about the FAFSA, as well as support in completing it while
filing their taxes, were more likely to submit their aid applications, and
students from these families were more likely to attend and persist in
college.[80]
Informational interventions are most likely to sway choice when they are
tailored to the applicant's personal context.[81] High school students who learn
about their peers' admission experiences through an online college search
platform tend to shift their college application and attendance choices.[82]
Students who receive personalized outreach from colleges, particularly when
outreach is paired with information about financial aid eligibility, are more
likely to apply to and enroll in those institutions.[83]
Interventions are most effective when the content is salient and easy to
understand. Students, particularly those who are enrolling for the first time,
may need additional context for understanding student debt amounts and the
feasibility of repayment.[84] Evidence that students defer attention to their
student debt while enrolled [85] suggests that inclusion of typical
post-graduate earnings data may be likely to engage students.[86] Finally, it is
important that these data are consistently presented from a trusted source
across institutions and programs.[87]
In keeping with the idea of presenting salient and easy-to-understand
information, we propose categorization of acceptable levels of performance on
two measures of financial value. This approach ensures that students have clear
indication of when attending a program presents a significant risk of negative
financial consequences. In particular, and reflecting the concerns noted above,
we would categorize programs with low performance with the easy-to-understand
labels of “high debt-burden” and “low earnings,” based on the debt and earnings
measures used in the framework.
Research shows that receiving information from a trusted source, in a manner
that is easy to compare across different programs and institutions, and in a
timely fashion is important for disclosures to be effective. Moreover, we
believe that actively distributing information to prospective students before
the prospective student signs an enrollment agreement, registers, or makes a
financial commitment to the institution increases the likelihood that they will
view and act upon the information, compared to information that students would
have to seek out on their own. Accordingly, we propose to provide disclosures
through a website that the Department would administer and use to deliver
information directly to students. Additionally, to ensure that students see this
information before receiving federal aid for programs with potentially harmful
financial consequences, we propose requiring acknowledgment of receipt for
high-debt-burden programs before federal aid is disbursed.
We also seek to improve the information available to students and propose
several refinements relative to information available on the College Scorecard,
including debt measures that are inclusive of private and institutional loans
(including income sharing agreements or loans covered by tuition payment plans),
as well as measures of institutional, State, and private grant aid. This
information would enable the calculation of both the net price to students as
well as total amounts paid from all sources. We believe these improvements would
better capture the program's costs to students, families, and taxpayers.
To calculate these measures, we would require new reporting from institutions,
discussed below under proposed § 668.408.
As noted above, we propose that this transparency framework apply to (nearly)
all programs at all institutions. In particular, disclosures of this information
would be available for all programs, subject to privacy limitations. This is a
departure from the 2014 Prior Rule, which only required disclosures for GE
programs. Since students consider both GE and non-GE programs when selecting
programs, providing comparable information for students Start Printed Page 32325
would help them find the program that best meets their needs across any sector.
In the proposed subpart S, we address the need for additional accountability
measures for GE programs, including sanctions for programs determined to lead to
high-debt-burden or low earnings under the metrics described in subpart Q of
part 668.
FINANCIAL VALUE TRANSPARENCY FRAMEWORK (§ 668.402)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add new § 668.402 to establish a framework
to measure two different aspects of the financial value of programs based on
their debt and earnings outcomes, and to classify programs as “low-earning” or
“high-debt-burden” for the purpose of providing informative disclosures to
students.
D/E RATES
We would define a debt-to-earnings (D/E) metric to measure the debt burden faced
by the typical graduate of a program by determining the share of their annual or
discretionary income that would be required to make their student loan debt
payments under fixed-term repayment plans. We categorize programs as “high
debt-burden” if the typical graduate has a D/E rate that is above recognized
standards for debt affordability.
In particular, a program would be classified as “high debt-burden” if its
discretionary debt-to-earnings rate is greater than 20 percent and its annual
debt-to-earnings rate is greater than 8 percent. If the denominator (median
annual or discretionary earnings) of either rate is zero, then that rate is
considered ”high-debt-burden” only if the numerator (median debt payments) is
positive.
If it is not possible to calculate or issue D/E rates for a program for an award
year, the program would receive no D/E rates for that award year. The program
would remain in the same status under the D/E rates measure as the previous
award year.
EARNINGS PREMIUM (EP)
In addition, we would establish an earnings premium measure to assess the degree
to which program graduates out-earn individuals who did not enroll in
postsecondary education. The measure would be calculated as the difference in
the typical earnings of a program graduate relative to the typical earnings of
individuals in the State where the program is located who have only a high
school or equivalent credential.
We would categorize programs as “low-earning” if the median annual earnings of
the students who complete the program, measured three years after completion,
does not exceed the earnings threshold—that is, if the earnings premium is zero
or negative. The earnings threshold for each program would be calculated as the
median earnings of individuals with only a high school diploma or the
equivalent, between the ages of 25 to 34, who are either employed or report
being unemployed ( i.e., looking and available for work), located in the State
in which the institution is located, or nationally if fewer than 50 percent of
students in the program are located in the State where the institution is
located while enrolled.
If it is not possible to calculate or publish the earnings premium measure for a
program for an award year, the program would receive no result under the
earnings premium measure for that award year and would remain in the same status
under the earnings premium measure as the previous award year.
Proposed changes to § 668.43 would require institutions to distribute
information to students, prior to enrollment, about how to access a disclosure
website maintained by the Secretary. The disclosure website would provide
information about the program. These items might include the typical earnings
and debt levels of graduates; information to contextualize each measure
including D/E and EP measures; information about the net yearly cost of
attendance at the program and total costs paid by completing students;
information about typical amounts of student aid received; and information about
career programs, such as the occupation the program is meant to provide training
for and relevant licensure information. Certain information may be highlighted
or otherwise emphasized to assist viewers in finding key points of information.
For eligible non-GE programs classified by the Department as “high-debt-burden,”
proposed § 668.407 would require students to acknowledge viewing these
informational disclosures prior to receiving title IV, HEA funds for enrollment
in these programs.
Reasons: The proposed regulations include two debt-to-earnings measures that are
similar to those under the 2014 Prior Rule. The debt-to-earnings measures would
assess the debt burden incurred by students who completed a program in relation
to their earnings. Comparing debt to earnings is a commonly accepted practice
when making determinations about a person's relative financial strength, such as
when a lender assesses suitability for a mortgage or other financial product. To
determine the likelihood a borrower will be able to afford repayments, lenders
use debt-to-earnings ratios to consider whether the recipient would be able to
afford to repay the debt with the earnings available to them. This practice also
protects borrowers from incurring debts that they cannot afford to repay and can
prevent negative consequences associated with delinquency and default such as
damaged credit scores.
Using the two D/E measures together, the Department would assess whether a
program leads to reasonable debt levels in relation to completers' earnings
outcomes. This categorization based on the program's median earnings and median
debt levels is depicted in Figure 1 below. This Figure shows how the two D/E
rates are used to define “high debt-burden” programs, using the relevant
amortization rate of certificate programs as an illustrative example. The region
labelled D, where program completers' median debt levels are high relative to
their median earnings, is categorized as “high debt burden.”
Start Printed Page 32326
Under the proposed regulations, the annual debt-to-earnings rate would estimate
the proportion of annual earnings that students who complete the program would
need to devote to annual debt payments. The discretionary debt-to-earnings rate
would measure the proportion of annual discretionary income—the amount of income
above 150 percent of the Poverty Guideline for a single person in the
continental United States—that students who complete the program would need to
devote to annual debt payments. We note that given the variation in what is an
affordable payment from borrower to borrower, a variety of definitions could
potentially be justified. We do not mean to enshrine a single definition for
affordability across every possible purpose, but for this proposed rule we
choose to maintain the standard used under the 2014 Prior Rule.
The proposed thresholds for the discretionary D/E rate and the annual D/E rate
are based upon expert recommendations and mortgage industry practices. The
acceptable threshold for the discretionary income rate would be set at 20
percent, based on research conducted by economists Sandy Baum and Saul
Schwartz,[88] which the Department previously considered in connection with the
2011 and 2014 Prior Rules. Specifically, Baum and Schwartz proposed benchmarks
for manageable debt levels at 20 percent of discretionary income and concluded
that there are virtually no circumstances under which higher debt-service ratios
would be reasonable.
In the Figure above, the points along the steeper of the two lines drawn
represents the combination of median earnings (on the x-axis) and median debt
levels (on the y-axis) where the debt-service payments on a 10-year repayment
plan at 4.27 percent interest are exactly equal to 20 percent of discretionary
income. Programs with median debt and earnings levels above that line (regions B
and D) have discretionary D/E rates above 20 percent, and programs below that
line (regions A and C) have discretionary D/E rates below 20 percent.
The acceptable threshold of 8 percent for the annual D/E rate used in the
proposed regulations has been a reasonably common mortgage-underwriting
standard, as many lenders typically recommend that all non-mortgage loan
installments not exceed 8 percent of the borrower's pretaxed income. Studies of
student debt have accepted the 8 percent standard and some State agencies have
established guidelines based on this limit. Eight percent represents the
difference between the typical ratios used by lenders for the limit of total
debt service payments to pretaxed income, 36 percent, and housing payments to
pretax income, 28 percent.
In Figure 1, the less steep of the two lines shows the median earnings and debt
levels where annual D/E is exactly 8 percent. Programs above the line (regions D
and C) have annual D/E greater than 8 percent and programs below the line have
annual D/E less than 8 percent (regions B and A). Note that programs are defined
as “high debt-burden” only if their discretionary D/E is above 20 percent and
their annual D/E is above 8 percent. As a result, the use of both measures means
that programs in region B and C are not deemed “high debt-burden” even though
they have debt levels that are too high based on one of the two standards.
Classifying programs that have D/E rates below the discretionary D/E threshold
but above the annual D/E threshold ( i.e., region C) as not “high debt-burden”
reflects the fact that devoting the same share of earnings to service student
debt is less burdensome when earnings are higher. For example, paying $2,000 per
year is less manageable when you make $20,000 a year than paying $4,000 per year
when you make $40,000 a year, since at lower levels of income most spending must
go to necessities. Start Printed Page 32327
The D/E rates would help identify programs that burden students who complete the
programs with unsustainable debt, which may both generate hardships for
borrowers and pass the costs of loan repayment on to taxpayers. But the D/E
measures do not capture another important aspect of financial value, which is
the extent to which graduates improve their earnings potential relative to what
they might have earned if they did not pursue a higher education credential.
Some programs lead to very low earnings, but still pass the D/E metrics either
because typical borrowing levels are low or because few or no students borrow
(and so median debt is zero, regardless of typical levels among borrowers). The
Department believes that an additional metric is necessary beyond the D/E
measures, to ensure students are aware that these low-earnings programs may not
be delivering on their promise or providing what students expected from a
postsecondary education in helping them secure more remunerative employment.
We propose, therefore, to calculate an earnings premium metric.[89] This metric
would be equal to the median earnings of program graduates measured three years
after they complete the program, minus the median earnings of high school
graduates (or holders of an equivalent credential) who are between the ages of
25 and 34, and either working or unemployed, excluding individuals not in the
labor force, in the State where the institution is located, or nationally if
fewer than 50 percent of the students in the program are located in the State
where the institution is located while enrolled. When this earnings premium is
positive, it indicates that graduates of the program gain financially ( i.e.,
have higher typical earnings than they might have had they not attended
college).
Similar earnings premium metrics are used ubiquitously by economists and other
analysts to measure the earnings gains associated with college credentials
relative to a high school education.[90] Other policy researchers have proposed
similar earnings premium measures for accountability purposes that incorporate
additional adjustments to subtract some amortized measure of the total cost of
college to estimate a “net earnings premium.” [91] At the same time, our
proposed measure is conservative in the sense that it would compare the earnings
of completers only to the earnings of high school graduates, without
incorporating the additional costs students incur to earn the credential or the
value of their time spent pursuing the credential. Moreover, as noted above, the
corresponding level of earnings that programs must exceed is
modest—corresponding approximately to the earnings someone working full-time at
an hourly rate of $12.50 might earn.
As discussed elsewhere in this NPRM, student eligibility requirements in Section
484 of the HEA support this concept that postsecondary programs supported by
title IV, HEA funds should lead to outcomes that exceed those obtained by
individuals who have only a secondary education. To receive title IV, HEA funds,
HEA section 484 generally requires that students have a high school diploma or
recognized equivalent. Students who do not have such credentials have a more
limited path to title IV, HEA aid, involving ascertainment of whether they have
the ability to benefit from their postsecondary program. These statutory
requirements, in effect, make high-school-level achievement the presumptive
starting point for title IV, HEA funds. Postsecondary training that is supported
by title IV, HEA funds should help students to progress and achieve beyond that
baseline. The earnings premium follows from the principle that if postsecondary
training must be for individuals who are moving beyond secondary-level
education, knowledge, and skills, it is reasonable to expect graduates of those
programs to earn more than someone who never attended postsecondary education in
the first place.
The Department would classify programs as “low earning” if the earnings premium
is equal to zero or is negative. This is again a conservative approach, using
this label only when a majority of program graduates—that is, ignoring the
(likely lower) earnings of students who do not complete the program—fail to
out-earn the majority of individuals who never attend postsecondary education.
As noted above, this metric would also ignore tuition costs and the value of
students' time in earning the degree. The “low earning” label suggests that,
even ignoring these costs, students are not financially better off than students
who did not attend college.
The Department also considered whether this approach would create a risk of
programs being labelled “low-earning” based on earnings measures several years
after graduation, even though those programs eventually lead to significantly
higher levels of earnings over a longer time horizon. Based on the estimates in
the RIA, however, most programs that would be identified as “low-earning” are
certificate programs, and for these programs in particular, any earnings gains
tend to be realized shortly after program completion ( i.e., often immediately
or within a few quarters), whereas earnings trajectories for typical degree
earners tend to continue to grow over time.[92]
The D/E and earnings premium metrics capture related, but distinct and important
dimensions of how programs affect students' financial well-being. The D/E metric
is a measure of debt-affordability that indicates whether the typical graduate
will have earnings enough to manage their debt service payments without
incurring undue hardship. For any median earnings level of a program, the D/E
metric and thresholds imply a maximum level of total borrowing beyond which
students should be concerned that they may not be able to successfully manage
their debt. The earnings premium measure, meanwhile, captures the extent to
which programs leave graduates better off financially than those who do not
enroll in college, a minimal benchmark that students pursuing postsecondary
credentials likely expect to achieve. In addition to capturing distinct aspects
of programs' effects on students' financial well-being, these metrics complement
each other. For example, as the RIA shows, 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.
The Department believes this information on financial value is important to
students and would enable them to make a more informed decision, which may
include weighing whether low-earnings or high-debt-burden programs nonetheless
help them achieve other non-financial goals that Start Printed Page 32328 they
might find more important when considering whether to attend.
Helping students make informed decisions may provide other benefits, too. First,
as shown in the RIA, low-earnings programs that are not categorized as high
debt-burden still have very high rates of student loan default and low repayment
rates. For example, borrowers in low-earnings programs that are not high
debt-burden have default rates 12.6 percent higher than high-debt-burden
programs that have earnings above the level of a high school graduate in their
State. The low-earnings classification complements the high debt-burden
classification in identifying programs where borrowers are likely to struggle to
manage their loans. Second, low-earnings programs where students borrow generate
ongoing costs to taxpayers. Student loans from the Department are used to
provide tuition revenue to the program. But if low-earning graduates repay using
income driven repayment plans, then their payments will often be too low to pay
down their principal balances despite spending years or even decades in
repayment. As a result, a high share of the loans made to individuals in such
programs would be likely to be eventually forgiven at taxpayer expense. If
low-earning borrowers don't use income driven repayment plans, the RIA shows
they are at higher risk of defaulting on their loans, which also tends to
increase the costs of student loans to taxpayers.
The Department would calculate both the D/E rates and the earnings premium
measure using earnings data provided by a Federal agency with earnings data,
which we propose to define in § 668.2. The Federal agency with earnings data
must have data sufficient to match with title IV, HEA recipients in the program
and could include agencies such as the Treasury Department, including the
Internal Revenue Service (IRS), the Social Security Administration (SSA), the
Department of Health and Human Services (HHS), and the Census Bureau. If the
Federal agency with earnings data does not provide earnings information
necessary for the calculation of these metrics, we would not calculate the
metrics and the program would not receive rates for the award year. Similarly,
if the minimum number of completers required to calculate the D/E rates or
earnings threshold metrics to be calculated is not met, the program would not
receive rates for the award year. For a year for which the D/E rates or earnings
premium metric is not calculated, we believe it is logical for the program to
retain the same status as under its most recently calculated results for
purposes of determining whether the program leads to acceptable outcomes and
whether current and prospective students should be alerted to those outcomes.
CALCULATING D/E RATES (§ 668.403)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add new § 668.403 to specify the methodology
the Department would use to calculate D/E rates.
Section 668.403(a) would define the program's annual D/E rate as the completers'
annual loan payment divided by their median annual earnings. The program's
discretionary D/E rate would equal the completers' annual loan payment divided
by their median adjusted annual earnings after subtracting 150 percent of the
poverty guideline for the most recent calendar year for which annual earnings
are obtained.
Under § 668.403(b), the Department would calculate the annual loan payment for a
program by (1) Determining the median loan debt of the students who completed
the program during the cohort period, based on the lesser of the loan debt
incurred by each student, computed as described in § 668.403(d), or the total
amount for tuition and fees and books, equipment, and supplies for each student,
less the amount of institutional grant or scholarship funds provided to that
student; removing the highest loan debts for a number of students equal to those
for whom the Federal agency with earnings data does not provide median earnings
data; and calculating the median of the remaining amounts; and (2) Amortizing
the median loan debt. The length of the amortization period would depend upon
the credential level of the program, using a 10-year repayment period for a
program that leads to an undergraduate certificate, a post-baccalaureate
certificate, an associate degree, or a graduate certificate; a 15-year repayment
period for a program that leads to a bachelor's degree or a master's degree; or
a 20-year repayment period for any other program. The amortization calculation
would use an annual interest rate that is the average of the annual statutory
interest rates on Federal Direct Unsubsidized Loans that were in effect during a
period that varies based on the credential level of the program. For
undergraduate certificate programs, post-baccalaureate certificate programs, and
associate degree programs, the average interest rate would reflect the three
consecutive award years, ending in the final year of the cohort period, using
the Federal Direct Unsubsidized Loan interest rate applicable to undergraduate
students. As an example, for an undergraduate certificate program, if the
two-year cohort period is award years 2024–2025 and 2025–2026, the interest rate
would be the average of the interest rates for the years from 2023–2024 through
2025–2026. For graduate certificate programs and master's degree programs, the
average interest rate would reflect the three consecutive award years, ending in
the final year of the cohort period, using the Federal Direct Unsubsidized Loan
interest rate applicable to graduate students. For bachelor's degree programs,
the average interest rate would reflect the six consecutive award years, ending
in the final year of the cohort period, using the Federal Direct Unsubsidized
Loan interest rate applicable to undergraduate students. For doctoral programs
and first professional degree programs, the average interest rate would reflect
the six consecutive award years, ending in the final year of the cohort period,
using the Federal Direct Unsubsidized Loan interest rate applicable to graduate
students.
Under new § 668.403(c), the Department would obtain program completers' median
annual earnings from a Federal agency with earnings data for use in calculating
the D/E rates.
In determining the loan debt for a student under new § 668.403(d), the
Department would include (1) The total amount of title IV loans disbursed to the
student for enrollment in the program, less any cancellations or adjustments
except for those related to false certification or borrower defense discharges
and debt relief initiated by the Secretary as a result of a national emergency,
and excluding Direct PLUS Loans made to parents of dependent students and Direct
Unsubsidized Loans that were converted from TEACH Grants; (2) Any private
education loans as defined in § 601.2, including such loans made by the
institution, that the student borrowed for enrollment in the program; and (3)
The amount outstanding, as of the date the student completes the program, on any
other credit (including any unpaid charges) extended by or on behalf of the
institution for enrollment in any program that the student is obligated to repay
after completing the program, including extensions of credit described in the
definition of, and excluded from, the term “private education loan” in § 601.2.
The Department would attribute all loan debt incurred by the student for
enrollment in any undergraduate Start Printed Page 32329 program at the
institution to the highest credentialed undergraduate program subsequently
completed by the student at the institution as of the end of the most recently
completed award year prior to the calculation of the D/E rates. Similarly, we
would attribute all loan debt incurred by the student for enrollment in any
graduate program at the institution to the highest credentialed graduate program
completed by the student at the institution as of the end of the most recently
completed award year prior to the calculation of the D/E rates. The Department
would exclude any loan debt incurred by the student for enrollment in programs
at other institutions, except that the Secretary could choose to include loan
debt incurred for enrollment in programs at other institutions under common
ownership or control.
Under new § 668.403(e), the Department would exclude a student from both the
numerator and the denominator of the D/E rates calculation if (1) One or more of
the student's title IV loans are under consideration or have been approved by
the Department for a discharge on the basis of the student's total and permanent
disability; (2) The student enrolled full time in any other eligible program at
the institution or at another institution during the calendar year for which the
Department obtains earnings information; (3) For undergraduate programs, the
student completed a higher credentialed undergraduate program at the institution
subsequent to completing the program, as of the end of the most recently
completed award year prior to the calculation of the D/E rates; (4) For graduate
programs, the student completed a higher credentialed graduate program at the
institution subsequent to completing the program, as of the end of the most
recently completed award year prior to the calculation of the D/E rates; (5) The
student is enrolled in an approved prison education program; (6) The student is
enrolled in a comprehensive transition and postsecondary (CTP) program; or (7)
The student died. For purposes of determining whether a student completed a
higher credentialed undergraduate program, the department would consider
undergraduate certificates or diplomas, associate degrees, baccalaureate
degrees, and post-baccalaureate certificates as the ascending order of
credentials. For purposes of determining whether a student completed a higher
credentialed graduate program, the Department would consider graduate
certificates, master's degrees, first professional degrees, and doctoral degrees
as the ascending order of credentials.
As further explained under “Reasons” below, to prevent privacy or statistical
reliability issues, under § 668.403(f) the Department would not issue D/E rates
for a program if fewer than 30 students completed the program during the
two-year or four-year cohort period, or the Federal agency with earnings data
does not provide the median earnings for the program.
For purposes of calculating both the D/E rates and the earnings threshold
measure, the Department proposes to use a two-year or a four-year cohort period
similar to the 2014 Prior Rule. The proposed rule would, however, measure the
earnings of program completers approximately one year later relative to when
they complete their degree than under the 2014 Prior Rule. We would use a
two-year cohort period when the number of students in the two-year cohort period
is 30 or more. A two-year cohort period would consist of the third and fourth
award years prior to the year for which the most recent data are available at
the time of calculation. For example, given current data production schedules,
the D/E rates and earnings premium measure calculated to assess financial value
starting in award year 2024–2025 would be calculated in late 2024 or early in
2025. For most programs, the two-year cohort period for these metrics would be
award years 2017–2018 and 2018–2019 using the amount of loans disbursed to
students as of program completion in those award years and earnings data
measured in calendar years 2021 for award year 2017–2018 completers and 2022 for
award year 2018–2019 completers, roughly 3 years after program completion.
We would use a four-year cohort period to calculate the D/E rates and earnings
thresholds measure when the number of students completing the program in the
two-year cohort period is fewer than 30 but the number of students completing
the program in the four-year cohort period is 30 or more. A four-year cohort
period would consist of the third, fourth, fifth, and sixth award years prior to
the year for which the most recent earnings data are available at the time of
calculation. For example, for the D/E rates and the earnings threshold measure
calculated to assess financial value starting in award year 2024–2025, the
four-year cohort period would be award years 2015–2016, 2016–2017, 2017–2018,
and 2018–2019; and earnings data would be measured using data from calendar
years 2019 through 2022.
Similar to the 2014 Prior Rule, the cohort period would be calculated
differently for programs whose students are required to complete a medical or
dental internship or residency, and who therefore experience an unusual and
unavoidable delay before reaching the earnings typical for the occupation. For
this purpose, a required medical or dental internship or residency would be a
supervised training program that (1) Requires the student to hold a degree as a
doctor of medicine or osteopathy, or as a doctor of dental science; (2) Leads to
a degree or certificate awarded by an institution of higher education, a
hospital, or a health care facility that offers post-graduate training; and (3)
Must be completed before the student may be licensed by a State and board
certified for professional practice or service. The two-year cohort period for a
program whose students are required to complete a medical or dental internship
or residency would be the sixth and seventh award years prior to the year for
which the most recent earnings data are available at the time of calculation.
For example, D/E rates and the earnings threshold measure calculated for award
year 2024–2025 would be calculated in late 2024 or early 2025 using earnings
data measured in calendar years 2021 and 2022, with a two-year cohort period of
award years 2014–2015 and 2015–2016. The four-year cohort period for a program
whose students are required to complete a medical or dental internship or
residency would be the sixth, seventh, eighth, and ninth award years prior to
the year for which the most recent earnings data are available at the time of
calculation. For example, the D/E rates and the earnings threshold measure
calculated for award year 2024–2025 would be calculated in late 2024 or early
2025 using earnings data measured in calendar years 2021 and 2022, and the
four-year cohort period would be award years 2012–2013, 2013–2014, 2014–2015,
and 2015–2016.
The Department recognizes that some other occupations, such as clinical
psychology, may require a certain number of post-graduate work hours, which
might vary from State to State, before an individual fully matriculates into the
profession, and that, during this post-graduate working period, a completer's
earnings may be lower than are otherwise typical for individuals working in the
same occupation. We would welcome public comments about data-informed ways to
reliably identify such programs and occupations and determine the most
appropriate time period for measuring earnings for these Start Printed Page
32330 programs. We are particularly interested in approaches that narrowly
identify programs where substantial post-graduate work hours (that may take
several years to complete) are required before a license can be obtained, and
where earnings measured three years after completion are therefore unusually low
relative to subsequent earnings.
Reasons: The methodology we would use to calculate the D/E rates under the
proposed regulations is largely similar to that of the 2014 Prior Rule. We
discuss our reasoning by subject area.
MINIMUM NUMBER OF STUDENTS COMPLETING THE PROGRAM
As under the 2014 Prior Rule, the proposed regulations would establish a minimum
threshold number of students who completed a program, or “n-size,” for D/E rates
to be calculated for that program. Both the 2014 Prior Rule and the proposed
regulations require a minimum n-size of 30 students completing the program,
after subtracting the number of completers who cannot be matched to earnings
data. However, some programs are relatively small in terms of the number of
students enrolled and, perhaps more critically, in the number of students who
complete the program. In many cases, these may be the very programs whose
performance should be measured, as low completion rates may be an indication of
poor quality. The 2019 Prior Rule also expressed concern with the 30-student
cohort size requirement, stating that it exempted many programs at non-profit
institutions while having a disparate impact on proprietary institutions.
We considered and presented, during the negotiations that led to the 2014 Prior
Rule, a lower n-size of 10. At that time the non-Federal negotiators raised
several issues with the proposal to use a lower n-size of 10. First, some of the
negotiators questioned whether the D/E rates calculations using an n-size of 10
would be statistically valid. Further, they were concerned that reducing the
minimum n-size to 10 could make it too easy to identify particular individuals,
putting student privacy at risk. These negotiators noted that other entities
requiring these types of calculations used a minimum n-size of 30 to address
these two concerns.
Other non-Federal negotiators supported the Department's past proposal to reduce
the minimum n-size from 30 to 10 students completing the program. They argued
that the lower number would allow the Department to calculate D/E rates for more
programs, which would decrease the risk that programs that serve students poorly
are not held accountable. They argued that some programs have very low numbers
of students who complete the program, not because these programs enroll small
numbers of students, but because they do not provide adequate support or are of
low quality and, as a result, relatively few students who enroll actually
complete the program. They asserted that these poorly performing programs may
never be held accountable under the D/E rates measure because they would not
have a sufficient number of completers for the D/E rates to be calculated. For
these reasons, these negotiators believed that the Secretary should calculate
D/E rates for any program where at least 10 students completed the program
during the applicable cohort period.
As in our past analysis, we acknowledge the limitations of using a minimum
n-size of 30 students. However, to protect the privacy of individuals who
complete programs that enroll relatively few students, and to be consistent with
past practice as well as existing regulations at § 668.216, which governs
institutional cohort default rates, we propose to retain the minimum n-size of
30 students who complete the program as we did in the 2014 Prior Rule. This is
also consistent with IRS data policy. As further explained in our discussion of
proposed § 668.405, the IRS adds a small amount of statistical noise to earnings
data for privacy protection purposes, which would be greater for n-sizes smaller
than 30. We also note that the four-year cohort will allow the Department to
determine D/E rates for programs that have at least 30 completers over a
four-year cohort period for whom the Department obtains earnings data, which
would help to reduce the number of instances in which rates could not be
calculated because of the minimum n-size.
As described in detail in the RIA, the Department estimates that 75 percent of
GE enrollment and 15 percent of GE programs would have sufficient n-size to have
metrics computed with a two-year cohort. An additional 8 percent of GE
enrollment and 11 percent of GE programs would be likely to have metrics
computed using a four-year completer cohort. The comparable rates for eligible
non-GE programs are 69 percent of enrollment and 19 percent of programs with a
n-size of 30 covered by two-year cohort metrics, with the use of four-year
cohort rates likely increasing these coverage rates of non-GE enrollment and
programs by 13 and 15 percent, respectively.
AMORTIZATION
As under the 2014 Prior Rule, the proposed regulations would use three different
amortization periods, based on the credential level of the program for
determining a program's annual loan payment amount. The schedule under the
proposed regulations reflects that the regulations are an accountability tool to
protect students and taxpayers from programs that leave the majority of their
graduates with subpar early career earnings compared to those who have not
completed postsecondary education or subpar early career earnings relative to
their debts. This schedule would reflect the loan repayment options available
under the HEA, which are available to borrowers based on the amount of their
loan debt, and would account for the fact that borrowers who enrolled in
higher-credentialed programs ( e.g., bachelor's and graduate degree programs)
are likely to have incurred more loan debt than borrowers who enrolled in
lower-credentialed programs and, as a result, are more likely to select a
repayment plan that would allow for a longer repayment period.
We decided to choose 10 years as the shortest amortization period available to
borrowers because that is the length of the standard repayment plan that is by
default offered to borrowers. Moreover, FSA data show that the borrowers who
have balances most likely to be associated with certificate programs are most
likely to be making use of the 10-year standard plan. Even students who borrow
to complete a short-term program are provided a minimum of 10 years to repay
their student loan balances. Therefore, it would be inappropriate to assign an
amortization period shorter than 10 years to students in such programs.
LOAN DEBT
As under the 2014 Prior Rule, in calculating a student's loan debt, the
Department would include title IV, HEA program loans and private education loans
that the student obtained for enrollment in the program, less any cancellations
or adjustments except for those related to false certification or borrower
defense discharges and debt relief initiated by the Secretary as a result of a
national emergency. We would not reduce debt to reflect these types of
cancellation since they are unrelated to the value of the program under normal
circumstances, and because including that debt would be a better reflection of
how the program's costs affect students' financial outcomes in the absence of
these relief programs. Start Printed Page 32331 For these purposes the amount of
title IV, HEA loan debt would exclude Direct PLUS Loans made to parents of
dependent students and Direct Unsubsidized Loans that were converted from TEACH
Grants. The amount of a student's loan debt would also include any outstanding
debt resulting from credit extended to the student by, or on behalf of, the
institution ( e.g., institutional financing or payment plans) that the student
is obligated to repay after completing the program. Including both private loans
and institutional loans, in addition to Federal loan debt, would provide the
most complete picture of the financial burden a student has incurred to enroll
in a program.
Including private loans also ensures that an institution could not attempt to
alter its D/E rates by steering students away from the Federal loan programs to
a private option.
The Department previously considered including Direct PLUS Loans made to parents
of dependent students in the debt measure for D/E rates, on the basis that a
parent PLUS loan is intended to cover costs related to education and associated
with the dependent student's enrollment in an eligible program of study. Some
non-Federal negotiators questioned the inclusion of parent PLUS loans, arguing
that a dependent student does not sign the promissory note for a parent loan and
is not responsible for repayment. Other non-Federal negotiators expressed
concern that failing to include parent PLUS loans obtained on behalf of
dependent students could incentivize institutions to counsel students away from
Direct Subsidized and Unsubsidized Loans, and to promote more costly parent
loans, in an attempt to evade accountability under the D/E rates metric. While
we recognize these competing concerns, we believe that the primary purpose of
the D/E rates is to indicate whether graduates of the program can afford to
repay their educational debt. Repayment of PLUS loans obtained by a parent on
behalf of a dependent student is ultimately the responsibility of the parent
borrower, not the student. Moreover, the ability to repay parent PLUS debt
depends largely upon the income of the parent borrower, who did not attend the
program. We believe that including in a program's D/E rates the parent PLUS debt
obtained on behalf of dependent students would cloud the meaning of the D/E
rates and would ultimately render them less useful to students and families. We
remain concerned, however, about the potential for an institution to steer
families away from less costly Direct Subsidized and Unsubsidized Loans towards
parent PLUS in an attempt to manipulate its D/E rates, and we have addressed
this concern, in part, by proposing changes to the administrative capability
regulations at § 668.16(h) that would require institutions to adequately counsel
students and families about the most favorable aid options available to them. We
welcome public comments on additional measures the Department could take to
address this issue.
LOAN DEBT CAP
We propose to cap loan debt for the D/E rates calculations at the net direct
costs charged to a student, defined as the costs assessed to the student for
enrollment in a program that are directly related to the academic program, minus
institutional grants and scholarships received by that student. Under this
calculation, direct costs include tuition and fees as well as books, equipment,
and supplies. Although institutions in most cases cannot directly limit the
amount a student borrows, institutions can exercise control over these types of
direct costs for which a student borrows. The total of the student's assessed
tuition and fees, and the student's allowance for books, supplies, and equipment
would be included in the cost of attendance disclosed under proposed
§ 668.43(d). The 2014 Prior Rule capped loan debt for D/E rates at the total
direct costs using the same definition. In this rule, we further propose to
subtract institutional grants and scholarships from the measure of direct costs
to produce a measure of net direct costs. For purposes of the D/E rates, we
propose to define institutional grants and scholarships as financial assistance
that does not have to be repaid that the institution—or its affiliate—controls
or directs to reduce or offset the original amount of a student's institutional
costs. Upon further consideration and in the interest of fairness to
institutions that provide substantial assistance to students, we believe it is
necessary to account for institutional grants and scholarships to ensure that
the amount of debt disclosed under the D/E rates accurately reflects the
borrowing necessary for the student to finance the direct costs of the program.
ATTRIBUTION OF LOAN DEBT
As under the 2014 Prior Rule, we propose that any loan debt incurred by a
student for enrollment in undergraduate programs be attributed to the highest
credentialed undergraduate program completed by the student at the institution,
and any loan debt incurred for enrollment in graduate programs at an institution
be attributed to the highest credentialed graduate program completed by the
student. The undergraduate credential levels in ascending order would include
undergraduate certificate or diploma, associate degree, bachelor's degree, and
post-baccalaureate certificate. Graduate credential levels in ascending order
would include graduate certificate (including a postgraduate certificate),
master's degree, first-professional degree, and doctoral degree.
We do not believe that undergraduate debt should be attributed to the debt of
graduate programs in cases where students who borrow as undergraduates continue
on to complete a graduate credential at the same institution, because the
relationships between the coursework and the credential are different. The
academic credits earned in an associate degree program, for example, are often
necessary for and would be applied toward the credits required to complete a
bachelor's degree program. It is reasonable then to attribute the debt
associated with all of the undergraduate academic credit earned by the student
to the highest undergraduate credential subsequently completed by the student.
This reasoning does not apply to the relationship between undergraduate and
graduate programs. Although a bachelor's degree might be a prerequisite to
pursue graduate study, the undergraduate academic credits would not be applied
toward the academic requirements of the graduate program.
In attributing loan debt, we propose to exclude any loan debt incurred by the
student for enrollment in programs at another institution. However, the
Secretary could include loan debt incurred by the student for enrollment in
programs at other institutions if the institution and the other institutions are
under common ownership or control. The 2010 and 2014 Prior Rules included the
same provision. As we noted previously, although we generally would not include
loan debt from other institutions students previously attended, entities with
ownership or control of more than one institution offering similar programs
might otherwise be incentivized to shift students between those institutions to
shield some portion of the loan debt from the D/E rates calculations. Including
the provision that the Secretary may choose to include that loan debt should
serve to discourage institutions from making these kinds of changes and would
assist the Start Printed Page 32332 Department in holding such institutions
accountable.
EXCLUSIONS
Under the proposed regulations, we would exclude from the D/E rates calculations
most of the same categories of students that we excluded under the 2014 Prior
Rule, including students with one or more loans discharged or under
consideration for discharge based on the borrower's total and permanent
disability, students enrolled full-time in another eligible program during the
year for which earnings data was obtained, students who completed a higher
credentialed undergraduate or graduate program as of the end of the most
recently completed award year prior to the D/E rates calculation, and students
who have died. We believe the approach we adopted in the 2014 Prior Rule
continues to be sound policy.
Under these proposed regulations, we would also exclude students enrolled in
approved prison education programs, as defined under section 484(t) of the HEA
and 34 CFR 668.236. Employment options for incarcerated persons are limited or
nonexistent, and Direct Loans are not available to them, so including these
students in D/E rates would disincentivize the enrollment of incarcerated
students and unfairly disadvantage institutions that may otherwise offer
programs to benefit this population. The proposed regulations would also exempt
comprehensive transition and postsecondary programs, as defined at § 668.231.
CTP programs are designed to provide integrated educational opportunities for
students with intellectual disabilities, for whom certain requirements for title
IV, HEA eligibility are waived or modified under subpart O of part 668. Unlike
most eligible students, these students are not required to possess a high school
diploma or equivalent, or to pass an ability-to-benefit test to establish
eligibility for title IV, HEA funds. The earnings premium measure proposed in
subpart Q is designed to compare postsecondary completers' earnings outcomes to
the earnings of those with a high school diploma or equivalent but no
postsecondary education. We believe that to judge a CTP program's earnings
outcomes against the outcomes of individuals with a high school diploma or the
equivalent would be an inherently flawed comparison, as students enrolled in a
CTP program are not required to have a high school credential or equivalent.
These students also are not eligible to obtain Federal student loans, which
would render debt-to-earnings rates meaningless for these programs.
Under the proposed regulations we would include students whose loans are in a
military-related deferment. This is a change from the 2014 Prior Rule. Although
completers who subsequently choose to serve in the armed forces are demonstrably
employed and may access military-related loan deferments, and we believe that
their earnings would likely raise the median income measured for the program,
that does not eliminate the harm to them if their earnings do not otherwise
support the debt they incurred. We believe that servicemembers should expect and
receive equal consumer protections as those who enter other occupations.
We continue to believe that we should not include the earnings or loan debt of
students who were enrolled full time in another eligible program at the
institution or at another institution during the year for which the Secretary
obtains earnings information. These students are unlikely to work full time
while in school and consequently their earnings would not be reflective of the
program being assessed under the D/E rates. It would therefore be unfair to
include these students in the D/E rates calculation.
CALCULATING EARNINGS PREMIUM MEASURE (§ 668.404)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.404 to specify the
methodology the Department would use to calculate the earnings premium measure.
The Department would assess the earnings premium measure for a program by
determining whether the median annual earnings of the title IV, HEA recipients
who completed the program exceed the earnings threshold. The Department would
obtain from a Federal agency with earnings data the most currently available
median annual earnings of the students who completed the program during the
cohort period. Using data from the U.S. Census Bureau, the Department would also
calculate an earnings threshold, which would be the median earnings for working
adults aged 25 to 34, who either worked during the year or indicated that they
were unemployed when they were surveyed. The earnings threshold would be
calculated based on the median for State in which the institution is located, or
the national median if fewer than 50 percent of students in the program are
located in the State where the institution is located during enrollment in the
program. The Department would publish the state and national earnings thresholds
annually in a notice in the Federal Register . We would exclude a student from
the earnings premium measure calculation under the same conditions for which a
student would be excluded from the D/E rates calculation under § 668.403,
including if (1) One or more of the student's title IV loans are under
consideration, or have been approved, for a discharge on the basis of the
student's total and permanent disability under 34 CFR 674.61, 682.402, or
685.212; (2) The student was enrolled full time in any other eligible program at
the institution or at another institution during the calendar year for which the
Department obtains earnings information; (3) For undergraduate programs, the
student completed a higher credentialed undergraduate program subsequent to
completing the program, as of the end of the most recently completed award year
prior to the calculation of the earnings threshold measure; (4) For graduate
programs, the student completed a higher credentialed graduate program
subsequent to completing the program, as of the end of the most recently
completed award year prior to the calculation of the earnings threshold measure;
(5) The student is enrolled in an approved prison education program; (6) The
student is enrolled in a comprehensive transition and postsecondary program; or
(7) The student died. The Department would not issue the earnings premium
measure for a program if fewer than 30 students completed the program during the
two-year or four-year cohort period. The Department also would not issue the
measure if the Federal agency with earnings data does not provide the median
earnings for the program, for example because exclusions or non-matches reduce
the number of students available to be matched to earnings data to the point
that the agency is no longer permitted to disclose median earnings due to
privacy restrictions.
Reasons: As discussed in “§ 668.402 Financial value transparency framework,”
some programs with very poor labor market outcomes could potentially achieve
passing D/E rates with low levels of loan debt, or because fewer than half of
completers receive student loans. Such programs may not necessarily encumber
students with high levels of debt but may nonetheless fail to leave students
financially better off than had they not pursued a postsecondary education
credential, especially given the financial and time costs for students. ED
believes that a postsecondary program cannot be considered to lead to an
acceptable earnings outcome if the median earnings of the program's completers
do not, at Start Printed Page 32333 a minimum, exceed the earnings of those who
only completed the equivalent of a secondary school education.[93]
This concept that postsecondary education must entail academic rigor and career
outcomes beyond what is delivered by high school is embedded in the student
eligibility criteria in the HEA. Thus, 20 U.S.C. 1001 states that an institution
of higher education must only admit as regular students those individuals who
have completed their secondary education or met specific requirements under 20
U.S.C. 1091(d), which includes an assessment that they demonstrate the ability
to benefit from the postsecondary program being offered. The definitions for a
proprietary institution of higher education or a postsecondary vocational
institution in 20 U.S.C. 1002 maintain the same requirement for admitting
individuals who have completed secondary education. Similarly, there are only
narrow exceptions for students beyond the age of compulsory attendance who are
dually or concurrently enrolled in postsecondary and secondary education. The
purpose of such limitations is to help ensure that postsecondary programs build
skills and knowledge that extend beyond what is taught in high school.
The Department thus believes it is reasonable that, if a program provides
students an education that goes beyond the secondary level, students should be
alerted in cases where their financial outcomes might not exceed those of the
typical secondary school graduate. This does not mean that every individual who
attends a program needs to earn more than a high school graduate. Instead, it
requires only that at least half of program graduates show that they are earning
as much or more than individuals who had never completed postsecondary
education. We also note that the earnings premium is a conservative measure in
that the program earnings measures only include students who complete the
program of study, and do not include students who enrolled but exited without
completing the program of study, as these students would in most cases have
lower earnings than graduates. To provide consistency and simplicity, the
program earnings information used to calculate the earnings premium measure
would be the same as the earnings information used to determine D/E rates.
The Department would compare the median earnings of the program's completers to
the median earnings of adults aged 25 to 34, who either worked during the year
or indicated they were unemployed ( i.e., available and looking for work), with
only a high school diploma or recognized equivalent in the State in which the
institution is located while enrolled. The Department chose this range of ages
to calculate the earnings threshold benchmark because it matches well the age
students are expected to be three years after the typical student graduates (
i.e., the year in which their earnings are measured under the rule) from the
programs covered by this regulation. The average age three years after students
graduate across all credential levels is 30 years, and the interquartile range (
i.e., from the program at the 25th percentile to the 75th percentile of average
age) across all programs extends from 27 to 34 years of age. The 25 to 34 year
age range encompasses the interquartile range for most credential types, with
the lone exceptions being master's degrees, where the interquartile range of
average ages when earnings are measured is 30 to 35, and doctoral programs,
which range from 32 to 43 years old.[94] Among these credential programs,
students tend to be older than the high school graduates to which they are being
compared.
Because many programs are offered through distance education or serve students
from neighboring States, if fewer than 50 percent of the students in a program
are located in the State where the institution is located, the earnings premium
calculation would compare the median earnings of the program's completers to the
median earnings nationally for a working adult aged 25 to 34, who either worked
during the year or indicated they were unemployed when interviewed, with only a
high school diploma or the recognized equivalent. Although we recognize that
some nontraditional learners attend and complete programs past age 34, either
for retraining or to seek advancement within a current profession, we believe
that the earnings premium measure would provide the most meaningful information
to students and prospective students by illustrating the earnings outcomes of a
program's graduates in comparison to others relatively early in their careers.
As the Regulatory Impact Analysis explains, according to FAFSA data, the typical
age of earnings measurement (three years after completion) for students across
all program types is 30. This average varies only slightly across undergraduate
programs: undergraduate certificate program graduates are an average of 30.6
years when their earnings are measured, associate degree graduates are 30.4,
bachelor's degree graduates are 29.2, and all graduate credential graduates are
older on average. Additionally, the ten highest-enrollment fields of study for
undergraduate certificate programs—the credential level where the median
earnings of programs are most likely to fall below the earnings threshold—all
have a typical age at earnings measurement in the 25– to 34-year-old range.
We are aware that in some cases, earnings data for high school graduates to
estimate an earnings threshold may not be as reliable or easily available in
U.S. Territories, such as Puerto Rico. We welcome public comments on how to best
determine a reasonable earnings threshold for programs offered in U.S.
territories.
In addition, we recognize that it may be more challenging for some programs
serving students in economically disadvantaged locales to demonstrate that
graduates surpass the earnings threshold when the earnings threshold is based on
the median statewide earnings, including locales with higher earnings. We invite
public comments concerning the possible use of an established list, such as a
list of persistent poverty counties compiled by the Economic Development
Administration, to identify such locales, along with comments on what specific
adjustments, if any, the Department should make to the earnings threshold to
accommodate in a fair and data-informed manner programs serving those
populations.
The Department chose to compute the earnings premium measure by comparing
program graduates to those with only a secondary credential who are working or
who reported themselves as unemployed, which means they do not currently have a
job but report being available and looking for a position. By doing so, the
threshold measure excludes individuals who are not in the labor force in
calculating median high school graduate earnings. The Department believes this
approach creates an appropriate comparison group for recent postsecondary
program graduates, as we would anticipate that most graduates—especially those
graduating from career training Start Printed Page 32334 programs—are likely
employed or looking for work.
PROCESS FOR OBTAINING DATA AND CALCULATING D/E RATES AND EARNINGS PREMIUM
MEASURE (§ 668.405)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.405 to establish the process
under which the Department would obtain the data necessary to calculate the
financial value transparency metrics.
Under this proposed rule, the Department would use administrative data that
institutions report to us to identify which students' information should be
included when calculating the metrics established by this rule for each program.
Institutions would be required to update or otherwise correct any reported data
no later than 60 days after the end of an award year, in accordance with
procedures established by the Department. We would use this administrative data
to compile and provide to institutions a list of students who completed each
program during the cohort period. Institutions would have the opportunity to
review and correct completer lists. The finalized completer lists would then be
used by the Department to obtain from a Federal agency with earnings data the
median annual earnings of the students on each list; and to calculate the D/E
rates and the earnings premium measure which we would provide to the
institution. For each completer list the Department submits to the Federal
agency with earnings data, the agency would return to the Department (1) The
median annual earnings of the students on the list whom the Federal agency with
earnings data matches to earnings data, in aggregate and not in individual form;
and (2) The number, but not the identities, of students on the list that the
Federal agency with earnings data could not match. If the information returned
by the Federal agency with earnings data includes reports from records of
earnings on at least 30 students, the Department would use the median annual
earnings provided by the Federal agency with earnings data to calculate the D/E
rates and earnings premium measure for each program. If the Federal agency with
earnings data reports that it was unable to match one or more of the students on
the final list, the Department would not include in the calculation of the
median loan debt for D/E rates the same number of students with the highest loan
debts as the number of students whose earnings the Federal agency with earnings
data did not match. For example, if the Federal agency with earnings data is
unable to match three students out of 100 students, the Department would order
the 100 listed students by the amounts borrowed and exclude from the D/E rates
calculation the students with the three largest loan debts to calculate the
median program loan debt.
Reasons: For the reasons discussed in § 668.401 “Scope and purpose,” we intend
to establish metrics that would assess whether a program leads to acceptable
debt and earnings outcomes. As further discussed in § 668.402 “Financial value
transparency framework,” these metrics would include a program's D/E rates as
well as an earnings premium measure. To the extent possible, in calculating
these metrics the Department would rely upon data the institution is already
required to report to us. As such, it would be necessary that current and
reliable information be available to the Department. Institutions would
therefore be required to update or otherwise correct any reported data no later
than 60 days after the end of an award year, to ensure the accuracy of
completers lists while allowing the Department to submit those lists to a
Federal agency with earnings data in a timely manner.
We believe that providing institutions the opportunity to review and correct
completer lists will promote transparency and provide helpful insight from
institutions, while ultimately yielding more reliable eligibility determinations
based upon the most current and accurate debt and earnings data possible. We
recognize that reviewing completer lists for each program could generate some
administrative burden for institutions, but we have attempted to mitigate this
burden by ensuring that the completer list review process is optional for
institutions. The Department would assume the accuracy of a program's initial
completer list unless the institution provides corrections using a process
prescribed by the Secretary within the 60-day timeframe provided in these
regulations.
To safeguard the privacy of sensitive earnings data, the Federal agency with
earnings data would not provide individual earnings data for each completer on
the list to the Department. Instead, the Federal agency with earnings data would
provide to the Department only the median annual earnings of the students on the
list whom it matches to earnings data, along with the number of students on the
list that it could not match, if any. This is in keeping with how the Department
has received information on program and institutional earnings from other
Federal agencies for years, as we have never obtained earnings information of
individuals when using this approach.
For purposes of determining the median loan debt to be used in the D/E rates
calculation, the Department would remove the same number of students with the
highest loan debts as the number of students whose earnings the Federal agency
with earnings data did not match. In the absence of earnings data for specific
borrowers, which would otherwise allow the Department to remove the loan debts
specific to the borrowers whose earnings data could not be matched, we propose
removing the highest loan debts to represent those borrowers because it is the
approach to adjusting debt levels for unmatched individuals that is most
favorable to institutions, yielding the lowest estimate of median debt for the
subset of program graduates for whom earnings are observed that is consistent
with the data.
The proposed rule does not specify a source of data for earnings, but rather
allows the Department flexibility to work with another Federal agency to secure
data of adequate quality and in a form that adequately protects the privacy of
individual graduates. The Department's goal is to evaluate programs, not
individual students. The earnings data gathered for purposes of this proposed
rule would not be used to evaluate individual graduates in any way. Moreover,
the Department would be seeking aggregate statistical information from a Federal
agency with earnings data for combined groups of students, and would not receive
any individual data that associate identifiable persons with earnings outcomes.
The Department will determine the specific source of earnings data in the
future, potentially considering such factors as data availability, quality, and
privacy safeguards.
At this stage, however, the Department does have a preliminary preference
regarding the source of earnings data. While the 2014 Prior Rule relied upon
earnings data from the Social Security Administration, at this time we would
prefer to use earnings data provided by the Internal Revenue Service (IRS). IRS
now seems to be the highest quality data source available, and is the source
used for other Department purposes such as calculating an applicant's title IV,
HEA eligibility and determining a borrower's eligibility for income-driven
student loan repayment plans. Moreover, the Department has successfully
negotiated Start Printed Page 32335 agreements with the IRS to produce
statistical information for the College Scorecard. Although the underlying data
used by both agencies is based on IRS tax records, as an added privacy safeguard
we understand that the IRS would use a privacy-masking algorithm to add
statistical noise to its estimates before disclosing median earnings information
to the Department.
This statistical noise would take the form of a small adjustment factor designed
to prevent disclosure of individual data. This adjustment factor can be positive
or negative and tends to become smaller as the underlying number of individuals
in the completion cohort in a program becomes larger. For a small number of
programs, the adjustment factor could potentially affect whether some programs
pass or fail the accountability metrics. The Department recognizes this creates
a small risk of inaccurate determinations in both directions, including a very
small likelihood that a program that would pass if its unadjusted median
earnings data were used in calculating either D/E rates or the earnings premium.
Using data on the distribution of noise in the IRS earnings figures used in the
College Scorecard, we estimate that the probability that a program would be
erroneously declared ineligible (that is, fail in 2 of 3 years using adjusted
data when unadjusted data would result in failure for 0 years or 1 year) is less
than 1 percent.
Assuming that such statistical noise would be introduced, the Department plans
to counteract this already small risk of improper classification in several
ways. First, we include a minimum n-size threshold as discussed under proposed
§ 668.403 to avoid disclosing median earnings information for smaller cohorts,
where statistical noise would have a greater impact on the disclosed earnings
measure. The n-size threshold effectively caps the influence of the noise on
results under our proposed metrics. In addition, before invoking a sanction of
loss of eligibility in the accountability framework described in proposed
§ 668.603, we require that GE programs fail the accountability measures multiple
times.
Furthermore, elsewhere in the proposed rule, we establish an earnings
calculation methodology that is more generous to title IV, HEA supported
programs than what the Department adopted in the 2014 Prior Rule for GE
programs. The proposed rule would measure the earnings of program completers
approximately one year later (relative to when they complete their credential)
than under the 2014 Prior Rule. This leads to substantially higher measured
program earnings than under the Department's previous methodology—on the order
of $4,000 (about 20 percent) higher for GE programs with earnings between
$20,000 and $30,000, which are the programs most at risk for failing the
earnings premium threshold.[95] The increase in earnings from this later
measurement of income would provide a buffer more than sufficient to counter
possible error introduced by the statistical noise added by the IRS. Additional
adjustments would present unwelcome trade-offs, with little gain in protecting
adequately performing programs in exchange for introducing another type of
error. Adjusting earnings calculations to further reduce the low chance of
programs failing the proposed metrics based on statistical noise would increase
the risk of other kinds of errors, such as programs that should fail the
proposed metrics appearing to pass based on an artificial increase in calculated
earnings. On the other hand, and with respect to a related issue of earnings
measurements, making special accommodations only for programs where
under-reporting of earnings is suspected would differentially reward such
programs and potentially create adverse incentives for programs to encourage
such behavior. This could have the additional effect of inappropriately
increasing public subsidies of such programs, as loan payments for program
graduates would also be artificially reduced as a result of their lower reported
earnings. We therefore do not believe it is necessary or appropriate to make
other adjustments to the earnings calculations beyond those described above.
The Department also has gained a fresh perspective on earnings appeals in light
of our experience, new research, and other considerations. In the 2014 Prior
Rule the Department included an alternate earnings appeal to address concerns
similar to those raised by some non-Federal negotiators in the 2022 negotiated
rulemaking. The concerns were about whether programs preparing students to enter
certain occupations, such as cosmetology, may have very low earnings in data
obtained from Federal agencies because a substantial portion of a completer's
income may derive from tips and gratuities that may be underreported or
unreported to the IRS.
Those arguments on unreported income have become less persuasive to the
Department based upon further review of Federal requirements for the accurate
reporting of income; consideration that IRS income data is used without
adjustment for determining student and family incomes for purposes of
establishing student title IV, HEA eligibility and determining loan payments
under income-driven repayment plans; past data submitted as part of the
alternate earnings appeals; and new research on the effects of tipping on
possible debt-to-earnings outcomes. As a result of this review, we have
concluded that it would not be appropriate to include a similar appeal process
in this proposed rule.
First, there is the issue of legal reporting requirements. The law requires
taxpayers to report tipped income to the IRS. Failing to report all sources of
the income to the IRS can lead to financial penalties and additional tax
liability. And changes made in the American Rescue Plan Act lowered to $600 the
reporting threshold for when a 1099–K is issued,[96] which will result in more
third-party settlement organizations issuing these forms. Because of these
recent changes, the proposed use of earnings data provided directly by a Federal
agency with earnings data would be more comprehensive and reliable than
previously observed in the 2014 Prior Rule. This is not to deny that some
fraction of income will be unreported despite legal duties to report, but
instead to recognize as well that legal demands and other relevant circumstances
have changed.
Moreover, income adjustments to IRS earnings are not used in other parts of the
Department's administration of the title IV, HEA programs. IRS income and tax
data are used to determine a student's eligibility for Federal benefits,
including the title IV, HEA programs, and we believe it would be most
appropriate and consistent to rely on IRS data when measuring the outcomes of
those programs. In particular, under the Department's various income-driven
repayment plans, student loan borrowers can use their reported earnings to the
IRS to establish eligibility for loan payments calculated based on their
reported earnings, and so the Department has an independent interest in the
level of these earnings since they impact loan repayment. While institutions
cannot directly compel graduates to properly report tipped income, they are
nonetheless Start Printed Page 32336 uniquely positioned to educate their
students on the importance of meeting their obligation to properly observe
Federal tax filing requirements when they enter or reenter the work force. Title
IV, HEA support for students and educational programs is in turn supported by
taxpayers, and the Department has a responsibility to protect taxpayer interests
when implementing the statute.
Beyond those considerations, it is unlikely that any earnings appeal process
would generate a better estimate of graduates' median earnings. To date, the
Department has identified no other data source that could be expected to yield
data of higher quality and reliability than the data available to the Department
from the IRS. Alternative sources such as graduate earnings surveys would be
more prone to issues such as low response rates and inaccurate reporting, could
more easily be manipulated to mask poor program outcomes, and would impose
significant administrative burden on institutions. One analysis of alternative
earnings data, provided by cosmetology schools as part of the appeals process
for GE debt-to-earnings thresholds under the 2014 Prior Rule, found that the
average approved appeal resulted in an 82 percent increase in calculated
earnings income relative to the numbers in administrative data.[97] Results like
that appear to be implausibly high, given our experience and other
considerations that we offer above and below. Without relying too heavily on any
one study, we can suggest at this stage that it seems likely that the use of
alternative earnings estimates, typically generated from student surveys, could
yield a substantial overestimate of income above that of unreported tips.[98]
Furthermore, the plausible scope of the unreported income issue should be kept
in perspective. First of all, in many fields of work the question of unreported
income is insubstantial. Tip income, for instance, certainly is not typical in
every occupation and profession in which people work after graduating having
received aid from title IV, HEA. In the GE context, the number of occupations
related to GE programs where tipping is common seems far smaller than has been
presented in the past. One public comment submitted in 2018 in response to the
proposed recission of the 2014 Prior Rule noted that the only occupations in
which there are GE programs where tipping might be occurring are in cosmetology,
massage therapy, bartending, acupuncture, animal grooming, and tourism/travel
services.[99] While there are other types of occupational categories where
tipping does occur, such as restaurant service, these are not areas where the
students are being specifically trained to work in programs that might be
eligible for title IV, HEA support. For instance, the GE programs related to
restaurants are in culinary arts, where chefs are less likely to receive tips.
Even in fields of work that involve title IV, HEA support and where one might
suppose that unreported income is substantial, research will not necessarily
support that guesswork. For example, recent research indicates that making
reasonable adjustments to the earnings of cosmetology programs to account for
tips would have minimal effects on whether a program passes the GE metrics.
Looking at programs that failed the metrics in the 2014 Prior Rule for GE
programs, researchers estimated that underreporting of tipped income likely
constituted just 8 percent of earnings and therefore would only lead to small
changes in the number and percentage of cosmetology programs that pass or fail
the 2014 rule.[100] To reiterate, the Department is interested in a reasonable
assessment of available information without overreliance on any one piece of
evidence. So, although the above study's estimate of only 8 percent
underreporting is noteworthy for its small size, we are not convinced that it
would be reasonable to convert that particular number into any flat rule related
to disclosures, warnings, acknowledgments, or program eligibility.
Instead, we consider such studies alongside a range of other factors to reach
decisions in this rulemaking. In particular, we note again the change in timing
for measuring earnings from the 2014 Prior Rule that leads to an increase in
earnings for all programs that is higher than this estimate of underreporting,
as further explained in the discussion of proposed § 668.403. Thus the proposed
rule already includes safeguards against asserted underestimates of earnings. We
also seek to avoid the perverse incentives that would be created by making the
rule's application more lenient for programs in proportion to how commonly their
graduates unlawfully underreport their incomes. We do not believe that
taxpayer-supported educational programs should, in effect, receive credit when
their graduates fail to report income for tax purposes. That position, even if
it were fiscally sustainable, would incentivize institutions to discourage
accurate reporting of earnings among program graduates—at the ultimate expense
of taxpayers. Given the career training focus for these programs, we also
believe that the institutions providing that training can emphasize the
importance of reporting income accurately, not only as a legal obligation but
also to ensure that long-term benefits from Social Security are maximized.
In summary, the Department believes that the consistency and reliability
benefits of using IRS earnings data would warrant reliance upon these average
program earnings without further adjustments beyond those adopted in this
proposed rule. This is the same approach used for the calculation of
income—including tipped income that is lawfully reported to the IRS—for other
title IV, HEA program administration purposes, such as determining eligibility
for funds and the payment amounts under various income-driven repayment plans.
DETERMINATION OF THE DEBT TO EARNINGS RATES AND EARNINGS PREMIUM MEASURE
(§ 668.406)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.406 to require the
Department to notify institutions of their program value transparency metrics
and outcomes and, in the case of a GE program, to notify the institution if a
failing program would lose title IV, HEA eligibility under proposed § 668.603.
For each award year for which the Department calculates D/E rates and the
earnings premium measure for a program, the Department would issue a notice of
determination informing the institution of: (1) The D/E rates for each program;
(2) The earnings premium measure for each program; (3) The Department's
determination of whether each program is passing or failing, and the
consequences of that determination; (4) For a non-GE program, whether the
student acknowledgement would be required under proposed § 668.407; (5) For a GE
program, whether the institution would be required to provide Start Printed Page
32337 the student warning under proposed § 668.605; and (6) For a GE program,
whether the program could become ineligible based on its final D/E rates or
earnings premium measure for the next award year for which D/E rates or the
earnings premium measure are calculated for the program.
Reasons: Proposed § 668.406 would establish the Department's administrative
process to determine, and notify an institution of, a program's final financial
value transparency measures. The notice of determination will inform the
institution of its program outcomes so that it can provide prompt information to
students, including warnings as required under proposed § 668.605, and take
actions necessary to improve programs with unacceptable outcomes.
STUDENT DISCLOSURE ACKNOWLEDGMENTS (§ 668.407)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.407 to require
acknowledgments from current and prospective students if an eligible non-GE
program leads to high debt outcomes based on its D/E rates, to specify the
content and delivery parameters of such acknowledgments, and to require students
to provide the acknowledgments prior to the disbursement of title IV, HEA funds.
Additional warning and acknowledgment requirements would also apply to GE
programs at risk of a loss of title IV, HEA eligibility, as further detailed in
proposed § 668.605.
Under proposed changes to § 668.43, an institution would be required to
distribute information to students and prospective students, prior to
enrollment, about how to access a disclosure website maintained by the
Secretary. The disclosure website would provide information about the program,
including the D/E rates and earnings premium measure, when available. For
eligible non-GE programs, for any year for which the Secretary notifies an
institution that the eligible non-GE program is associated with relatively high
debt burden for the year in which the D/E rates were most recently calculated by
the Department, proposed § 668.407 would require students to acknowledge viewing
these informational disclosures prior to receiving title IV, HEA funds. This
acknowledgment would be facilitated by the Department's disclosure website and
required before the first time a student begins an academic term after the
program has had an unacceptable D/E rate.
In addition, an institution could not enroll, register, or enter into a
financial commitment with the prospective student sooner than three business
days after the institution distributes the information about the disclosure
website maintained by the Secretary to the student. An institution could not
disburse title IV, HEA funds to a prospective student enrolling in a program
requiring an acknowledgment under this section until the student provides the
acknowledgment. We would also specify that the acknowledgment would not
otherwise mitigate the institution's responsibility to provide accurate
information to students, nor would it be considered as evidence against a
student's claim if the student applies for a loan discharge under the borrower
defense to repayment regulations at 34 CFR part 685, subpart D.
The Department is aware that in some cases, students may transfer from one
program to another, or may not immediately declare a major upon enrolling in an
eligible non-GE program. We welcome public comments about how to best address
these situations with respect to acknowledgment requirements. The Department
also understands that many students seeking to enroll in non-GE programs may
place high importance on improving their earnings, and would benefit if the
regulations provided for acknowledgements when a non-GE program is low-earning.
We further welcome public comments on whether the acknowledgement requirements
should apply to all programs, or to GE programs and some subset of non-GE
programs, that are low-earning.
The Department is also aware that some communities face unequal access to
postsecondary and career opportunities, due in part to the lasting impact of
historical legal prohibitions on educational enrollment and employment.
Moreover, institutions established to serve these communities, as reflected by
their designation under law, have often had lower levels of government
investment. The Department welcomes comments on how we might consider these
factors, in accord with our legal obligations and authority, as we seek to
ensure that all student loan borrowers can make informed decisions and afford to
repay their loans.
Reasons: Through the proposed regulations the Department intends to establish a
framework for financial value transparency for all programs, regardless of
whether they are subject to the accountability framework for GE programs. To
help achieve these goals, in proposed § 668.407, we set forth acknowledgment
requirements for students, which institutions that benefit from title IV, HEA
must facilitate by providing links to relevant sources, based on the results of
their programs under the metrics described in § 668.402. To enhance the clarity
of these proposed regulations, we discuss the warning requirements for GE
programs separately under proposed § 668.605.
In the 2019 Prior Rule rescinding the GE regulation, the Department stated that
it believed that updating the College Scorecard would be sufficient to achieve
the goals of providing comparable information on all institutions to students
and families as well as the public. While we continue to believe that the
College Scorecard is an important resource for students, families, and the
public, we do not think it is sufficient for ensuring that students are fully
aware of the outcomes of the programs they are considering before they receive
title IV, HEA funds to attend them. One consideration is that the number of
unique visitors to the College Scorecard is far below that of the number of
students who enroll in postsecondary education in a given year. In fiscal year
2022, we recorded just over 2 million visits overall to the College Scorecard.
This figure includes anyone who visited, regardless of whether they or a family
member were enrolling in postsecondary education. By contrast, more than 16
million students enroll in postsecondary education annually, in addition to the
family members and college access professionals who may also be assisting many
of these individuals with their college selection process. Second, research has
shown that information alone is insufficient to influence students' enrollment
decisions. For example, one study found that College Scorecard data on cost and
graduation rates did not impact the number of schools to which students sent SAT
scores.[101] The authors found that a 10 percent increase in reported earnings
increased the number of score sends by 2.4 percent, and the impact was almost
entirely among well-resourced high schools and students. Third, the Scorecard is
intentionally not targeted to a specific individual because it is meant to
provide comprehensive information to anyone searching for a postsecondary
education. By contrast, a disclosure would be a more Start Printed Page 32338
personalized delivery of information to a student because it would be based on
the specific programs that they are considering. Requiring an acknowledgement
under certain circumstances would also ensure that students see the information,
which may or may not otherwise occur with the College Scorecard. Finally, we
think the College Scorecard alone is insufficient to encourage improvements to
programs solely through the flow of information indicated in the 2019 Final
Rule. Posting the information on the Scorecard in no way guarantees that an
institution would even be aware of the outcomes of their programs, and
institutions have no formal role in acknowledging their outcomes. By contrast,
with these proposed regulations institutions would be fully informed of the
outcomes of all their programs and would also know which programs would be
associated with acknowledgement requirements and which ones would not. The
Department thus anticipates that these disclosures and acknowledgements will
better achieve the goals of both delivering information to students and
encouraging improvement than the approach outlined in the 2019 Rule did.
Under the proposed regulations, the Department would not publish specific text
that institutions would use to convey acknowledgment requirements to students.
We believe institutions are well positioned to tailor communications about
acknowledgment requirements in a manner that best meets the needs of their
students, and institutions would be limited in their ability to circumvent the
acknowledgement requirement because the Department's systems would not create
disbursement records until the student acknowledges the disclosure through the
website maintained by the Secretary. To enhance the clarity of these proposed
regulations, we discuss the warning requirements for GE programs separately
under proposed § 668.605.
Similar to the 2014 Prior Rule, requiring that at least three days must pass
before the institution could enroll a prospective student would provide a
“cooling-off period” for the student to consider the information provided
through the disclosure website without immediate and direct pressure from the
institution, and would also provide the student with time to consider
alternatives to the program either at the same institution or at another
institution.
For both GE and non-GE programs, we propose to collect data, calculate results,
and post results on both D/E and EP. That will make the information about costs,
borrowing, and earnings outcomes widely available to the prospective students
and the public. As outlined in subpart S, we use these same metrics to establish
whether GE programs prepare students for gainful employment and are thus
eligible to participate in Title IV, HEA programs, and due to the potential for
loss of eligibility we require programs failing either metric to provide
warnings and facilitate their students in acknowledging viewing the information
before aid can be disbursed. For non-GE programs, we require students to
acknowledge viewing the disclosure information when programs fail D/E, but not
EP. While many non-GE students surely care about earnings, non-GE programs are
more likely to have nonpecuniary goals. Requiring students to acknowledge
low-earning information as a condition of receiving aid might risk conveying
that economic gain is more important than nonpecuniary considerations. In
contrast, students' ability to pursue nonpecuniary goals is jeopardized and
taxpayers bear additional costs if students enroll in high-debt burden programs.
Requiring acknowledgement of the D/E rates ensures students are alerted to risk
on that dimension.
REPORTING REQUIREMENTS (§ 668.408)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.408 to establish
institutional reporting requirements regarding Title IV-eligible programs
offered by the institution and students who enroll in, complete, or withdraw
from an eligible such programs, and to define the timeframe for institutions to
report this information.
For each eligible program during an award year, an institution would be required
to report: (1) Information needed to identify the program and the institution;
(2) The name, CIP code, credential level, and length of the program; (3) Whether
the program is programmatically accredited and, if so, the name of the
accrediting agency; (4) Whether the program meets licensure requirements for all
States in the institution's metropolitan statistical area, whether the program
or prepares students to sit for a licensure examination in a particular
occupation, the number of program graduates from the prior award year that take
the licensure examination within one year (if applicable), and the number of
program graduates that pass the licensure examination within one year (if
applicable); (5) The total number of students enrolled in the program during the
most recently completed award year, including both recipients and non-recipients
of title IV, HEA funds; and (6) Whether the program is a medical or dental
program whose students are required to complete an internship or residency.
For each recipient of title IV, HEA funds, the institution would also be
required to annually report at a student level: (1) The date each student
initially enrolled in the program; (2) Each student's attendance dates and
attendance status ( e.g., enrolled, withdrawn, or completed) in the program
during the award year; (3) Each student's enrollment status ( e.g., full-time,
three-quarter time, half-time, less than half-time) as of the first day of the
student's enrollment in the program; (4) The total annual cost of attendance;
(5) The total tuition and fees assessed for the award year; (6) The student's
residency tuition status by State or region (such as in-state, in-district, or
out-of-state); (7) The total annual allowance for books, supplies, and
equipment; (8) The total annual allowance for housing and food; (9) The amount
of institutional grants and scholarships disbursed; (10) The amount of other
state, Tribal, or private grants disbursed; and (11) The amount of any private
education loans disbursed, including private education loans made by the
institution. In addition, if the student completed or withdrew from the program
and ever received title IV, HEA assistance for the program, the institution
would also be required to report: (1) The date the student completed or withdrew
from the program; (2) The total amount, of which the institution is or should
reasonably be aware, that the student received from private education loans for
enrollment in the program; (3) The total amount of institutional debt the
student owes any party after completing or withdrawing from the program; (4) The
total amount of tuition and fees assessed the student for the student's entire
enrollment in the program; (5) The total amount of the allowances for books,
supplies, and equipment included in the student's title IV, HEA cost of
attendance for each award year in which the student was enrolled in the program,
or a higher amount if assessed the student by the institution for such expenses;
and (6) The total amount of institutional grants and scholarships provided for
the student's entire enrollment in the program. Institutions would also be
required to report any additional information the Department may specify Start
Printed Page 32339 through a notice published in the Federal Register .
For GE programs, institutions would be required to report the above information,
as applicable, no later than July 31 following the date these regulations take
effect for the second through seventh award years prior to that date or, for
medical and dental programs that require an internship or residency, July 31
following the date these regulations take effect for the second through eighth
award years prior to that date. For eligible non-GE programs, institutions would
have the option either to report as described above, or to initially report only
for the two most recently completed award years, in which case the Department
would calculate the program's transitional D/E rates and earnings premium
measure based on the period reported. After this initial reporting, for each
subsequent award year, institutions would be required to report by October 1
following the end of the award year, unless the Department establishes different
dates in a notice published in the Federal Register . If, for any award year, an
institution fails to provide all or some of the information described above, the
Department would require the institution to provide an acceptable explanation of
why the institution failed to comply with any of the reporting requirements.
Reasons: Certain student-specific information is necessary for the Department to
implement the provisions of proposed subpart Q, specifically to calculate the
D/E rates and the earnings premium measure for programs under the program value
transparency framework. This information is also needed to calculate many of the
disclosures under proposed § 668.43(d), including the completion rates, program
costs, median loan debt, median earnings, and debt-to-earnings, among other
disclosures. As discussed in “§ 668.401 Scope and purpose,” the proposed
reporting requirements are designed, in part, to facilitate the transparency of
program outcomes and costs by: (1) Ensuring that students, prospective students,
and their families, the public, taxpayers, and the Government, and institutions
have timely and relevant information about programs to inform student and
prospective student decision-making; (2) Helping the public, taxpayers, and the
Government to monitor the results of the Federal investment in these programs;
and (3) Allowing institutions to see which programs produce exceptional results
for students so that those programs may be emulated.
The proposed regulations would require institutions to report the name, CIP
code, credential level, and length of the program. Although program completion
times can sometimes vary due to differences in student enrollment patterns, to
provide the most meaningful information possible for prospective students, we
refer in the proposed regulations, particularly in the reporting and disclosure
requirements in § 668.43 and § 668.408, to the “length of the program.” The
“length of the program” would be defined as the amount of time in weeks, months,
or years that is specified in the institution's catalog, marketing materials, or
other official publications for a student to complete the requirements needed to
obtain the degree or credential offered by the program.
In proposed additions to the general definitions at § 668.2, we would establish
separate definitions for “CIP code” and “credential level.” The proposed
definition of “CIP code” largely mirrors the definition in the 2014 Prior Rule.
The proposed definition of “credential level” would also be similar to past
definitions, and the proposed definition includes a listing of the credential
levels for use in the definition of a program.
Reporting whether a program is programmatically accredited along with the name
of the relevant accrediting agency would allow the Department to include that
information in disclosures. Clear and consistent information about programmatic
accreditation would aid current and prospective students in assessing the value
of the program and in comparing the program against others, and such information
about programmatic accreditation is not readily available to students.
Reporting whether a program meets relevant licensure requirements for the States
in the institution's metropolitan statistical area or prepares students to sit
for a licensure examination in a particular occupation would allow the
Department to provide current and prospective students with invaluable
information about the career outcomes for graduates of the program and support
informed enrollment decisions. In recent years, some institutions have
misrepresented the career and employment outcomes of programs, including the
eligibility of program graduates to sit for licensure examinations, resulting in
borrower defense claims.[102] We remain concerned about the ongoing potential
for such misrepresentations, and believe that reporting and disclosing
information about a program's licensure outcomes—such as share of recent program
graduates that sit for and pass licensure exams—will help to reduce the number
of future borrower defense claims that are approved.
Reporting the total number of students enrolled in a program, including both
recipients and non-recipients of title IV, HEA funds, would allow the Department
to calculate and disclose the percentage of students who receive Federal student
aid and Federal student loans. This information would assist current and
prospective students in comparing programs and institutions and would assist in
making better informed enrollment decisions.
Reporting whether a program is a medical or dental program that includes an
internship or residency is necessary because proposed § 668.403 would use a
different cohort period in calculating the D/E rates for those programs. See
“§ 668.403 Calculating D/E rates” for a discussion of why these programs would
be evaluated differently.
The dates of a student's attendance in the program and the student's attendance
status ( i.e., completed, withdrawn, or still enrolled) and enrollment status (
i.e., full time, three-quarter time, half time, and less than half time) would
be needed by the Department to attribute the correct amount of a student's title
IV, HEA program loans that would be used in the calculation of a program's D/E
rates. These items would also be needed to identify the program's former
students for inclusion on the list submitted to a Federal agency with earnings
data to determine the program's median annual earnings for the purpose of the
D/E rates and earnings premium calculations, and the borrowers who would be
considered in the calculation of the program's completion rate, withdrawal rate,
loan repayment rate, median loan debt, and median earnings.
We would require the amount of each student's private education loans and
institutional debt, along with the student's title IV, HEA program loan debt,
institutional grants and scholarships, and other government or private grants
disbursed, to determine the debt portion of the D/E rates. We would also require
institutions to report the total cost of attendance, the cost of tuition and
fees, and the cost of books, supplies, and equipment to determine the program's
costs. We would need both of these amounts to calculate the D/E rates because,
as provided under proposed § 668.403, in determining a program's median loan
amount, each Start Printed Page 32340 student's loan debt would be capped at the
lesser of the loan debt or the program costs, less any institutional grants and
scholarships. We recognize that some institutions with higher overall tuition
costs offer significant institutional financial assistance or discounts that
reduce the net cost for students to enroll in their programs. Requiring
institutions to report institutional grants and scholarships would allow the
Department to take such financial assistance into consideration when measuring
debt outcomes, would encourage institutions to provide financial assistance to
students, and would ultimately result in a fairer metric and more consistent
comparisons of the actual debt burdens associated with different programs.
For GE programs, institutions would be required to initially report for the
second through seventh prior award years, and for the second through eighth
prior award years for medical and dental programs requiring an internship or
residency. This reporting would ensure that the Department could calculate the
D/E rates and the earnings premium measure under subpart Q and apply the
eligibility outcomes under subpart S in as timely a manner as possible, thus
protecting students and taxpayers through prompt oversight of failing GE
programs. Much of the necessary information for GE programs would already have
been reported to the Department under the 2014 Prior Rule, and as such we
believe the added burden of this reporting relative to existing requirements
would be reasonable. For example, the vast majority (88 percent) of public
institutions operated at least one GE program and thus have experience with
similar data reporting for the subset of their students enrolled in certificate
programs under the 2014 Prior Rule, and nearly half (47 percent) of private
non-profit institutions did as well. Moreover, many institutions report more
detailed information on the components of cost of attendance and other sources
of financial aid in the federal National Postsecondary Student Aid Survey
(NPSAS) administered by the National Center for Education Statistics. For
example, 2,210 institutions provided very detailed student-level financial aid
and other information as part of the 2017–18 National Postsecondary Student Aid
Study, Administrative Collection (NPSAS:18–AC) collection, including 74 percent
of all public institutions and 37 percent of all private non-profit
institutions.[103] Since the latter are selected for inclusion randomly each
NPSAS collection period, the number of institutions that have ever provided such
data is much higher than this rate implies.
The proposed financial value transparency framework entails added reporting
burden for institutions relative to the 2019 Prior Rule and the 2014 Prior Rule
for some additional data items and for students in programs that are not covered
by the GE accountability framework. The Department proposes flexibility for
institutions to avoid reporting data on students who completed programs in the
past for non-GE programs, and instead to use data on more recent completer
cohorts to estimate median debt levels. In part, this is intended to ease the
administrative burden of providing this data for programs that were not covered
by the 2014 Prior Rule reporting requirements, especially for the small number
of institutions that may not previously have had any programs subject to these
requirements.
The debt-to-earnings rates are intended to capture whether program completers'
debt levels are reasonable in light of their earnings outcomes. Since earnings
are observed with a lag, the most recent year's D/E rates necessarily involve
the earnings and debt levels of individuals completing at least five or six
years earlier. For GE programs, where the measures affect program eligibility,
the Department believes it is important that debt and earnings measures are
based on the same group of students. It might be, for example, that more recent
cohorts of students have higher borrowing levels due to changes to curriculum
that raised the costs of instruction and, as a result, the cost of tuition.
These changes would ideally be reflected in improvements in students' earnings
as well, but the D/E rates might not reflect that if the earnings data used for
D/E were based on the older cohorts while debt measures are based on a more
recent cohort.
For non-GE programs the transparency metrics do not affect a program's
eligibility for Title IV, HEA programs. While it would be preferable to have
more accurate information that is comparable across all programs to better
support student choices, for non-GE programs the Department believes alleviating
some institutional reporting burden justifies a temporary sacrifice in the
quality of the D/E data reported during a transition period. For that reason,
the Department proposes to offer institutions the option either to report past
cohorts for eligible non-GE programs as otherwise required for GE programs, or
to report for only the two most recently completed award years. If institutions
opt to report only the most recently completed award years for an eligible
non-GE program, we would calculate the program's transitional D/E rates and
earnings premium based on the data reported. Transitional D/E rates would differ
from those described in proposed § 668.403 by only considering Federal loan debt
(no private or institutional loans) and by not capping the total debt based on
direct costs minus institutional scholarships. Further, this debt would pertain
to recent completers rather than those whose median earnings are available. We
believe that the transitional metric, though missing data elements, will provide
useful information to institutions that could be used to enhance their program
offerings and improve student outcomes until more comprehensive data are
available.
For those institutions that opt to or are required to complete the reporting on
past cohorts, we recognize that the initial reporting deadline of July 31, 2024,
may pose implementation challenges for institutions, who may experience
difficulties compiling and reporting data within a month of the date these
regulations become effective, particularly for institutions that offer many
educational programs and may not have been subject to reporting under the 2014
Prior Rule or similar reporting related to the NPSAS. To assist institutions in
preparing for this deadline and to ensure that institutions have sufficient time
to submit their data for the first reporting period, the Department anticipates
that, as with the 2014 Prior Rule, it would provide training in advance to
institutions on the new reporting requirements, provide a format for reporting,
and enable the Department's relevant systems to accept optional early reporting
from institutions beginning several months prior to the July 31, 2024, deadline.
We propose to include a provision similar to the one from the 2014 Prior Start
Printed Page 32341 Rule requiring an institution to provide the Secretary with
an explanation of why it has failed to comply with any of the reporting
requirements. Because the Department would use the reported information to
calculate the debt and earnings measures and the transparency disclosures, it is
essential for the Secretary to have information about why an institution may not
be able to report the information.
Some of the negotiators, particularly those representing postsecondary
institutions, expressed unease that the proposed reporting may be burdensome. We
understand these concerns, but we nonetheless believe that the benefits to
students and to taxpayers derived from the reporting requirements under proposed
subpart Q, which allow implementation of the proposed transparency and
accountability frameworks, outweigh the costs associated with additional
institutional burden. Institutions will also benefit from the reporting because
the information would allow them to make targeted changes to improve their
program offerings, and they would be able to promote their positive outcomes to
potential students to assist in their recruiting efforts.
Most importantly, the Department believes these added reporting requirements
will benefit students and taxpayers by providing new and more accurate
information to make well-informed postsecondary choices. Multiple studies have
shown that students and families are often making their postsecondary choices
without sufficient information due to confusing and misleading financial aid
offers.[104] The new reporting requirements will permit the Department to
provide estimates of the net prices and total direct costs (tuition, fees,
books, supplies, and equipment) and indirect costs students must pay to complete
a program, and to tailor these estimates of yearly costs to students' financial
background. Moreover, the data will allow estimates of the total amount students
pay to acquire a degree, capturing variation in how long it takes for students
to complete their degree. In some areas—including among graduate programs where
borrowing levels have increased substantially in the last decade—this
information will be the first systematic source of comparable data available for
students and the general public to compare the costs and outcomes of different
programs. This information should be beneficial to institutions as well, helping
them to benchmark their tuition prices against similar programs at other
institutions, and to keep their prices better aligned with the financial value
their programs deliver for students.
SEVERABILITY (§ 668.409)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.409 to establish
severability protections ensuring that if any program accountability or
transparency provision is held invalid, the remaining program accountability and
transparency provisions, as well as other subparts, would continue to apply.
Proposed § 668.409 would operate in conjunction with the severability provision
in proposed § 668.606, which is discussed below and any other applicable
severability provision throughout the Department's regulations.
Reasons: Through the proposed regulations we intend to (1) Establish measures
that would distinguish programs that provide quality, affordable education and
training to their students from those programs that leave students with
unaffordable levels of loan debt in relation to their earnings or provide no
earnings benefit from those who did not pursue a postsecondary degree or
credential; and (2) Establish reporting and disclosure requirements that would
increase the transparency of student outcomes so that accurate and comparable
information is provided to students, prospective students, and their families,
to help them make better informed decisions about where to invest their time and
money in pursuit of a postsecondary degree or credential; the public, taxpayers,
and the Government, to help them better safeguard the Federal investment in
these programs; and institutions, to provide them meaningful information that
they could use to improve student outcomes in these programs.
We believe that each of the proposed provisions serves one or more important,
related, but distinct, purposes. Each of the requirements provides value,
separate from and in addition to the value provided by the other requirements,
to students, prospective students, and their families; to the public; taxpayers;
the Government; and to institutions. To best serve these purposes, we would
include this administrative provision in the regulations to establish and
clarify that the regulations are designed to operate independently of each other
and to convey the Department's intent that the potential invalidity of any one
provision should not affect the remainder of the provisions. Furthermore,
proposed § 668.409 would operate in conjunction with the severability provision
in proposed § 668.606 regarding GE program accountability. For ease of
reference, here we offer an illustrative discussion for both of those
severability provisions.
For example, under proposed subpart Q of part 668, a program must meet both the
D/E rate and the earnings premium metric in order to pass the financial value
transparency metrics. Each metric represents a distinctive measure of program
quality, as we have explained elsewhere in this NPRM. Thus, if the D/E rate or
the earnings premium metric is held invalid, the metric that was not held
invalid could alone serve to help people distinguish, in its own distinctive
way, programs that tend to provide relatively high quality and/or affordable
education and training to their students from those programs that do not.
Accordingly, the proposed rule does not provide that a program can pass the
metrics by meeting only one of either the D/E metric or the earnings premium
metric. The two metrics are aimed at distinct values, and they can operate
independently of each other, in the sense that if one of these metrics is held
invalid, the other metric could stand alone to help people distinguish programs
on grounds that are relevant to many observers, applicable law, and sound
policy. Although the Department believes that implementing both metrics is
lawful and preferable for financial value transparency and for GE program
accountability, implementing one or the other would be administrable and
superior to implementing neither.
As another example, proposed § 668.605 would require institutions to provide
various warnings to their students when a GE program fails the D/E rates or the
earnings premium metric. If any or all of the student warning provisions are
held invalid, the remainder of the rule can operate to provide measurements of
financial value transparency even if there is no requirement that students must
be warned when a GE program fails one of the metrics. The Department would
retain other methods of disseminating information about GE and eligible non-GE
programs, albeit methods that might not be as effective for and readily
available to the relevant decision makers. Similarly, if a particular form of
student warning is held invalid, the other warnings would still operate on their
own to achieve the benefits of effectively informing as many students Start
Printed Page 32342 as possible about a GE program's failing metrics.
In addition, the Department's ability to evaluate GE programs for title IV
eligibility can operate compatibly with a wide range of options for disclosures,
warnings, and acknowledgments about programs—and vice versa. Those information
dissemination choices involve matters of degree that do not affect the operation
of eligibility provisions. GE program eligibility can be determined without
depending on one particular kind of information disclosure strategy, as long as
the Department itself has the necessary information to make the eligibility
determination. Likewise, a wide variety of valuable information can be
disseminated in a variety of methods and formats for transparency purposes,
regardless of how programs are evaluated for eligibility purposes.
Even if the invalidation of one part of the proposed rule would preclude the
best and most effective regulation in the Department's considered view, the
Department also believes that a wide range of financial value transparency
options and GE program accountability options would be compatible with each
other, justified on legal and policy grounds compared to loss of the entire
rule, and could be implemented effectively by the Department. The same principle
applies to the relationship of the provisions of subparts Q and S of part 668 to
other subparts in this rule and throughout title 34 of the CFR, as reflected in
the severability provision that will apply to all provisions in part 668 in
July, 2023.[105]
GAINFUL EMPLOYMENT (GE) SCOPE AND PURPOSE (§ 668.601)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add subpart S, which would apply to
educational programs that are required under the HEA to prepare students for
gainful employment in a recognized occupation and would establish rules and
procedures under which we would determine program eligibility. Proposed
§ 668.601 would establish this scope and purpose of the GE regulations in
subpart S.
Reasons: The HEA requires some programs and institutions—generally all programs
at proprietary institutions and most non-degree programs at public or private
nonprofit institutions—to prepare students for gainful employment in a
recognized occupation in order to access the title IV, HEA Federal financial aid
programs. For many years, however, the standards by which institutions could
demonstrate compliance with those requirements were largely undefined. In 2010,
the Department conducted a rulemaking and issued regulations that established
such standards for GE programs, based in part on the debt that graduates
incurred in attending the program, relative to the earnings they received after
completion. Following a court challenge to the 2011 Prior Rule and further
negotiated rulemaking, the Department reevaluated and modified its position and
it issued updated regulations in 2014 that, in part, omitted the GE metric that
a district court had found inadequately reasoned and included a debt-to-earnings
standard for GE programs. When the data were first released in January 2017,
over 800 programs, collectively enrolling hundreds of thousands of students, did
not pass the revised GE standards.
In 2019, the Department rescinded the 2014 Prior Rule in favor of an alternate
approach that relied upon providing more consumer information via the College
Scorecard. As further explained in the discussion of proposed § 668.401, we
continue to believe that providing students with clear and accurate measures of
the financial value of all programs is critical. Based, however, on studies of
the College Scorecard's impact on higher education choices, and an extensive
body of research on how to make consumer information most impactful, we propose
several improvements involving disclosures and warnings to students to ensure
they have this information, especially when enrolling in a program might harm
them financially.
For programs that are intended to prepare students for gainful employment in a
recognized occupation, however, further steps beyond information provisions are
necessary and appropriate. The proposed rule therefore defines the conditions
under which a program prepares students for gainful employment in a recognized
occupation, and accordingly determines eligibility for title IV, HEA program
funds, based on the financial value metrics described in § 668.402.
The Department proposes additional scrutiny for these programs for several
reasons. First, informational interventions have been shown to be effective in
shifting postsecondary choices when designed well, but it is now reasonably
clear that those interventions are insufficient to fully protect students from
financial harm.[106] The impact of information alone tends to be especially
limited among more vulnerable populations, including groups that
disproportionately enroll in gainful employment programs.[107] Analyses in the
RIA show that 17.7 percent of all borrowers, accounting for nearly 33,374
borrowers in recent cohorts, who are in low-earning or high-debt-burden GE
programs are in default on their student loans three years after repayment entry
(compared with 10.1 percent of students nationwide). Removing Federal aid
eligibility for such programs is necessary to prevent low-financial-value
programs from continuing to harm these students—and from enjoying taxpayer
support.
Second, the mission of gainful employment programs is to further students'
career success. If such a program inflicts financial harm on its students, it is
less likely that the value of the program can be redeemed by its performance in
helping students achieve nonfinancial goals. In any event, this career focus is
consistent with the different statutory definition of eligibility for such
programs and the purposes of the relevant requirements for Federal support in
title IV, HEA. As with other title IV, HEA educational programs, GE students are
generally required to already possess a high school diploma or its equivalent.
But unlike other title IV provisions, the statute's GE provisions also require
that participating programs train students to prepare them for gainful
employment in a recognized occupation .[108] Otherwise, taxpayer support is not
authorized.
The relevant statutes thus indicate that GE programs are not meant to prepare
postsecondary students for any job, irrespective of pay, debt burden, or
qualifications. Instead, title IV's GE provisions indicate a purpose of Federal
support for programs that actually train and prepare postsecondary students for
jobs that they would be less likely to obtain without that training and
preparation. Moreover, the recognized occupations for which GE programs must
train and “prepare” postsecondary Start Printed Page 32343 students cannot
fairly be considered “gainful” if typical program completers end up with more
debt than they can repay absent additional Federal assistance. Likewise, the
Department is convinced that programs cannot fairly be said to “prepare”
postsecondary students for “gainful” employment in recognized occupations if
program completers' earnings fall below those of students who never pursue
postsecondary education in the first place. Put simply, the HEA itself calls for
special attention to GE programs when it comes to program eligibility. The
relevant statutes and policy considerations may differ for transparency
purposes, but, for GE program eligibility purposes, the Department must maintain
certain limits on taxpayer support. We believe that, at minimum, it is
permissible and reasonable for the Department to specify the eligibility
standards for GE programs to include D/E rates and an earnings premium.
Third, an expanding body of academic research suggests that additional attention
is appropriate for GE programs. Studies have documented persistent problems
including poor labor market outcomes, high levels of borrowing, high rates of
default, and low loan repayment rates. For example, research has found that some
postsecondary certificates have very low or even negative labor market returns
for their graduates.[109] This finding is echoed in the Department's Regulatory
Impact Analysis, which shows that 23.1 percent of title IV, HEA enrollment in
undergraduate certificate programs was in programs where the median earnings
among graduates was less than that for high school graduates of a similar age.
Studies have reported that students in programs at for-profit institutions, in
particular, see much lower employment and earnings gains than students in
programs at non-profit institutions, which is also shown in the Department's
analysis.[110] Moreover, multiple studies have concluded that, accounting for
differences in student characteristics, borrower outcomes like repayment rates
and the likelihood of default are worse in the proprietary sector.[111 112]
Finally, research indicates that Federal accountability efforts that deny Title
IV, HEA eligibility to low-performing institutions can be effective in driving
improved student outcomes, particularly for students who attend (or would have
attended) for-profit colleges.[113 114]
We recognize that, since the prior rulemaking efforts in 2010, 2014, and 2019,
some institutions have made positive changes to their GE programs, and some with
many poor performing programs closed. Nonetheless, the data highlighted in the
RIA demonstrate that more improvement in the sector is needed: for example, in
the most recent data available (covering graduates in award years 2016 and
2017), nearly one fourth of all federally supported students enrolled in GE
programs are in programs that fail either the D/E or EP metrics. Establishing
accountability provisions will both prevent students from enrolling in programs
where poor financial outcomes are the norm and would deter future bad actors
seeking to create new programs that poorly serve students to capture Federal
student aid revenue.
GAINFUL EMPLOYMENT CRITERIA (§ 668.602)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to establish a framework to determine whether a
GE program is preparing students for gainful employment in a recognized
occupation and thus may access title IV, HEA funds based upon its
debt-to-earnings and earnings premium outcomes. Within this framework, we would
consider a program to provide training that prepares students for gainful
employment in a recognized occupation if the program: (1) Does not lead to high
debt-burden outcomes under the D/E rates measure; (2) Does not lead to
low-earnings outcomes under the earnings premium measure; and (3) Is certified
by the institution as included in the institution's accreditation by its
recognized accrediting agency, or, if the institution is a public postsecondary
vocational institution, the program is approved by a recognized State agency in
lieu of accreditation.
A GE program would, in part, demonstrate that it prepares students for gainful
employment in a recognized occupation through passing D/E rates. The program
would be ineligible if it fails the D/E rates measure in two out of any three
consecutive award years for which the program's D/E rates are calculated. If it
is not possible to calculate or issue D/E rates for a program for an award year,
the program would receive no D/E rates for that award year and would remain in
the same status under the D/E rates measure as the previous award year. For
example, if a program failed the D/E rates measure in year 1, did not receive
rates in year 2, passed the D/E rates measure in year 3, and failed the D/E
rates measure in year 4, that program would be ineligible after year 4 because
it failed the D/E rates measure in two out of three consecutive years for which
D/E rates were calculated. This approach would avoid simply allowing a program
to pass the D/E rates or earnings threshold premium measure when an insufficient
number of students complete the program. For situations where it is not possible
to calculate D/E rates for the program for four or more consecutive award years,
the Secretary would disregard the program's D/E rates for any award year prior
to the four-year period in determining the program's eligibility.
A GE program also would, in part, demonstrate that it prepares students for
gainful employment in a recognized occupation through passing the earnings
premium measure. The program would be ineligible if it fails the earnings
premium measure in two out of any three consecutive award years for which the
program's earnings premium is calculated. If it is not possible to calculate or
publish the earnings Start Printed Page 32344 premium measure results for a
program for an award year, the program would receive no result under the
earnings threshold measure for that award year and would remain in the same
status under the earnings threshold measure as the previous award year. For
situations where it is not possible to calculate the earnings premium measure
for the program for four or more consecutive award years, the Secretary would
disregard the program's earnings premium for any award year prior to the
four-year period in determining the program's eligibility.
The D/E rates and earnings premium measures capture different dimensions of
program performance, and function independently in determining continued
eligibility for Title IV student aid programs. For a program to be considered to
provide training that prepares students for gainful employment in a recognized
occupation, it must neither be deemed a high-debt-burden program in two of three
consecutive years in which rates are published, nor be deemed a low-earnings
program in two of three consecutive years in which rates are published.
Reasons: The financial value transparency and GE program accountability
framework would both rely upon the same metrics that are described in proposed
§ 668.402. This framework would include two debt-to-earnings measures very
similar to those used in the 2014 Prior Rule to assess the debt burden incurred
by students who completed a GE program in relation to their earnings. This
assessment would in part allow the Department to determine, consistent with the
statute, whether a program is preparing students for gainful employment in a
recognized occupation.
Under the proposed regulations, the first D/E rate is the discretionary income
rate, which would measure the proportion of annual discretionary income—that is,
the amount of income above 150 percent of the Poverty Guideline for a single
person in the continental United States—that students who complete the program
are devoting to annual debt payments. The second rate is the annual earnings
rate, which would measure the proportion of annual earnings that students who
complete the program are devoting to annual debt payments. A program would pass
the D/E rates measure by meeting the standards of either of the two metrics (the
discretionary D/E rate or the annual D/E rate) as discussed in more detail under
proposed § 668.402. As we have discussed elsewhere in this NPRM, the Department
cannot reasonably conclude that a program meets the statutory obligation to
prepare students for gainful employment in a recognized occupation if the
program leads to unacceptable debt outcomes by failing both of the D/E rates two
out of three consecutive years in which the program is measured.
While D/E rates would help identify GE programs that burden students who
complete the programs with unsustainable debt, the D/E rates calculation does
not, on its own, adequately capture poorly performing GE programs with low
costs, or in which few or no students borrow. Such programs may not necessarily
encumber completers with large debt loads, but the programs may nonetheless fail
to yield sufficient employment outcomes to justify Federal investment in the
program. Even small debt loads can be unsustainable for some borrowers, as
demonstrated by the estimated default rates among programs that would pass the
D/E rates metric but would fail the earnings premium metric. Again and as
discussed elsewhere in this NPRM, the Department has concluded that a GE program
does not prepare students for gainful employment if the median earnings of the
program's completers (that is, more than half of students completing the
program) do not exceed the typical earnings of those who only completed the
equivalent of a secondary school education.
The addition of the earnings premium metric to the D/E accountability framework
of the 2014 Prior Rule is motivated by several considerations.[115] First, there
is increasing concern among the public that some higher education programs are
not “worth it” and do not promote economic mobility. While the D/E measure
identifies programs where debt is high relative to earnings, students and
families use their time and their own money in addition to the amount they
borrow to finance their studies. Several recent studies (referenced in the RIA)
support adding an earnings premium metric to help ensure that students benefit
financially from their career training studies.[116] We also note in the RIA
that programs with very low earnings, but low enough debt levels that they pass
the D/E metric, nonetheless have very high default rates. In that sense, the
earnings premium measure provides some added protection to borrowers with
relatively low balances, but earnings so low that even low levels of debt
payments are unaffordable. While the earnings premium provides additional
protection to borrowers, it measures a distinct dimension of program
performance— i.e., the extent to which the program helps students attain a
minimally acceptable level of earnings—from the D/E metrics.
The earnings premium measure would address this issue by requiring the
Department to determine whether the median annual earnings of the completers of
a GE program exceeds the median earnings of students with at most a high school
diploma or GED. Accordingly, the earnings premium measure would supplement the
D/E rates measure by identifying programs that may pass the D/E rates measure
because loan balances of completers are low but nonetheless do not provide
students or taxpayers a return on the investment in career training.
The Department proposes tying ineligibility to the second failure in any three
consecutive award years of either the debt-to-earnings rates or the earnings
premium measure because it prevents against one aberrantly low performance year
resulting in the loss of title IV, HEA program fund eligibility. Additionally,
we chose not to use a longer time horizon to avoid a scenario in which a prior
result is no longer reflective of current performance of a program. A longer
time horizon would also allow poorly performing programs to continue harming
students and the integrity of the title IV, HEA programs.
As under the 2014 Prior Rule, the Department proposes a third component to
ensure that GE programs meet the statutory requirement of providing training
that prepares students for gainful employment in a recognized occupation: that
the program meets applicable accreditation or State authorizing agency standards
for the approval of postsecondary vocational education. These accrediting agency
and Start Printed Page 32345 State requirements are often gatekeeping conditions
that a student must meet if they want to work in the occupation for which they
are being prepared. For instance, many health care professions require
completion of an approved program before a student can register to take a
licensing examination. The Department cannot reasonably conclude that a program
meets the statutory obligation to prepare graduates for gainful employment in a
recognized occupation if the program lacks the necessary approvals needed for a
student to have a possibility to work in that occupation.
INELIGIBLE GAINFUL EMPLOYMENT PROGRAMS (§ 668.603)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.603 to define the process by
which a failing GE program would lose title IV, HEA eligibility. If the
Department determines that a GE program leads to unacceptable debt or earnings
outcomes, as calculated in proposed § 668.402 for the length of time specified
in § 668.602, the GE program would become ineligible for title IV, HEA aid. The
ineligible GE program's participation in the title IV, HEA programs would end
upon the institution notifying the Department that it has stopped offering the
program; issuance of a new Eligibility and Certification Approval Report (ECAR)
that does not include that program; the completion of a termination action of
program eligibility under subpart G of part 668; or a revocation of program
eligibility if the institution is provisionally certified. If the Department
initiates a termination action against an ineligible GE program, the institution
could appeal that action, with the hearing official limited to determining
solely whether the Department erred in the calculation of the program's D/E
rates or earnings premium measure. The hearing official could not reconsider the
program's ineligibility on any other basis.
Though not discussed in this section, we also propose in § 668.171 to add a new
mandatory financial responsibility trigger that would require an institution to
provide financial protection if 50 percent of its title IV, HEA funds went to
students enrolled in programs that are deemed failing under the metrics
described in proposed § 668.602.
Proposed § 668.603 would also establish a minimum period of ineligibility for GE
programs that lose eligibility by failing the D/E rates or the earning premium
measure in two out of three years, and for GE programs at risk of a loss of
eligibility that an institution voluntarily discontinues. As under the 2014
Prior Rule, an institution could not seek to reestablish the eligibility of a GE
program that lost eligibility until three years following the date the program
lost eligibility under proposed § 668.603. Similarly, an institution could not
seek to reestablish eligibility for a failing GE program that the institution
voluntarily discontinued, or to establish eligibility for a substantially
similar program with the same 4-digit CIP prefix and credential level, until
three years following the date the institution discontinued the failing program.
Following this period of ineligibility, such a program would remain ineligible
until the institution establishes the eligibility of that program through the
process described in proposed § 668.604(c).
Reasons: For troubled GE programs that do not improve, the eventual loss of
eligibility protects students by preventing them from incurring debt or using up
their limited grant eligibility to enroll in programs that have consistently
produced poor debt or earnings outcomes. Codifying in the regulations when and
how the Department will end an ineligible GE program's participation in the
title IV, HEA programs would provide additional clarity and transparency to
institutions and the public as to the Department's administrative procedures.
The paths to ineligibility listed in § 668.603(a) represent the main ways that
an academic program ceases participating in the title IV, HEA programs.
Institutions can and of course do regularly cease offering programs, but do not
always formally notify the Department when that occurs. The list of programs on
an institution's ECAR serves as the main repository that tracks which eligible
programs an institution offers, so removing a program from that document clearly
establishes that it is no longer eligible for aid. In cases where an institution
is provisionally certified the process for removing programs is more
streamlined, as a provisional status indicates the Department has concerns about
the institution's administration of the title IV, HEA programs. Finally, if none
of these other events occur, the Department would initiate an action under part
668, subpart G, the section of the Department's regulations that governs the
process for a limitation, suspension, or termination action. Given that a
program becoming ineligible for title IV, HEA aid is a form of limitation, the
Department believes that subpart G is the appropriate procedure to follow.
As further described under the Financial Responsibility section of this proposed
rule, the Department is also proposing to add a new mandatory trigger in
§ 668.171 that would require the institution to provide financial protection to
the Department if 50 percent of its title IV, HEA volume went to students
enrolled in failing GE programs. This would ensure that taxpayers are protected
while any ineligibility process continues in the instances in which the majority
of an institution's aid dollars become ineligible in the next academic year,
which could be substantially destabilizing. In addition, the 50 percent
threshold would protect institutions from the requirement to provide financial
protection to the Department in instances where only programs with very small
title IV, HEA volume are at risk of aid ineligibility through failing the GE
metrics.
Proposed § 668.603(b) would also clearly define the process and circumstances
under which an institution could appeal a program eligibility termination action
taken against an ineligible GE program. Specifically, the proposed regulations
would allow appeals only on the basis that the Department erred in its
calculation of the program's D/E rates or earnings threshold measure. As further
discussed under proposed § 668.405, this is a change from the 2014 Prior Rule,
which provided more options for institutions to submit challenges and appeals
during the process of establishing final GE program rates. However, these
options added significant burden and complexity for institutions, including an
alternative earnings appeal process that was partially invalidated in Federal
litigation.[117] As a result, the Department attempted to make case-by-case
judgments about when reported earnings data should be replaced with data
submitted by an institution. The prior appeals process ultimately resulted in
delayed accountability for institutions and diminished protections for students
and the public. Limiting appeals to errors of calculation would simplify the
process and reduce administrative burden on the Department and institutions
alike by focusing squarely on the circumstances most likely to support a
prevailing appeal.
Several additional considerations inform our decision to not include a Start
Printed Page 32346 process for appealing the earnings data for programs.[118]
First, new research is now available. A 2022 study concluded that the alternate
earnings appeals submitted to the Department claimed to show earnings that were
implausibly high—on average, 73 percent higher than Social Security
Administration (SSA) earnings data under the 2014 Prior Rule, and 82 percent
higher for cosmetology programs. The study proceeded to report that the
underreporting of tipped income for cosmetologists and hairdressers, based on
estimates from IRS data, is likely just 8 percent of SSA earnings.[119] Again,
the Department's goal is a reasonable assessment of available evidence and not
overreliance on any one source. That said, numbers such as those above give us
serious pause, combined with other considerations.
Those other considerations include the Department's observations of the
information provided in the earlier alternate earnings appeals process, which
likewise suggest that the appeals had little value in improving the assessment
of whether programs' “true” debt-to-earnings (or earnings) levels met the GE
criteria. We agree that the earnings reported in appeals submitted by
institutions seem implausibly high. And although there might be more than one
possible explanation for those results, such as the sequence in which appeals
were processed, the uncertainties that surround such appeals present another
reason against reinstituting them now. There was no simple or easily
identifiable test for evaluating appeals, and therefore there is no easy way to
evaluate the results in hindsight. In addition, institutions had incentives to
collect and show data that cast their programs in the best light within the
administrative proceedings, whatever the applicable standard for reviewing
appeals. Those structural complications seem difficult to resolve.
Moreover, offering those appeals certainly entailed costs for the Department and
for others. The 341 appeals that were filed required substantial Department
staff time to process. That administrative cost concern alone would not
necessarily warrant a negative evaluation of an appeals process that had
substantial and demonstrable value. However, given difficulties institutions
experienced in obtaining and compiling earnings data, along with frequent issues
involving statistical accuracy and student privacy due to small sample sizes,
the Department has concluded that any evidentiary value afforded by the earnings
appeals were more than outweighed by the administrative burden and costs
incurred by both institutions and the Department.
As well, we have reason to question the value of appeals to many potentially
interested parties. The difference between the 882 programs for which
institutions submitted notices of intent to appeal when compared to the 341
appeals that were actually submitted suggests that institutions may often have
concluded that the alternative earnings appeal process did not warrant the
necessary investment of time and effort—or perhaps the initially supposed
difference in graduates' earnings was not as significant as anticipated. And in
rescinding the 2014 GE Prior Rule in 2019, the Department's reasoning focused on
a deregulatory policy choice based on circumstances at that time rather than the
desirability of appeals. In its brief discussion of unreported income in
response to comments, the Department did not ascribe any value to the alternate
earnings appeals process in addressing unreported income.[120] In addition to
the unreliability of the earnings appeals that were previously submitted, as
further discussed in our analysis of proposed § 668.405 above, we note again
that IRS earnings are used in multiple ways within the Department's
administration of the Federal student aid programs. Those uses include
establishing student aid eligibility for grants and loans, and setting loan
payment amounts when students enroll in income-driven loan repayment plans. We
believe it is reasonable for us to use the same source for average program
earnings for the metrics that we propose here.
We do propose a narrower and more objective form of appeal, however. As noted
above, under this proposed rule an institution could only appeal a termination
action if the Department erred in calculating a GE program'sD/E rates or
earnings premium. The appeal of the termination action would not include the
underlying students included in the measures because institutions would already
have an opportunity to correct the completer list they submit to the Department
as described under proposed § 668.405(b). The proposed regulations would also
establish a three-year waiting period before an ineligible or voluntarily
discontinued program could regain eligibility. This waiting period is intended
to protect the interests of students, taxpayers, and the public by ensuring that
institutions with failing or ineligible GE programs take meaningful corrective
actions to improve program outcomes before seeking Federal support for duplicate
or substantially similar programs using the same four-digit CIP prefix and
credential level.
The Department selected a three-year period of ineligibility because it most
closely aligns with the ineligibility period associated with failing the Cohort
Default Rate, which is the Department's longstanding primary outcomes-based
accountability metric. Under those requirements, an institution that becomes
ineligible for title IV, HEA support due to high default rates cannot reapply
for approximately three award years.
CERTIFICATION REQUIREMENTS FOR GE PROGRAMS (§ 668.604)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.604 to require transitional
certifications for existing GE programs, as well as certifications when seeking
recertification or the approval of a new or modified GE program. An institution
would certify that each eligible GE program it offers is approved, or is
otherwise included in the institution's accreditation, by its recognized
accrediting agency. Alternatively, if the institution is a public postsecondary
vocational institution, it could certify that the GE program is approved by a
recognized State agency for the approval of public postsecondary vocational
education, in lieu of accreditation. Either certification would require the
signature of an authorized representative of the institution and, for a
proprietary or private nonprofit institution, an authorized representative of an
entity with direct or indirect ownership of the institution if that entity has
the power to exercise control over the institution.
For each of its currently eligible GE programs, an institution would need to
provide a transitional certification no later than December 31 of the year in
which this regulation takes effect, as an addendum to the institution's PPA with
the Department. Failure to complete the transitional certification would result
in discontinued participation in the Title IV, HEA programs for the
institution's Start Printed Page 32347 GE programs. Institutions would also be
required to provide this certification when seeking recertification of
eligibility for the title IV, HEA programs, and the Department would not
recertify the GE program if the institution fails to provide the certification.
A transitional GE certification would not be required if an institution makes a
GE certification in a new PPA through the recertification process between July 1
and December 31 of the year in which this regulation takes effect. An
institution must update its GE certification within 10 days if there are any
changes in the approvals for a GE program, or other changes that make an
existing certification no longer accurate, or risk discontinuation of title IV,
HEA participation for that GE program.
To establish eligibility for a GE program, the institution would be required to
update the list of its eligible programs maintained by the Department to add
that program. An institution may not update its list of eligible programs to
include a GE program that was subject to a three-year loss of eligibility under
§ 668.603(c) until that three-year period expires. In addition, an institution
may not update its list of eligible programs to add a GE program that is
substantially similar to a failing program that the institution voluntarily
discontinued or that became ineligible because of a failure to satisfy the
required D/E rates, earnings premium measure, or both.
Reasons: Through these certification requirements, institutions would be
required to assess their programs to determine whether they meet these minimum
standards. The Department cannot reasonably consider that a program meets the
statutory obligation to prepare graduates for gainful employment in a recognized
occupation if the program cannot meet the basic certification and licensure
requirements for that occupation. We believe that any student attending a
program that does not meet all applicable accreditation and State or Federal
licensing requirements would experience difficulty or be unable to secure
employment in the occupation for which he or she received training and,
consequently, would likely struggle to repay the debt incurred for enrolling in
that program. The certification requirements are intended to help prevent such
outcomes by requiring the institution to proactively assess whether its programs
meet those requirements and to affirm to the Department when seeking eligibility
that the programs meet those standards. The certification requirements are
therefore an appropriate condition that programs must meet to qualify for title
IV, HEA program funds, as they address the concerns about employability outcomes
underlying the gainful employment eligibility provisions of the HEA.
As we have proposed in changes to § 668.14, these certifications must be signed
by an authorized representative of the institution and, for a proprietary or
private nonprofit institution, an authorized representative of an entity with
direct or indirect ownership of the institution if that entity has the power to
exercise control over the institution. Because of these signature requirements,
an institution would have to carefully assess whether each offered GE program
meets the necessary requirements, and we expect that institutions would make
this self-assessment in good faith and after appropriate due diligence.
In addition, these certification requirements would help make certain that the
Department has an accurate list of all GE programs offered by an institution,
and that the list is regularly updated as the institution adds or subtracts
programs. This accurate listing of programs will in turn ensure that the
institution and the Department can provide required disclosures and warnings to
students in a timely and effective manner.
The certification requirements would also ensure that an institution cannot add
a program that would be ineligible under the conditions in proposed § 668.603.
WARNINGS AND ACKNOWLEDGMENTS (§ 668.605)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.605 to require notifications
to current and prospective students who are enrolled in, or considering
enrolling in, a GE program if that program could lose title IV, HEA eligibility
based on its next published D/E rates or earnings premium; to specify the
content and delivery requirements of such notifications; and to require students
to acknowledge seeing the notifications when applicable before receiving Title
IV aid. An institution would be required to provide a warning to students and
prospective students for any year for which the Secretary notifies an
institution that the program could become ineligible based on its final D/E
rates or earnings premium measure for the next award year for which those
metrics are calculated. The warning would be the only substantive content
contained in these written communications. The proposed warning for prospective
and current students would include a warning, as specified in a notice published
in the Federal Register , that the program has not passed standards established
by the U.S. Department of Education based on the amounts students borrow for
enrollment in the program and their reported earnings; the relevant information
to access a disclosure website maintained by the Department; and that the
program could lose access to title IV, HEA funds in the subsequent award year.
The warning would also include a statement that the student must acknowledge
having seen the warning through the disclosure website before the institution
may disburse any title IV, HEA funds. In addition, warnings provided to students
enrolled in GE programs would include (1) A description of the academic and
financial options available to continue their education in another program at
the institution in the event that the program loses title IV, HEA eligibility,
including whether the students could transfer academic credit earned in the
program to another program at the institution and which course credit would
transfer; (2) An indication of whether, in the event of a loss of eligibility,
the institution will continue to provide instruction in the program to allow
students to complete the program; (3) An indication of whether, in the event of
a loss of eligibility, the institution will refund the tuition, fees, and other
required charges paid to the institution for enrollment in the program; and (4)
An explanation of whether, in the event that the program loses eligibility, the
students could transfer credits earned in the program to another institution
through an established articulation agreement or teach-out.
In addition to providing the English-language warnings, the institution would be
required to provide accurate translations of the English-language warning into
the primary languages of current and prospective students with limited English
proficiency.[121] The delivery timeframe and procedure for required warnings
would depend upon whether the intended recipient is a current or prospective
student. For current students, an institution would be required to provide the
warning in Start Printed Page 32348 writing to each student enrolled in the
program no later than 30 days after the date of the Department's notice of
determination, and to maintain documentation of its efforts to provide that
warning. For prospective students, under proposed § 668.605, an institution must
provide the warning to each prospective student or to each third party acting on
behalf of the prospective student at the first contact about the program between
the institution and the student or third party by one of the following methods:
(1) Hand-delivering the warning and the relevant information to access the
disclosure website as a separate document to the prospective student or third
party individually, or as part of a group presentation; (2) Sending the warning
and the relevant information to access the disclosure website to the primary
email address used by the institution for communicating with the prospective
student or third party about the program, with the stipulation that the warning
is the only substantive content in the email and that the warning must be sent
by a different method of delivery if the institution receives a response that
the email could not be delivered; or (3) Providing the warning and the relevant
information to access the disclosure website orally to the student or third
party if the contact is by telephone. In addition, an institution could not
enroll, register, or enter into a financial commitment with the prospective
student sooner than three business days after the institution distributes the
warning to the student. An institution could not disburse title IV, HEA funds to
a prospective student enrolling in a program requiring a warning under this
section until the student provides the acknowledgment described in this section.
We also specify that the provision of a student warning or the student's
acknowledgment would not otherwise mitigate the institution's responsibility to
provide accurate information to students, nor would it be considered as evidence
against a student's claim if the student applies for a loan discharge under the
borrower defense to repayment regulations at 34 CFR part 685, subpart D.
Reasons: In proposed § 668.605, we set forth warning and acknowledgment
requirements that would apply to institutions based on the results of their GE
programs under the metrics described in § 668.402. A program that fails the D/E
rates or earnings premium measure is at elevated risk of losing access to the
title IV, HEA programs. Providing timely and effective warnings to students
considering or enrolled in such programs is especially critical in allowing
students to make informed choices about whether to enroll or continue in a
program for which expected financial assistance may become unavailable.
In the 2019 Prior Rule rescinding the GE regulation, the Department stated that
it believed that updating the College Scorecard would be sufficient to achieve
the goals of providing comparable information on all institutions to students
and families as well as the public. While we continue to believe that the
College Scorecard is an important resource for students, families, and the
public, we do not think it is sufficient for ensuring that students are fully
aware of the outcomes of the programs they are considering before they receive
title IV, HEA funds to attend them. One consideration is that the number of
unique visitors to the College Scorecard is far below that of the number of
students who enroll in postsecondary education in a given year. In fiscal year
2022, we recorded just over 2 million visits overall to the College Scorecard.
This figure includes anyone who visited, regardless of whether they or a family
member were enrolling in postsecondary education. By contrast, more than 16
million students enroll in postsecondary education annually, in addition to the
number of family members and college access professionals who may also be
assisting many of these individuals with their college selection process.
Second, as noted in the discussion of proposed § 668.401 and in the RIA,
research has shown that information alone is insufficient to influence students'
enrollment decision. For example, one study found that College Scorecard data on
cost and graduation rates did not impact the number of schools to which students
sent SAT scores.[122] The authors found that a 10 percent increase in reported
earnings increased the number of scores students sent to the school by 2.4
percent, though the impact was almost entirely among well-resourced high schools
and students. Third, the Scorecard is intentionally not targeted to a specific
individual because it is meant to provide comprehensive information to anyone
searching for a postsecondary education. By contrast, a warning or disclosure
would be a more personalized delivery of information to a student because it
would be based on the programs that they are enrolled in or actively considering
enrolling in. Making it a required disclosure would also ensure that students
see the information, which may or may not otherwise occur with the College
Scorecard. Finally, we think the College Scorecard alone is insufficient to
encourage improvements to programs solely through the flow of information, in
contrast to the 2019 Prior Rule. Posting the information on the Scorecard in no
way guarantees that an institution would even be aware of the outcomes of their
programs, and institutions have no formal role in acknowledging their outcomes.
By contrast, with these proposed regulations institutions would be fully
informed of the outcomes of all their programs and would also know which
programs would be associated with warnings and which ones would not. The
Department thus anticipates that these warnings would better achieve the goals
of both getting information to students and encouraging improvement than did the
approach outlined in the 2019 regulations. As further discussed in the
Background section of this proposed rule, we believe that the approach taken
with the 2019 Prior Rule does not adequately protect students from
low-performing GE programs and that additional protections are needed to
safeguard the interests of students and the public.
Under the proposed regulations, as under the 2014 Prior Rule the Department
would publish the text that institutions would use for the student warning in a
notice in the Federal Register to standardize the warning and ensure that the
necessary information is adequately conveyed to students. The warning would
alert both prospective and enrolled students that the program has not met
standards established by the Department based on the amounts students borrow for
enrollment in the program and their reported earnings and would also disclose
that the program may lose eligibility for title IV, HEA program funds and would
explain the implications of ineligibility. In addition, the warning would
indicate the options that would be available to continue their education at the
institution or at another institution, if the program loses its title IV, HEA
program eligibility.
Requiring that the warning be provided directly to a student, and that the
student acknowledge having seen the warning, is intended to ensure that students
receive and have the ability to act based on the information. Moreover, similar
to the 2014 Prior Rule, requiring at least three days to have passed before the
institution could enroll a prospective student would provide a “cooling-off
period” for the student to Start Printed Page 32349 consider the information
contained in the warning without immediate and direct pressure from the
institution, and would also provide the student with time to consider
alternatives to the program either at the same institution or at another
institution. To ensure that current and prospective students can make enrollment
decisions based upon timely and accurate information, the Department would
require institutions otherwise obligated to provide a warning to provide a new
warning if a student seeks to enroll more than 12 months after a previous
warning was provided in a program that still remains at risk for a loss of
eligibility. This 12-month window is longer than the 30-day window provided in
the 2014 Prior Rule to reduce administrative burden for institutions while still
providing subsequent warning for students after a sufficient time has elapsed.
Providing the warnings on an annual basis also increases the likelihood that the
warnings would include updated data and limit the chances of providing the exact
same data a second time.
SEVERABILITY (§ 668.606)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.606 to establish
severability protections ensuring that if any GE provision is held invalid, the
remaining GE provisions, as well as other subparts, would continue to apply.
Reasons: Through the proposed regulations we intend to: (1) Define what it means
for a program to provide training that prepares students for gainful employment
in a recognized occupation; and (2) Establish a process that would allow the
Department to assess and determine the eligibility of GE programs, based in part
on the program accountability provisions in proposed subpart Q.
We believe that each of the proposed provisions serves one or more important,
related, but distinct, purposes. Each of the requirements provides value,
separate from and in addition to the value provided by the other requirements,
to students, prospective students, and their families; to the public; taxpayers;
the Government; and to institutions. To best serve these purposes, we would
include this administrative provision in the regulations to establish and
clarify that the regulations are designed to operate independently of each other
and to convey the Department's intent that the potential invalidity of any one
provision should not affect the remainder of the provisions.
Please see the discussion of Severability in § 668.409 of this preamble for
additional details about how the proposed provisions operate independently of
each other for purposes of severability.
DATE, EXTENT, DURATION, AND CONSEQUENCE OF ELIGIBILITY (§ 600.10(C)(1)(V))
Statute: See Authority for This Regulatory Action.
Current Regulations: Current § 600.10(c)(1) requires an institution to provide
notice to the Department when expanding its participation in the title IV, HEA
programs by adding new educational programs and identifies when an institution
must first obtain approval for a new educational program before disbursing title
IV, HEA program funds to students enrolled in the program.
Proposed Regulations: We propose to add a new § 600.10(c)(1)(v) to require an
institution to provide notice to the Department when establishing or
reestablishing the eligibility of a GE program if the institution is subject to
any of the restrictions at proposed § 668.603 for failing GE programs. The
institution would provide this notice by updating its application to participate
in the title IV, HEA programs, as set forth in § 600.21(a)(11).
Reasons: Programs that lose eligibility under proposed subpart S would be
subject to the restrictions in proposed § 668.603, namely that an institution
may not disburse title IV, HEA program funds to students enrolled in the
ineligible program, nor may it seek to reestablish the eligibility of that
program until the requisite period of ineligibility has elapsed. Proper
enforcement of this provision necessitates conforming changes to § 600.10(c) to
require that the Department be informed of when an institution subject to the
aforementioned restrictions intends to stand up a GE program either for the
first time or following a period of ineligibility.
UPDATING APPLICATION INFORMATION (§ 600.21(A)(11))
Statute: See Authority for This Regulatory Action.
Current Regulations: Current § 600.21(a)(11) requires an institution to report
to the Department within 10 days certain changes to the institution's GE
programs, including to a program's name or CIP code.
Proposed Regulations: We propose to amend § 600.21(a)(11)(v) to require an
institution to report, in addition to the items currently listed, changes to a
GE program's credential level. In addition, we propose to add paragraph
(a)(11)(vi) to require an institution to report any changes to the GE
certification status of a GE program under § 668.604.
Reasons: Current § 600.21 requires institutions to update the Department
regarding various changes affecting both institutional and program eligibility.
We believe this to be the most effective mechanism for institutions to report
information regarding GE programs that is critical for the Department to conduct
proper monitoring and oversight of those programs. Accordingly, we are proposing
conforming changes to § 600.21, which would require institutions to report for
any GE program, in addition to the items currently listed, any changes to the
program's credential level or certification status pursuant to proposed
§ 668.604. The Department would require institutions to report changes to a GE
program's credential level because different credential levels would be
considered distinct programs leading to different employment, earnings, and debt
outcomes. We would require institutions to report changes in a GE program's
certification status because the program becomes ineligible if it ceases to be
included in the scope of an institution's accreditation.
GENERAL DEFINITIONS (§ 668.2)
Statute: See Authority for This Regulatory Action.
Current Regulations: The current regulations at § 668.2 define key terminology
used throughout the student assistance general provisions in this part.
Proposed Regulations: We propose to add new definitions to explain key
terminology used in the financial value transparency provisions in proposed
subpart Q and the GE program accountability provisions in proposed subpart S.
These definitions would be as follows:
• Annual debt-to-earnings rate. The ratio of a program's typical annual loan
payment amount to the median annual earnings of the students who recently
completed the program. This measurement would be expressed as a percentage, and
the Department would calculate it under the provisions of proposed § 668.403.
• Classification of instructional program (CIP) code. A taxonomy of
instructional program classifications and descriptions developed by the
Department's National Center for Education Statistics (NCES). Specific Start
Printed Page 32350 educational programs are classified using a six-digit CIP
code.
• Cohort period. The set of award years used to identify a cohort of students
who completed a program and whose debt and earnings outcomes are used to
calculate D/E rates and the earnings threshold measure. The Department proposes
to use a two-year cohort period to calculate the D/E rates and earnings
threshold measure for a program when the number of students in the two-year
cohort period is 30 or more. We would use a four-year cohort period to calculate
the D/E rates and earnings thresholds measure when the number of students
completing the program in the two-year cohort period is fewer than 30 but the
number of students completing the program in the four-year cohort period is 30
or more. A two-year cohort period would consist of the third and fourth award
years prior to the year for which the most recent data are available at the time
of calculation. For example, given current data production schedules, the D/E
rates and earnings premium measure calculated to assess financial value starting
in award year 2024–2025 would be calculated in late 2024 or early in 2025. For
most programs, the two-year cohort period for these metrics would be award years
2017–2018 and 2018–2019, and earnings data would be measured in calendar years
2021 and 2022. A four-year cohort period would consist of the third, fourth,
fifth, and sixth award years prior to the year for which the most recent
earnings data are available at the time of calculation. For example, for the D/E
rates and the earnings threshold measure calculated to assess financial value
starting in award year 2024–2025, the four-year cohort period would be award
years 2015–2016, 2016–2017, 2017–2018, and 2018–2019; and earnings data would be
measured using data from calendar years 2019 through 2022. The cohort period
would be calculated differently for programs whose students are required to
complete a medical or dental internship or residency. For this purpose, a
required medical or dental internship or residency would be a supervised
training program that (A) Requires the student to hold a degree as a doctor of
medicine or osteopathy, or as a doctor of dental science; (B) Leads to a degree
or certificate awarded by an institution of higher education, a hospital, or a
health care facility that offers post-graduate training; and
(C) Must be completed before the student may be licensed by a State and board
certified for professional practice or service. The two-year cohort period for a
program whose students are required to complete a medical or dental internship
or residency would be the sixth and seventh award years prior to the year for
which the most recent earnings data are available at the time of calculation.
For example, D/E rates and the earnings threshold measure calculated for award
year 2025–2026 would be calculated in 2024; and the two-year cohort period is
award years 2014–2015 and 2015–2016. The four-year cohort period for a program
whose students are required to complete a medical or dental internship or
residency would be the sixth, seventh, eighth, and ninth award years prior to
the year for which the most recent earnings data are available at the time of
calculation. For example, the D/E rates and the earnings threshold measure
calculated for award year 2025–2026 would be calculated in 2024, and the
four-year cohort period would be award years 2012–2013, 2013–2014, 2014–2015,
and 2015–2016.
• Credential level. The level of the academic credential awarded by an
institution to students who complete the program. Undergraduate credential
levels would include undergraduate certificate or diploma; associate degree;
bachelor's degree; and post-baccalaureate certificate. Graduate credential
levels would include graduate certificate, including a postgraduate certificate;
master's degree; doctoral degree; and first-professional degree ( e.g., MD, DDS,
JD).
• Debt-to-earnings rates (D/E rates). The annual debt-to-earnings rate and
discretionary debt-to-earnings rate, as calculated under proposed § 668.403.
• Discretionary debt-to-earnings rate. The percentage of a program's median
annual loan payment compared to the median discretionary earnings (defined as
median earnings minus 150 percent of the Federal Poverty Guideline for a single
person, or zero if this difference is negative) of the students who completed
the program.
• Earnings premium. The amount by which the median annual earnings of students
who recently completed a program exceed the earnings threshold, as calculated
under proposed § 668.604. If the median annual earnings of recent completers is
equal to the earnings threshold, the earnings premium is zero. If the median
annual earnings of completers is less than the earnings threshold, the earnings
premium is negative.
• Earnings threshold. The median annual earnings for an adult that either has
positive annual earnings or is categorized as unemployed ( i.e., is not working
but is looking and available for work) at the time they are interviewed, aged 25
through 34, with only a high school diploma or recognized equivalent in the
State in which the institution is located, or nationally if fewer than 50
percent of the students in the program are located in the State where the
institution is located. The statistic would be determined using data from a
Federal statistical agency that the Secretary deems sufficiently representative
to accurately calculate the median earnings of high school graduates in each
State, such as the American Community Survey administered by the U.S. Census
Bureau. This earnings threshold is compared to the median annual earnings of
students who recently completed the program to construct the earnings premium.
• Eligible non-GE program. For purposes of proposed subpart Q, an educational
program other than a GE program offered by an institution and approved by the
Secretary to participate in the title IV, HEA programs, identified by a
combination of the institution's six-digit Office of Postsecondary Education ID
(OPEID) number, the program's six-digit CIP code as assigned by the institution
or determined by the Secretary, and the program's credential level. For purposes
of attributing coursework, costs, and student assistance received, all
coursework associated with the program's credential level would be counted
toward the program.
• Federal agency with earnings data. A Federal agency with which the Department
would maintain an agreement to access data necessary to calculate median
earnings for the D/E rates and earnings premium measures. The agency would need
to have individual earnings data sufficient to match with title IV, HEA aid
recipients who completed any eligible program during the cohort period. Specific
Federal agencies with which partnerships may be possible include agencies such
as the Treasury Department (including the Internal Revenue Service), the Social
Security Administration (SSA), the Department of Health and Human Services
(HHS), and the Census Bureau.
• GE program. An educational program offered under § 668.8(c)(3) or (d) and
identified by a combination of the institution's six-digit Office of
Postsecondary Education ID (OPEID) number, the program's six-digit CIP code as
assigned by the institution or determined by the Secretary, and the program's
credential level. The Department welcomes public comments about any potential
advantages and drawbacks associated with defining a Start Printed Page 32351 GE
program using the institution's eight-digit OPE ID number instead of the
six-digit OPE ID number as proposed.
• Institutional grants and scholarships. Financial assistance that the
institution or its affiliate controls or directs to reduce or offset the
original amount of a student's institutional costs and that does not have to be
repaid. Typical examples of this type of assistance would include grants,
scholarships, fellowships, discounts, and fee waivers.
• Length of the program. The amount of time in weeks, months, or years that is
specified in the institution's catalog, marketing materials, or other official
publications for a student to complete the requirements needed to obtain the
degree or credential offered by the program.
• Poverty Guideline. The Poverty Guideline for a single person in the
continental United States as published by HHS.
• Prospective student. An individual who has contacted an eligible institution
for the purpose of requesting information about enrolling in a program, or who
has been contacted directly by the institution or by a third party on behalf of
the institution about enrolling in a program.
• Student. For the purposes of proposed subparts Q and S, an individual who
received title IV, HEA funds for enrolling in a GE program or eligible non-GE
program.
• Title IV loan. A loan authorized under the William D. Ford Direct Loan Program
(Direct Loan).
Reasons: Current § 668.2 defines key terminology used in the student assistance
regulations but does not yet include definitions for the terminology listed
above. Uniform usage of these terms would make it easier for institutions to
understand the proposed standards and requirements for academic programs and for
students and prospective students to understand the information about academic
programs that the proposed regulations would provide. Our reasoning for
proposing each definition is discussed in the section in which the defined term
is first substantively used.
INSTITUTIONAL AND PROGRAMMATIC INFORMATION (§ 668.43)
Statute: See Authority for This Regulatory Action.
Current Regulations: Under current § 668.43, institutions must make certain
institutional information available to current and prospective students, such as
the cost of attending the institution, refund and withdrawal policies, the
academic programs offered by the institution, and accreditation and State
approval or licensure information. An institution must also provide written
notification to students if it determines that the program's curriculum does not
meet the State educational requirements for licensure or certification in the
State in which the student is located, or if the institution has not made a
determination regarding whether the program's curriculum meets the State
educational requirements for licensure or certification.
Proposed Regulations: We propose to amend paragraph (a)(5)(v) to clarify the
intent of this disclosure. Specifically, we propose to include language that
would require a list of all States where the institution is aware that the
program does and does not meet such requirements.
Under proposed § 668.43(d), the Department would establish a website for posting
and distributing key information and disclosures pertaining to the institution's
educational programs. An institution would provide such information as the
Department prescribes through a notice published in the Federal Register for
disclosure to prospective and enrolled students through the website. This
information could include, but would not be limited to, (1) The primary
occupations that the program prepares students to enter, along with links to
occupational profiles on O*NET ( www.onetonline.org) or its successor site; (2)
The program's or institution's completion rates and withdrawal rates for
full-time and less-than-full-time students, as reported to or calculated by the
Department; (3) The length of the program in calendar time; (4) The total number
of individuals enrolled in the program during the most recently completed award
year; (5) The program's D/E rates, as calculated by the Department; (6) The
program's earnings premium measure, as calculated by the Department; (7) The
loan repayment rate as calculated by the Department for students or graduates
who entered repayment on title IV loans; (8) The total cost of tuition and fees,
and the total cost of books, supplies, and equipment, that a student would incur
for completing the program within the length of the program; (9) The percentage
of the individuals enrolled in the program during the most recently completed
award year who received a title IV loan, a private education loan, or both; (10)
The median loan debt of students who completed the program during the most
recently completed award year, or the median loan debt for all students who
completed or withdrew from the program during that award year, as calculated by
the Department; (11) The median earnings, as provided by the Department, of
students who completed the program or of all students who completed or withdrew
from the program; (12) Whether the program is programmatically accredited and
the name of the accrediting agency; (13) The supplementary performance measures
in proposed § 668.13(e); and (14) A link to the Department's College Navigator
website, or its successor site or other similar Federal resource such as the
College Scorecard. The institution would be required to provide a prominent link
and any other information needed to access the website on any web page
containing academic, cost, financial aid, or admissions information about the
program or institution. The Department would have the authority to require the
institution to modify a web page if the information about how to access the
Department's website is not sufficiently prominent, readily accessible, clear,
conspicuous, or direct. In addition, the Department would require the
institution to provide the relevant information to access the website to any
prospective student or third party acting on behalf of the prospective student
before the prospective student signs an enrollment agreement, completes
registration, or makes a financial commitment to the institution. The Department
would further require that the institution provide the relevant information to
access the website maintained by the Secretary to any enrolled title IV, HEA
recipient prior to the start date of the first payment period associated with
each subsequent award year in which the student continues enrollment at the
institution. As further discussed under proposed § 668.407, a student enrolling
in a program that the Department has determined to be high-debt-burden or
low-earnings through either the D/E rates or the earnings premium measure would
receive a warning and would need to acknowledge seeing the warning before the
institution disburses title IV, HEA funds.
Reasons: We believe it is important for all programs that lead to occupations
requiring programmatic accreditation or State licensure to meet their State's
requirements because programs financed by taxpayer dollars should meet the
minimum requirements for the occupation for which they prepare students as a
safeguard for the financial investment in these programs, as would be required
under our proposal to amend § 668.14(b)(32). We also believe it is crucial to
know which States consider these programs to be meeting Start Printed Page 32352
or not meeting such requirements because students have often enrolled in
programs that do not meet the necessary requirements for employment in the State
that they reside after completing the program. As further explained in
§ 668.14(b), when institutions enter a written PPA with the Department they
agree to meet the PPA's terms and conditions in order to participate in the
title IV programs. Requiring institutions to have the necessary certifications
or programmatic accreditation to meet their State's requirements for the
programs they offer, and to disclose a list of all States where the institution
is aware that the program does and does not meet such requirements as would be
required under proposed § 668.43(a)(5), would help students make a more informed
decision on where to invest their time and money in pursuit of a postsecondary
degree or credential.
As discussed in ”§ 668.401 Scope and purpose,” the proposed disclosures are
designed to improve the transparency of student outcomes by: ensuring that
students, prospective students, and their families, the public, taxpayers, and
the Government, and institutions have timely and relevant information about
educational programs to inform student and prospective student decision-making;
helping the public, taxpayers, and the Government to monitor the results of the
Federal investment in these programs; and allowing institutions to see which
programs produce exceptional results for students so that those programs may be
emulated.
In particular, the proposed disclosures would provide prospective and enrolled
students the information they need to make informed decisions about their
educational investment, including where to spend their limited title IV, HEA
program funds and use their limited title IV, HEA student eligibility.
Prospective students trying to make decisions about whether to enroll in an
educational program would find it useful to have easy access to information
about the jobs that the program is designed to prepare them to enter, the
likelihood that they will complete the program, the financial and time
commitment they will have to make, their likely debt burden and ability to repay
their loans, their likely earnings, and whether completing the program will
provide them the requisite coursework, experience, and accreditation to obtain
employment in the jobs associated with the program. The proposed disclosures
would also provide valuable information to enrolled students considering their
ongoing educational investment and post-completion prospects. For example, we
believe that disclosure of completion rates for full-time and
less-than-full-time students would inform prospective and enrolled students as
to how long it may take them to earn the credential offered by the program.
Similarly, we believe that requiring institutions to disclose loan repayment
rates would help prospective and enrolled students to better understand how well
students who have attended the program before them have been able to manage
their loan debt, which could influence their decisions about how much money they
should borrow to enroll in the program.
We believe providing these disclosures on a website hosted by the Department
would provide consistency in how the information is calculated and presented and
would aid current and prospective students in comparing different programs and
institutions. To ensure that current and prospective students are aware of this
information when making enrollment decisions, institutions would be required to
provide a prominent link and any other needed information to access the website
on any web page containing academic, cost, financial aid, or admissions
information about the program or institution.
INITIAL AND FINAL DECISIONS (§ 668.91)
Statute: Section 487 of the HEA provides for administrative hearings in the
event of a limitation, suspension, or termination action against an institution.
See also Authority for This Regulatory Action.
Current Regulations: Current § 668.91 outlines certain parameters governing the
Department's hearing official's initial decision in administrative hearings
concerning fine, limitation, suspension, or termination proceedings against an
institution or servicer. Section 668.91(a)(2) grants the hearing official
latitude to decide whether the imposition of a fine, limitation, suspension,
termination, or recovery the Department seeks is warranted. Current
§ 668.91(a)(3) establishes exceptions to the general authority afforded to the
hearing official to weigh the evidence and remedy in an administrative appeal,
and sets required outcomes if certain facts are established, including (1)
Employing or contracting with excluded parties under § 668.14(b)(18); (2)
Failure to provide a required letter of credit or other financial protection
unless the institution demonstrates that the amount was not warranted; (3)
Failure by an institution or third-party servicer to submit a required annual
audit timely; and (4) Failure by an institution to meet the past performance
standards of conduct at § 668.15(c).
Proposed Regulations: In new § 668.91(a)(3)(vi), we propose additional
circumstances in which the hearing official must rule in a specified manner.
Specifically, we propose that a hearing official must terminate the eligibility
of a GE program that fails to meet theD/E rates or earnings premium measure,
unless the hearing official concludes there was a material error in the
calculation of the metric.
Reasons: Proposed § 668.91(a)(3)(vi) is a conforming change to the measures at
proposed § 668.603 and would require that a hearing official terminate the
eligibility of a GE program that fails to meet the D/E rates or earnings premium
measure, unless the hearing official concludes there was a material error in the
calculation of the metric. We believe it is important to clearly specify the
consequences for failing the GE metrics, both to promote fair and consistent
treatment for failing programs as well as to safeguard the interests of students
and taxpayers. This limitation reflects the Department's determination about the
required outcome in those circumstances, and the hearing official is bound to
follow the regulations. The rationale for why we propose limiting this review is
further explained in our discussion of proposed § 668.603. The proposed
regulations would protect students and taxpayers by foreclosing the possibility
that an institution could obtain a less severe outcome such as a monetary fine
that allows the GE program to remain eligible while continuing to leave
unaddressed the conditions that led to the GE program's failure.
In the interest of fairness and adequate process, proposed § 668.405 would
provide institutions with an adequate opportunity to correct the list of
completers that would be submitted to the Federal agency with earnings data to
ensure that the debt and earnings metrics for each program are calculated based
upon the most accurate and current information available. As noted in the
discussion of proposed § 668.405, we would not, however, consider challenges to
the accuracy of the earnings data received from the Federal agency with earnings
data, because such an agency would provide the Department with only the median
earnings and the number of non-matches for a program, and would not disclose
students' individual earnings data that would enable the Secretary to assess a
challenge to reported earnings. Start Printed Page 32353
FINANCIAL RESPONSIBILITY (§§ 668.15, 668.23, AND 668, SUBPART L §§ 171, 174,
175, 176 AND 177) (§ 498(C) OF THE HEA)
Authority for This Regulatory Action: Section 498 of the HEA requires
institutions to establish eligibility to provide title IV, HEA funds to their
students. The statute directs the Secretary of Education to, among other things,
determine the financial responsibility of an institution that seeks to
participate, or is participating in, the title IV, HEA student aid programs. To
that end, the Secretary is directed to obtain third-party financial guarantees,
where appropriate, to offset potential liabilities due to the Department.
The Department's authority for this regulatory action derives primarily from the
above statutory provision, which directs the Secretary to establish, make,
promulgate, issue, rescind, and amend rules and regulations governing the manner
of operations of, and governing the applicable programs administered by, the
Department.
FACTORS OF FINANCIAL RESPONSIBILITY (§ 668.15)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.15 contains factors of responsibility for
institutions participating in the title IV, HEA programs. However, most of these
factors have been supplanted with requirements for institutional financial
responsibility found at part 668, subpart L—Financial Responsibility. An
exception is that the factors at § 668.15 have been applied to institutions
undergoing a change in ownership.
Proposed Regulations: The Department proposes to remove and reserve § 668.15.
Reasons: The factors stated in § 668.15 have been supplanted with the later
requirements that were added to part 668, subpart L—Financial Responsibility,
and became effective in 1998. Removing the factors from § 668.15 would remove
unnecessary text and streamline part 668. The factors that are currently
applicable to institutions undergoing a change in ownership would be replaced
with an updated and expanded list of factors in proposed § 668.176, which would
better reflect the Department's consideration of an institution's change in
ownership application.
COMPLIANCE AUDITS AND AUDITED FINANCIAL STATEMENTS (§ 668.23)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible. Sections 487 and 498 of the HEA direct the
Secretary to obtain and review a financial audit of an eligible institution
regarding the financial condition of the institution in its entirety, and a
compliance audit of such institution regarding any funds obtained by it under
this statute.
Current Regulations: Section 668.23(a)(4) requires institutions not subject to
the Single Audit Act, 31 U.S.C. chapter 75, to submit annually to the Department
their compliance audit and audited financial statements no later than six months
after the end of the institution's fiscal year.
Proposed Regulations: We propose to amend § 668.23(a)(4) to state that an
institution not subject to the Single Audit Act must submit its compliance audit
and its audited financial statements by the date that is the earlier of 30 days
after the date of the auditor's report or 6 months after the last day of the
institution's fiscal year.
Reasons: The Department is concerned that the current deadlines for submitting
audited financial statements or compliance audits used to annually assess an
institution's financial responsibility do not provide timely notice to the
Department about significant financial concerns, even when institutions are
aware of these concerns for months. The sooner the Department is made aware of
situations where an institution's financial stability is in question, the sooner
the Department can address the institution's situation and mitigate potential
impacts on the institution's students. This is especially the case when an
institution's lack of financial stability is a signal of an imminent potential
closure. Those negative impacts associated with institutional closure include
disruption of the students' education, delay in completing their educational
program, and the loss of academic credit upon transfer to another institution.
In addition, many students abandon their educational journeys altogether when
their institutions close. In a September 2021 report,[123] the U.S. Government
Accountability Office (GAO) found that 43 percent of borrowers whose colleges
closed from 2010 through 2020 did not enroll in another institution or complete
their program. As GAO noted, this showed that “closures are often the end of the
road for a student's education.” Furthermore, negative consequences of a
school's closure not only impact students but have negative effects on taxpayers
as a result of the Department's obligation to discharge student loan balances of
borrowers impacted by the closure. The Department recently revised rules
governing closed school discharges in final rules published in the Federal
Register on November 1, 2022,[124] increasing the need for financial protection
when the Department is aware of potential and imminent closure. Finally, beyond
student loan discharges, the Department often finds itself unable to collect any
liabilities owed to the Federal government due to the insolvency of the closed
institution. Obtaining financial surety prior to a closure would help to offset
these types of liabilities.
Receiving compliance audits and financial statements within 30 days of when the
report was dated, if it is dated at least 30 days prior to the six-month
deadline (which would then be the operative deadline), would allow the
Department to conduct effective oversight, obtain financial protection, and
ensure students have options for teach-out agreements once we are made aware of
financial situations that may indicate a potential closure is imminent. In
addition, earlier submission of an institution's audited financial statements
could alert the Department more quickly of an institution's failure to meet the
90/10 requirement, enabling prompt action to enforce those rules thereby
protecting student and taxpayer interests.
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible. Sections 487 and 498 of the HEA direct the
Secretary to obtain and review a financial audit of an eligible institution
regarding the financial condition of the institution in its entirety, and a
compliance audit of such institution regarding any funds obtained by it under
this statute.
Current Regulations: Section 668.23(a)(5) refers to the audit submitted by
institutions subject to the Single Audit Act as an audit conducted in accordance
with the Office of Management and Budget (OMB) Circular A–133.
Proposed Regulations: The Department proposes to amend § 668.23(a)(5) by
replacing the outdated reference to the OMB Circular A–133 Start Printed Page
32354 with the current reference: 2 CFR part 200—Uniform Administrative
Requirements, Cost Principles, And Audit Requirements For Federal Awards.
Reasons: This change would update the regulation to include the appropriate cite
for conducting audits of institutions subject to the Single Audit Act.
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible. Sections 487 and 498 of the HEA direct the
Secretary to obtain and review a financial audit of an eligible institution
regarding the financial condition of the institution in its entirety, and a
compliance audit of such institution regarding any funds obtained by it under
this statute.
Current Regulations: The requirement in current § 668.23(d)(1) states that an
institution's audited financial statements must disclose all related parties and
a level of detail that would enable the Department to readily identify the
related party. Such information may include, but is not limited to, the name,
location and a description of the related entity including the nature and amount
of any transactions between the related party and the institution, financial or
otherwise, regardless of when they occurred.
Proposed Regulations: The Department proposes to amend § 668.23(d)(1) to change
the passage “Such information may include. . .” to “Such information must
include. . .”. The result of the proposal would require that institutions
continue to include in their audited financial statements a disclosure of all
related parties and a level of detail that would enable the Department to
readily identify the related party. The proposed regulation would go on to state
that the information must include, but would not be limited to, the name,
location and a description of the related entity including the nature and amount
of any transactions between the related party and the institution, financial or
otherwise, regardless of when they occurred.
The Department also proposes to amend § 668.23(d)(1) to note that the financial
statements submitted to the Department must be the latest complete fiscal year
(or years, if there is a request for more than one year). We also propose that
the fiscal year covered by the financial statements submitted must match the
dates of the entity's annual return(s) filed with the Internal Revenue Service
(IRS).
Reasons: This change is necessary for the Department to ensure that it has
greater understanding of an institution's related parties. The items being
required here are basic identifying factors and provide the minimum level of
information required for an understanding of the institution's situation.
The proposed clarifications to the fiscal years covered by audited financial
statements would serve two purposes. First, the requirement to submit financial
statements for the latest completed fiscal year would ensure that we are
receiving the most up-to-date information from an institution. This is
particularly important for new institution submissions, which are already
required to comply with these requirements under current § 668.15, which we
propose to remove and reserve in light of the new proposed § 668.176. Second,
the proposed requirement that the dates of the fiscal year for the financial
statements submitted to the Department match those on the statements submitted
to the IRS addresses a concern the Department has seen where institutions have
adjusted their fiscal years to avoid submitting the most up-to-date financial
information to the Department. This change would ensure the Department receives
consistent and up-to-date information, which is necessary for evaluating the
financial health of institutions.
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible. Sections 487 and 498 of the HEA direct the
Secretary to obtain and review a financial audit of an eligible institution
regarding the financial condition of the institution in its entirety, and a
compliance audit of such institution regarding any funds obtained by it under
this statute.
Current Regulations: The current regulations do not address any special
submission requirements for domestic or foreign institutions that are owned
directly or indirectly by any foreign entity with at least a 50 percent voting
or equity interest.
Proposed Regulations: The Department proposes to add § 668.23(d)(2)(ii) to
require that an institution, domestic or foreign, that is owned by a foreign
entity holding at least a 50 percent voting or equity interest provide
documentation of its status under the law of the jurisdiction under which it is
organized, as well as basic organizational documents.
Reasons: The proposed regulations would better equip the Department to obtain
appropriate and necessary documentation from an institution which has a foreign
owner or owners with 50 percent or greater voting or equity interest. Currently,
the Department cannot always determine who is or was controlling an entity when
it gets into financial difficulty or closes. This is exacerbated when the
institution is controlled by a foreign entity. This proposed regulation would
provide a clearer picture of the institution's legal status to the Department,
as well as who exercises direct or indirect ownership over the institution.
Knowing the legal owner is important for situations such as when we request
financial protection, when we seek to collect an audit or program review
liability, or when an institution closes.
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible. Sections 487 and 498 of the HEA direct the
Secretary to obtain and review a financial audit of an eligible institution
regarding the financial condition of the institution in its entirety, and a
compliance audit of such institution regarding any funds obtained by it under
the statute.
Current Regulations: None.
Proposed Regulations: The Department proposes to add § 668.23(d)(5) which would
require an institution to disclose in a footnote to its audited financial
statement the amounts spent in the previous fiscal year on the following:
* Recruiting activities;
* Advertising; and
* Other pre-enrollment expenditures.
Reasons: The Department has observed that some institutions spend institutional
funds on student recruitment, advertising, and other pre-enrollment expenditures
in amounts greatly out of proportion to expenditures on instruction and
instructionally related activities. We believe this type of spending pattern is
a possible indicator of institutional financial instability. For example, an
institution with a solid financial foundation will often spend institutional
funds to add new instructional programs or improve existing ones. An institution
would expect that such improvements or expansions would improve the future
outlook for the institution. On the other hand, an institution feeling pressure
due to a declining financial situation may spend excessive amounts of its Start
Printed Page 32355 resources on recruitment, advertising, or other
pre-enrollment expenditures to generate revenue in the short-term, at the
possible detriment to the institution in the long-term. Requiring institutions
to disclose amounts spent on these types of activities would provide the
Department a more comprehensive view into the financial health and stability of
institutions.
FINANCIAL RESPONSIBILITY—GENERAL REQUIREMENTS (§ 668.171)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.171(b)(3)(i) states that an institution is not
able to meet its financial or administrative obligations if it fails to make
refunds under its refund policy or to return title IV, HEA program funds for
which it is responsible.
Proposed Regulations: In § 668.171(b)(3), the Department proposes to add
additional indicators. Proposed paragraph (b)(3)(i) states that an institution
would not be financially responsible if it fails to pay title IV, HEA credit
balances as required under current § 668.164(h)(2). Proposed paragraph
(b)(3)(iii) states that an institution would not be financially responsible if
it fails to make a payment in accordance with an existing undisputed financial
obligation for more than 90 days. Proposed paragraph (b)(iv) states that an
institution would not be financially responsible if it fails to satisfy payroll
obligations in accordance with its published payroll schedule. Lastly, proposed
paragraph (b)(3)(v) states that an institution would not be financially
responsible if it borrows funds from retirement plans or restricted funds
without authorization.
Reasons: An institution participating in the title IV, HEA programs acts as a
fiduciary in its handling of title IV, HEA program funds on behalf of students.
It thus has an obligation to abide by requirements to both return unused title
IV, HEA funds and pay out credit balances to students. An institution's failure
to pay a student funds belonging to that student is a strong indicator of the
institution's lack of financial responsibility and stability. The Department is
concerned that an institution that refuses to pay, or is unable to pay, credit
balances owed to students may be holding onto them to address underlying
financial concerns.
The Department is generally concerned when an institution is not meeting its
financial obligations. The additional indicators the Department proposes to add
in § 668.171(b)(3) all involve situations where an institution is not meeting
its financial obligations, such as making payroll or payments on required debt
agreements. To that end, monies that belong to and are owed to students are no
different—they are obligations that must be fulfilled. Thus, the proposed
regulation would expand the definition of not financially responsible to include
the failure to pay title IV, HEA credit balances as required under current
§ 668.164(h)(2).
This change is also in keeping with recently finalized regulations relating to
the requirement that postsecondary institutions of higher education obtain at
least 10 percent of their revenue from non-Federal sources, also known as the
90/10 rule. In § 668.28(a)(2)(ii)(B), proprietary institutions may not delay the
disbursement of title IV, HEA funds to the next fiscal year to adjust their90/10
rate.
FINANCIAL RESPONSIBILITY—MANDATORY TRIGGERING EVENTS (§ 668.171)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.171(c) lists several mandatory triggering
events impacting an institution's financial responsibility. These triggers were
implemented in the 2019 Final Borrower Defense Regulations [125] to reduce the
impact of the prior triggers that had been implemented in the 2016 Final
Borrower Defense Regulations.[126] The current mandatory triggers are these
instances:
* The institution incurs a liability from a settlement, final judgment, or
final determination arising from an administrative or judicial action or
proceeding initiated by a Federal or State entity;
* For a proprietary institution whose composite score is less than 1.5, there
is a withdrawal of an owner's equity from the institution by any means,
unless the withdrawal is a transfer to an entity included in the affiliated
entity group on whose basis the institution's composite score was calculated;
and as a result of that liability or withdrawal, the institution's
recalculated composite score is less than 1.0, as determined by the
Department;
* For a publicly traded institution—
* The U.S. Securities and Exchange Commission (SEC) issues an order suspending
or revoking the registration of the institution's securities pursuant to
Section 12(j) of the Securities and Exchange Act of 1934 (the “Exchange Act”)
or suspends trading of the institution's securities on any national
securities exchange pursuant to Section 12(k) of the Exchange Act; or
* The national securities exchange on which the institution's securities are
traded notifies the institution that it is not in compliance with the
exchange's listing requirements and, as a result, the institution's
securities are delisted, either voluntarily or involuntarily, pursuant to the
rules of the relevant national securities exchange;
* The SEC is not in timely receipt of a required report and did not issue an
extension to file the report.
If any of the mandatory triggering events occur, the Department would deem the
institution to be unable to meet its financial or administrative obligations.
Usually, this will result in the Department obtaining financial protection,
generally a letter of credit, from the institution.
Proposed Regulations: The Department proposes to amend § 668.171(c) with a more
robust set of mandatory triggers. Proposed § 668.171(c) would keep or expand the
existing mandatory triggers, change some existing discretionary triggers to
become mandatory and add new mandatory triggers. We are also proposing to add
new discretionary triggers, which are discussed separately in § 668.171(d). As
with the existing § 668.171(c), if any of the mandatory trigger events occur,
the Department would deem the institution as unable to meet its financial or
administrative obligations and obtain financial protection. The proposed
mandatory triggers are situations where:
* Under § 668.171(c)(2)(i)(A), an institution or entity with a composite score
of less than 1.5 is required to pay a debt or incurs a liability from a
settlement, arbitration proceeding, or a final judgment in a judicial or
administrative proceeding, and the debt or liability results in a
recalculated composite score of less than 1.0, as determined by the
Department;
• Under § 668.171(c)(2)(i)(B), the institution or entity is sued to impose an
injunction, establish fines or penalties, or to obtain financial relief such as
damages, in an action brought on or after July 1, 2024, by a Federal or State
authority, or through a qui tam lawsuit in which the Federal government has
intervened and the suit has been pending for at least 120 days; Start Printed
Page 32356
* Under § 668.171(c)(2)(i)(C), the Department has initiated action to recover
from the institution the cost of adjudicated claims in favor of borrowers
under the student loan discharge provisions in part 685, and including that
potential liability in the composite score results in a recalculated
composite score of less than 1.0, as determined by the Department;
* Under § 668.171(c)(2)(i)(D), an institution that has submitted a change in
ownership application and is required to pay a debt or incurs liabilities
(from a settlement, arbitration proceeding, final judgment in a judicial
proceeding, or a determination arising from an administrative proceeding), at
any point through the end of the second full fiscal year after the change in
ownership has occurred, would be required to post financial protection in the
amount specified by the Department if so directed by the Department;
* Under § 668.171(c)(2)(ii)(A) and (B), for a proprietary institution whose
composite score is less than 1.5, or for any proprietary institution through
the end of the first full fiscal year following a change in ownership, and
there is a withdrawal of owner's equity by any means, including by declaring
a dividend, unless the withdrawal is a transfer to an entity included in the
affiliated entity group on whose basis the institution's composite score was
calculated or the withdrawal is the equivalent of wages in a sole
proprietorship or general partnership or a required dividend or return of
capital and as a result the institution's recalculated composite score is
less than 1.0, as determined by the Department;
* Under § 668.171(c)(2)(iii), the institution received at least 50 percent of
its title IV, HEA funding in its most recently completed fiscal year from
gainful employment programs that are failing under proposed subpart S of part
668, as determined by the Department;
* Under § 668.171(c)(2)(iv), the institution is required to submit a teach-out
plan or agreement by a State or Federal agency, an accrediting agency, or
other oversight body;
* Under § 668.171(c)(2)(v), the institution is cited by a State licensing or
authorizing agency for failing to meet that entity's requirements and that
entity provides notice that it will withdraw or terminate the institution's
licensure or authorization if the institution does not come into compliance
with the requirement. Under current regulations, this is a discretionary
trigger;
* Under § 668.171(c)(2)(vi), at least 50 percent of the institution is owned
directly or indirectly by an entity whose securities are listed on a domestic
or foreign exchange and is subject to one or more actions or events initiated
by the U.S. Securities and Exchange Commission (SEC) or by the exchange where
the entity's securities are listed. Those actions or events are when:
The SEC issues an order suspending or revoking the registration of any of the
entity's securities pursuant to section 12(j) of the Securities Exchange Act of
1934 (the “Exchange Act”) or suspends trading of the entity's securities
pursuant to section 12(k) of the Exchange Act;
The SEC files an action against the entity in district court or issues an order
instituting proceedings pursuant to section 12(j) of the Exchange Act;
The exchange on which the entity's securities are listed notifies the entity
that it is not in compliance with the exchange's listing requirements, or its
securities are delisted;
The entity failed to file a required annual or quarterly report with the SEC
within the time period prescribed for that report or by any extended due date
under 17 CFR 240.12b–25; or
The entity is subject to an event, notification, or condition by a foreign
exchange or foreign oversight authority that the Department determines is the
equivalent to the items listed above in the first four sub-bullets of this
passage.
* Under § 668.171(c)(2)(vii), a proprietary institution, for its most recently
completed fiscal year, did not receive at least 10 percent of its revenue
from sources other than Federal education assistance as required under
§ 668.28;
* Under § 668.171(c)(2)(viii), the institution's two most recent official
cohort default rates are 30 percent or greater unless the institution has
filed a challenge, request for adjustment, or appeal and that action has
reduced the rate to below 30 percent, or the action remains pending. Under
current regulations, this is a discretionary trigger;
* Under § 668.171(c)(2)(ix), the institution has lost eligibility to
participate in another Federal education assistance program due to an
administrative action against the institution;
* Under § 668.171(c)(2)(x), the institution's financial statements reflect a
contribution in the last quarter of the fiscal year and then the institution
made a distribution during the first or second quarter of the next fiscal
year and that action results in a recalculated composite score of less than
1.0, as determined by the Department;
* Under § 668.171(c)(2)(xi), the institution or entity is subject to a default
or other adverse condition under a line of credit, loan agreement, security
agreement, or other financing arrangement due to an action by the Department;
* Under § 668.171(c)(2)(xii), the institution makes a declaration of financial
exigency to a Federal, State, Tribal or foreign governmental agency or its
accrediting agency; or
* Under § 668.171(c)(2)(xiii), the institution, or an owner or affiliate of the
institution that has the power, by contract or ownership interest, to direct
or cause the direction of the management of policies of the institution,
files for a State or Federal receivership, or an equivalent proceeding under
foreign law, or has entered against it an order appointing a receiver or
appointing a person of similar status under foreign law.
Reasons: In the current process, the Department determines annually whether an
institution is financially responsible based on its audited financial statements
along with enforcing the limited number of triggering events existing in current
§ 668.171(c). The triggering events complement the annual financial composite
score process by providing a stronger and more timely way to conduct regular and
ongoing monitoring. Because composite scores are based upon an institution's
audited financial statements, they are only produced once a year and are
typically not calculated until many months after an institution's fiscal year
ends. By contrast, institutions would have to report on triggering events on a
much faster timeline, giving the Department more up-to-date information about
situations that may appreciably change an institution's financial situation. The
Department is concerned that the existing list of financial triggers, which were
reduced in the 2019 Final Borrower Defense Regulations, is insufficient to
capture the full range of events that can represent significant and urgent
threats to an institution's ability to remain financially responsible, putting
students and taxpayer dollars at risk. The Department has seen where the
existing regulatory mandatory triggers, with their inherent limitations, allow
institutions with questionable financial stability to continue without
activating a mandatory trigger which would have called for possible Departmental
action. This includes several situations where the institution ultimately closed
without the Department having any financial protection to offset liabilities,
such as those related to closed school loan discharges for borrowers. When an
Start Printed Page 32357 institution moves toward a status of financial
instability or irresponsibility, the Department increases its oversight and,
when necessary, obtains financial protection from the institution. These
proposed mandatory triggers would remedy the inherent limitations in the current
list of triggers and serve as a tool with which the Department can fulfill its
oversight responsibility, thereby ensuring better protection for students and
taxpayers.
Under the proposed regulations, the Department would determine at the time a
material action or triggering event occurs that the institution is not
financially responsible and seek financial protection from that institution. The
consequences of these actions and triggering events threaten an institution's
ability to (1) meet its current and future financial obligations, (2) continue
as a going concern or continue to participate in the title IV, HEA programs, and
(3) continue to deliver educational services. In addition, these actions and
events call into question the institution's ability or commitment to provide the
necessary resources to comply with title IV, HEA requirements. The proposed
triggers would bring increased scrutiny to institutions that have one or more
indicators of impaired financial responsibility. That increased scrutiny would
often lead to the Department obtaining financial protection from the
institution. This financial protection, usually a letter of credit, funds put in
escrow, or an offset of title IV, HEA funds, is important for the Department to
protect the interests of students and taxpayers in the event of an institutional
closure.
In selecting mandatory triggers, the Department considered a variety of events
and conduct that lead to financial risk. In particular, we looked for situations
in which these events or conduct have resulted in significant impairment to an
institution's financial health, and if the impairment is significant enough,
closure of the institution. This has included some closures that were
precipitous, harming both students and taxpayers.
One category of mandatory triggers includes events or conduct where we have seen
a significant destabilizing effect on an institution's financial health based
upon past Department experience. These events are reflected in the mandatory
triggers for debts and liabilities, judgments, governmental actions, SEC or
regulator action(s) for public institutions, financial exigency, and
receivership. Another category of mandatory triggers includes situations where
institutional conduct might lead to loss of eligibility for title IV if not
promptly remediated, such as high cohort default rates or failing 90/10, as well
as situations involving the loss of access to other Federal educational
assistance programs.
We also considered situations for which we do not yet have historical
experience, but which have the potential to have a similar negative financial
effect. For example, the mandatory triggers related to borrower defense
recoupment and a significant share of title IV, HEA program funds in a failing
GE program or programs have not occurred in high numbers or have yet to occur,
respectively, but they both represent situations in which there would be a known
and quantifiable potential liability or loss in revenue that would likely result
in significant impairment to an institution's financial health, and if the
impairment is significant enough, closure of the institution. Discretionary
triggers, by contrast, indicate elements of concern that merit a closer look but
may not in all circumstances necessitate obtaining financial protection.
Other mandatory triggers protect the Department's oversight capabilities.
Triggers that fall into this category include, for example, situations where
owners attempt to manipulate the institution's composite score by making
contributions and then withdrawing the funds after the end of the fiscal year.
Other triggers in this category include situations in which an outside investor
or lender tries to discourage or hamper Department oversight by imposing
conditions in financing agreements that trigger negative effects for the
institution if the Department were to restrict title IV, HEA funding. Such
situations are designed to do one of two things that weakens oversight. One is
to discourage the Department from acting against an institution since the threat
of financial impairment could cause an institution to become unstable and close,
even if the Department's proposed action is less severe than that. The second is
to make it easier for outside lenders to get paid as soon as an institution
starts to face Department scrutiny. For instance, the Department has in the past
seen institutions with financing arrangements that would make entire loans come
due upon actions by the Department to delay aid disbursement through heightened
cash monitoring. That allows lenders to get paid right away even while the
Department determines if there are greater concerns that might otherwise merit
obtaining financial protection. Making this type of trigger mandatory thus
allows us to address both types of concerning reasons for using such
restrictions in a financing arrangement.
More detail on the individual mandatory triggers follows below.
The Department proposes to amend § 668.171(c)(2)(i)(A) by establishing a
mandatory trigger for institutions with a composite score of less than 1.5 that
are required to pay a debt or incur a liability from a settlement, arbitration
proceeding, or final judgment in a judicial proceeding and that debt or
liability occurs after the end of the fiscal year for which the Secretary has
most recently calculated the institution's composite score, and as a result of
that debt or liability, the recalculated composite score for the institution or
entity is less than 1.0. The proposed trigger is similar to current
§ 668.171(c)(2)(i)(A) but we propose to make two important changes. The first
would expand the scope of the type of legal or administrative action to include
arbitration proceedings. The Department is concerned that their current
exclusion would miss an otherwise similar event that could represent a financial
threat to an institution. The Department also proposes to simplify the way these
proceedings are defined to eliminate the explanation for what constitutes a
determination.
When an institution is subject to the types of debts, liabilities, or losses
covered under proposed § 668.171(c)(2)(i)(A), it negatively impacts the
institution's ability to direct resources to providing instruction and services
to its students. This proposed trigger would focus on institutions that have
already been identified as having a composite score that is less than passing.
We would only seek financial protection from the institution when the
institutional debt, liability or loss pushes the institution's recalculated
composite score to less than 1.0, which is the already established threshold for
a composite score to be considered failing. That financial protection would
protect students from the results of negative consequences, including closure,
that flows out of the institution being subject to these debts, liabilities, or
losses.
Proposed § 668.171(c)(2)(i)(B) would establish a mandatory trigger for
institutions or entities that are sued by a Federal or State authority, to
impose an injunction, establish fines or penalties, or obtain financial relief
such as damages or through a qui tam lawsuit. In the event of a qui tam lawsuit,
this trigger would occur only once the Federal government has intervened. The
trigger would take effect when the action has been pending for 120 days, or a
qui tam has been pending Start Printed Page 32358 for 120 days following
intervention, and no motion to dismiss has been filed, or if a motion to dismiss
has been filed within 120 days and denied, upon such denial.
Institutions subject to these types of actions are likely to have their
financial stability negatively impacted. Institutions with triggering events
described here are, in our view, at increased risk of possible closure.
Financial protection would be obtained to offset the negative impacts of a
possible closure placed upon students and taxpayers.
A version of this trigger had been included in the 2016 final borrower defense
regulations but was removed in the 2019 borrower defense final rule on the
grounds that the Department wanted to focus on actual liabilities owed rather
than theoretical amounts and to wait for lawsuits to be final before seeking to
recover liabilities. However, as the Department continues to improve its work
overseeing institutions of higher education, we are concerned that waiting until
multi-year proceedings are final undermines the purpose of taking proactive
actions to protect the Federal fiscal interest. The trigger as structured here
is designed to capture lawsuits that indicate significant levels of action and
government involvement. These are not particularly common, are not brought
lightly, and only involve a non-governmental actor if it is a qui tam lawsuit in
which the Federal government has intervened. Moreover, the Department is
concerned that waiting until the proceedings finish increases the risk that an
institution that fails in an appeal would simply shut down immediately. By
contrast, financial protection received can always be returned to the
institution if the issues that necessitated it is resolved.
The Department is proposing to add § 668.171(c)(2)(i)(C) related to financial
protection when the Department has adjudicated borrower defense claims in favor
of borrowers and is seeking to recoup the cost of those discharges through an
administrative proceeding. An institution would meet this trigger if a
recalculated composite score that included this potential liability results in a
composite score below 1.0.
The structure of this trigger acknowledges the circumstances under which an
institution could be subject to recoupment actions tied to approved borrower
defense applications under the final rule published on November 1, 2022.[127]
Specifically, that rule establishes a single framework for reviewing all claims
pending on July 1, 2023, or received on or after that date. This is different
from prior borrower defense regulations, which apply different standards
depending on a student loan's original disbursement date. That regulation states
that an institution would not be subject to recoupment if the claim would not
have been approved under the standard in effect at the time the loan was
disbursed. Therefore, the trigger associated with approved borrower defense
claims would not apply to claims that are approved but ineligible for recoupment
under the new borrower defense regulation. Obtaining financial protection will
help to ensure that there are institutional funds available to pay loan
discharges if such discharges arise and are applicable, reducing the need for
public funds to meet this obligation.
A similar trigger to this proposal was included in the 2016 Final Borrower
Defense Regulations. That trigger was reduced in scope when financial
responsibility standards were eliminated or lessened in the 2019 Final Borrower
Defense Regulations. The rationale for limiting this trigger in 2019 was to
restrict this trigger to what, at that time, was considered “known and
quantifiable” amounts. An example of a known and quantifiable trigger was an
actual liability incurred from a lawsuit. A known and quantifiable trigger was
one whose consequences posed such a severe and imminent risk ( e.g., SEC or
stock exchange actions) to the Federal interest that financial protection was
warranted. This revised trigger would result in a known and quantifiable amount
because the Department informs the institution of the amount of liability it is
seeking when it initiates a recoupment action. The recalculation requirement
also ensures that if the institution would still have a passing composite score,
then they would not have to provide additional surety. For those that would have
a failing score, this trigger simply ensures that if an institution does not
prevail in any sort of recoupment action that the Department would have
sufficient resources on hand to fulfill the liability. Absent this protection,
there is a risk the institution would not have the resources to pay the
liability by the time that proceeding is final.
Further, proposed § 668.171(c)(2)(i)(D) would apply to institutions undergoing a
change in ownership for a period of time commencing with their approval to
participate in the title IV, HEA programs through the end of the institution's
second full fiscal year following certification. The Department proposes to add
this condition because we are concerned that institutions may be in a vulnerable
position in the period after a change in ownership as the new owners acclimate
to managing the institution. Greater scrutiny of these situations is thus
warranted.
The Department proposes to move the current § 668.171(c)(1)(i)(B) and (ii) into
a replacement of § 668.171(c)(2)(ii) to establish a mandatory trigger for
institutions where an owner withdraws some amount of his or her equity in the
institution when that institution has a composite score of less than 1.5 (the
threshold considered passing) and the withdrawal of equity results in a
recalculated composite score of less than 1.0 (the threshold considered
failing). This relocated trigger clarifies that this requirement would also
apply to institutions undergoing a change in ownership for the year following
that change. This trigger would apply to institutions that have a calculated
composite score that is not passing and have already demonstrated some financial
instability. This demonstration of financial instability creates a situation
where the Department would obtain financial protection from an institution.
The Department proposes to add § 668.171(c)(2)(iii) to establish a mandatory
trigger for institutions that received at least 50 percent of its title IV, HEA
program funds in its most recently completed fiscal year from gainful employment
(GE) programs that are “failing.” The 2016 Final Borrower Defense Regulations
included a mandatory trigger linked to the number of students enrolled in
failing GE programs. The 2019 Final Borrower Defense Regulations removed that
trigger due to the regulations regarding GE programs being rescinded in a final
rule published in the Federal Register on July 1, 2019.[128] This trigger
contained in this proposed rule would be linked to the implementation of
regulations in part 668, subpart S, governing gainful employment programs. The
Department would be able to obtain financial protection from an institution when
its revenue is negatively impacted when the GE programs it offers fail the
Department's GE metrics. The Department believes reinstating this trigger is
necessary because the potential loss of revenue from failing GE programs would
have a negative impact on the institution's overall financial stability when it
represents such a significant share of the institution's revenue. The Department
proposes the trigger occurring when 50 percent of an institution's title IV, HEA
volume is in failing GE programs. The Start Printed Page 32359 Department uses
percentage thresholds to require financial protection when there is more than an
insignificant failure in compliance. For example, under 668.173(b), an
institution fails to meet the reserve standards under § 668.173(a)(3) if the
institution failed to timely return unearned title IV, HEA funds for 5 percent
or more students in a sample. In that circumstance, the financial protection is
25 percent of the total amount of unearned funds. For the failing GE programs,
the Department determined that a 50 percent failure is reasonably related to the
required financial protection of 10 percent of the institution's title IV, HEA
funding because the institution is at risk of losing a majority of its title IV
program revenue due to failure of some or all of its GE programs.
The Department proposes to add § 668.171(c)(2)(iv) to establish a mandatory
trigger for institutions required to submit a teach-out plan or agreement. This
mandatory trigger was originally implemented in the 2016 Final Borrower Defense
Regulations and was subsequently removed in the 2019 Final Borrower Defense
Regulations. The rationale in 2019 was that teach-outs were primarily the
jurisdiction of accrediting agencies. The Department stated in the discussion
section of that final rule that accrediting agencies are required to approve
teach-out plans at institutions under certain circumstances, which demonstrates
how important these plans are to ensuring that students have a chance to
complete their instructional program in the event their school closes. At that
time, we sought to incentivize teach-outs, and determined that linking a
teach-out to a financial trigger was not an incentive. However, the Department
has not seen any evidence that the efforts to incentivize teach-out plans or
agreements through accreditors has reduced the number of institutions that close
without a teach-out plan or agreement in place. Instead, the Department
continues to witness disruptive and ill-planned closures where the institution
has not made any arrangements for where students might transfer and complete
their programs. Even when the school survives after a teach-out, the
circumstances that could lead to such a request make it likely that the school's
revenues will be significantly reduced and will be indicative of ongoing
financial instability. We propose to re-implement this mandatory trigger so that
we can obtain financial protection from institutions that are in this status.
When an institutional closure is imminent, regardless if it is one location or
the entire institution, obtaining financial protection from the institution as
soon as possible is necessary to protect the interests of students who will be
negatively affected by the closure. Financial protection is also necessary to
protect the interests of taxpayers who would have to provide funds for costs and
obligations emanating from the closure, e.g., payment of loan discharges. While
a closed institution bears responsibility for reimbursing the Department for
student loans discharged due to the closure, the actual recoupment of those
funds takes place very rarely due to the institution ceasing to exist. This
further illustrates the necessity for financial protection from institutions in
this status.
The Department proposes to add § 668.171(c)(2)(v) by to establish a mandatory
trigger for institutions cited by a State licensing or authorizing agency for
failing to meet State or agency requirements when the agency provides notice
that it will withdraw or terminate the institution's licensure or authorization
if the institution does not take the steps necessary to come into compliance
with that requirement. The 2016 Final Borrower Defense Regulations had a similar
mandatory trigger to this proposed trigger. The 2019 Final Borrower Defense
Regulations added the language stating that the authorizing agency would
terminate the institution's licensure or authorization if the institution did
not comply; however, the 2019 Final Borrower Defense Regulations relegated this
trigger to the discretionary category. We propose to keep the language added in
the 2019 Final Borrower Defense Regulations but recategorize this trigger as
mandatory. State authorization, or similar authorization from a governmental
entity, is a fundamental factor of institutional eligibility. If an institution
loses that factor, it would lose the ability to participate in the title IV, HEA
programs. That loss of eligibility would significantly increase the likelihood
that an institution may close. The seriousness of that potential occurrence is
so great that the Department does not believe there are circumstances where it
would not be appropriate to request financial protection. Accordingly, we think
this is more appropriate as a mandatory trigger rather than a discretionary one.
The Department proposes to add § 668.171(c)(2)(vi) to establish a mandatory
trigger for institutions that are directly or indirectly owned at least 50
percent by an entity whose securities are listed on a domestic or foreign
exchange and that entity is subject to one or more actions or events initiated
by the U.S. Securities and Exchange Commission (SEC) or the exchange where the
securities are listed. This mandatory trigger is, for the most part, in current
regulation in § 668.171(c)(2). Our proposal would clarify that if the SEC files
an action against the entity in district court or issues an order instituting
proceedings pursuant to section 12(j) of the Exchange Act, that action would be
a triggering event. The Department views either of these as actions we would
take only when the SEC has identified and vetted serious issues, signaling
increased risk to students attending those affected entities.
We further clarify that “exchanges” includes both domestic and foreign exchanges
where the entity's securities may be traded. We recognize that some entities
owning schools have stocks that are traded on foreign exchanges, and we believe
similar actions initiated in those foreign exchanges or foreign oversight
authorities warrant equivalent treatment under these proposed regulations.
The proposed trigger would enable the Department to obtain financial protection
in situations where the SEC, a foreign or domestic exchange, or a foreign
oversight authority, takes an action that potentially jeopardizes the
institution's financial stability. This surety would protect the interests of
the institution's students and the interests of taxpayers, both of whom can be
negatively impacted by an institution's faltering financial stability.
The Department proposes to add § 668.171(c)(2)(vii) to establish a mandatory
trigger for proprietary institutions where, in its most recently completed
fiscal year, an institution did not receive at least 10 percent of its revenue
from sources other than Federal educational assistance. The financial protection
provided under this requirement will remain in place until the institution
passes the 90/10 revenue requirement for two consecutive fiscal years. A
mandatory trigger linked to the 90/10 revenue requirement was included in the
2016 Final Borrower Defense Regulations and it was reduced to a discretionary
trigger in the 2019 Final Borrower Defense Regulations. Both of those triggers
were linked to the then applicable rule which prohibited a proprietary
institution from obtaining greater than 90 percent of its revenue from the title
IV, HEA programs. The American Rescue Plan of 2021 [129] amended section 487(a)
of the HEA requiring that proprietary institutions Start Printed Page 32360
derive not less than 10 percent of their revenue from non-Federal sources.
Therefore, we propose to expand the 90/10 requirement to include all Federal
educational assistance in the calculation as opposed to only including title IV,
HEA assistance. An institution that fails the 90/10 requirement is at
significant risk of losing its ability to participate in the title IV, HEA
programs, which could put it in extreme financial jeopardy. Since the 90/10
requirement now includes all Federal educational assistance, it is possible that
some institutions that previously met this threshold under the prior rule no
longer would. The possibility for an increased number of institutions falling
into this category warrants making this a mandatory trigger. Obtaining financial
protection from an institution in this status is essential to protect students
and taxpayers from an institution's potential loss of access to title IV, HEA
funds and from a possible institutional closure and its negative consequences.
The Department proposes to add § 668.171(c)(2)(viii) to establish a mandatory
trigger for institutions whose two most recent official cohort default rates
(CDR) are 30 percent or greater, unless the institution files a challenge,
request for adjustment, or appeal with respect to its rates for one or both of
those fiscal years; and that challenge, request, or appeal remains pending,
results in reducing below 30 percent the official CDR for either or both of
those years, or precludes the rates from either or both years from resulting in
a loss of eligibility or provisional certification.
This trigger was included as a mandatory trigger in the 2016 Final Borrower
Defense Regulations, and it was reduced to a discretionary trigger in the 2019
Final Borrower Defense Regulations. The rationale in 2019 for categorizing this
trigger as discretionary was based on the idea that it was more appropriate to
allow the Department to review the institution's efforts to improve their CDR
before obtaining financial protection. As part of that review, the Department
would evaluate whether the institution had acted to remedy or mitigate the
causes for its CDR failure or to assess the extent to which there were anomalous
or mitigating circumstances precipitating this triggering event, before
determining whether we needed to obtain financial protection. Part of that
review was to include evaluating the institution's response to the triggering
event to determine whether a subsequent failure was likely to occur, based on
actions the institution is taking to mitigate its dependence on title IV, HEA
funds. This included the extent to which a loss of title IV, HEA funds due to a
CDR failure would affect its financial condition or ability to continue as a
going concern, or whether the institution had challenged or appealed one or more
of its default rates. We now propose to raise this trigger to the mandatory
classification because of the serious consequences attached to CDRs at this
level. Institutions with high CDRs are failing to meet the standards of
administrative capability under § 668.16(m). Further, institutions with high
CDRs are subject to the following sanctions:
* An institution with a CDR of greater than 40 percent for any one year loses
eligibility to participate in the Federal Direct Loan Program.
* An institution with a CDR of 30 percent or more for any one year must create
a default prevention taskforce that will develop and implement a plan to
address the institution's high CDR. That plan must be submitted to the
Department for review.
* An institution with a CDR of 30 percent or more for two consecutive years
must submit to the Department a revised default prevention plan and may be
placed on provisional certification.
* An institution with a CDR of 30 percent or more for three consecutive years
loses eligibility to participate in both the Direct Loan Program and in the
Federal Pell Grant Program.
Institutions subject to these sanctions will generally find themselves at risk
of losing eligibility to participate in some title IV, HEA programs resulting in
a decreased revenue flow. This circumstance is often a harbinger of an
institution's financial distress and possible closure. Obtaining financial
surety from an institution immediately after the institution finds itself in
this status is necessary to offset any costs associated with an institutional
closure and to alleviate any possible harm to students or taxpayers.
The Department proposes to add § 668.171(c)(2)(ix) to establish a mandatory
trigger for institutions that have lost eligibility to participate in another
Federal educational assistance program due to an administrative action against
the school. This would be a new trigger not previously included in other
regulations. The Department is aware of some institutions that have lost their
eligibility to participate in Federal educational assistance programs overseen
by agencies other than the Department. Institutions in that status have
generally demonstrated some weakness or some area of noncompliance resulting in
their loss of eligibility. That weakness or noncompliance may also be an
indicator of the institution's lack of administrative capability to administer
the title IV, HEA programs. Further, the institution will likely suffer some
negative impact on its revenue flow linked to its loss of eligibility to
participate in the program. In either or both events, we propose that the
Department obtain financial protection from institutions in this category to
protect students and taxpayers from any negative consequences, including the
possible closure of the institution, associated with its loss of eligibility to
participate in the educational assistance program.
The Department proposes to add § 668.171(c)(2)(x) to establish a mandatory
trigger for institutions whose financial statements required to be submitted
under § 668.23 reflect a contribution in the last quarter of the fiscal year,
and the institution then made a distribution during the first two quarters of
the next fiscal year; and the offset of such distribution against the
contribution results in a recalculated composite score of less than 1.0, as
determined by the Department. This would be a new mandatory trigger. The
Department has seen examples of institutions who seek to manipulate their
composite score calculations by having a contribution made late in the fiscal
year, raising the composite score for that fiscal year typically by enough so
that it passes. However, the same institutions then make a distribution in the
same or a similar amount early in the following fiscal year. This removes
capital from the school and means that it is operating in a situation that may
not demonstrate financial responsibility. With this proposal, we would obtain
financial protection from an institution engaging in this pattern of behavior
when that pattern results in a recalculated composite score of less than 1.0.
Institutions engaging in this pattern of behavior generally do so to boost the
apparent financial strength of the annual audited financial statements to avoid
a failing composite score. Obtaining financial protection from institutions in
this status is necessary to protect students and taxpayers from the negative
consequences that can appear at institutions such as these.
The Department proposes to add § 668.171(c)(2)(xi) to establish a mandatory
trigger for institutions that, as a result of Departmental action, the
institution or any entity included in the financial statements submitted in the
current or prior fiscal year is subject to a default or other adverse condition
under a line of credit, loan agreement, security agreement, or other financing
arrangement. This proposed mandatory Start Printed Page 32361 trigger is similar
to an existing discretionary trigger, but the existing trigger discusses actions
of creditors in general and does not separately address creditor events linked
to Departmental actions. We propose to make this trigger mandatory due to the
negative financial consequences that can follow instances when these actions
occur. Actions like these negatively impact the resources an institution has
available for normal institutional operations and in the worst cases, events
like these can lead to the closure of an institution. It is important for the
Department to be aware of institutions subject to creditor events linked to this
trigger as soon as possible and to offset the financial instability created by
this situation by obtaining financial protection.
The Department proposes to add § 668.171(c)(2)(xii) to establish a mandatory
trigger for when an institution declares a state of financial exigency to a
Federal, State, Tribal, or foreign governmental agency or its accrediting
agency. Institutions experiencing substantial financial challenges sometimes
make such declarations in an effort to justify significant changes to the
institution, including elimination of academic programs and reductions of
administrative or instructional staff. Although such declarations are typically
not made unless the institution experiences severe financial hardship, in many
cases threatening the institution's survival, the Department's regulations do
not currently require an institution to report such status to the Department.
The Department may not learn about an institution's financial challenges until
an accrediting agency or governmental agency informs us or we learn of it from
the media. This proposed trigger is necessary to ensure that the institution
quickly informs the Department of any declaration of financial exigency and
enables us to obtain financial protection to protect the interests of students
and taxpayers.
The Department proposes to add § 668.171(c)(2)(xiii) to establish a mandatory
trigger for when an institution is voluntarily placed, or is required to be
placed, in receivership. We currently have little ability to act when an
institution is in this situation, which indicates severe financial distress.
This trigger would allow us greater ability to require financial protection
while a receiver manages the funds. In recent years the Department has seen
three high profile institutional failures where institutions entered into a
receivership and the Department was unable to obtain sufficient financial
protection before they closed.
FINANCIAL RESPONSIBILITY—DISCRETIONARY TRIGGERING EVENTS (§ 668.171)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.171(d) contains several discretionary
triggering events impacting an institution's financial responsibility. The
current discretionary triggers are these instances:
* The institution is subject to an accrediting agency action that could result
in a loss of institutional accreditation;
* The institution is found to have violated a provision or requirement in a
security or loan agreement;
* The institution has a high dropout rate; The institution's State licensing or
authorizing agency notifies the institution that it has violated a State
licensing or authorizing agency requirement and that the agency intends to
withdraw or terminate the institution's licensure or authorization if the
institution does not take the steps necessary to come into compliance with
that requirement;
* For its most recently completed fiscal year, a proprietary institution did
not receive at least 10 percent of its revenue from sources other than title
IV, HEA program funds; or
* The institution's two most recent official CDRs are 30 percent or greater.
Proposed Regulations: The Department proposes to amend § 668.171(d) to establish
a stronger and more expansive set of discretionary triggering events that would
assist the Department in determining if an institution is able to meet its
financial or administrative obligations. This includes amending some existing
triggers, moving some discretionary triggers into the list of mandatory triggers
in paragraph (c) of this section, and adding new ones. Unlike the mandatory
triggers, if any of the discretionary triggers occurs, the Department would
determine if the event is likely to have a material adverse effect on the
financial condition of the institution. If we make that determination, we would
obtain financial protection from the institution. The proposed discretionary
triggers are when:
* Under § 668.171(d)(1), the institution's accrediting agency or a Federal,
State, local or Tribal authority places the institution on probation, issues
a show-cause order, or places the institution in a comparable status that
poses an equivalent or greater risk to its accreditation, authorization, or
eligibility;
* Under § 668.171(d)(2)(i) and (ii), except as provided in proposed
§ 668.171(c)(2)(xi), the institution is subject to a default or other
condition under a line of credit, loan agreement, security agreement, or
other financing arrangement; and a monetary or nonmonetary default or
delinquency or other event occurs that allows the creditor to require or
impose an increase in collateral, a change in contractual obligations, an
increase in interest rates or payments, or other sanctions, penalties, or
fees;
* Under § 668.171(d)(2)(iii), except as provided in proposed
§ 668.171(c)(2)(xi), any creditor of the institution or any entity included
in the financial statements submitted in the current or prior fiscal year
under § 600.20(g) or (h), § 668.23, or subpart L of this part takes action to
terminate, withdraw, limit, or suspend a loan agreement or other financing
arrangement or calls due a balance on a line of credit with an outstanding
balance;
* Under § 668.171(d)(2)(iv), except as provided in proposed
§ 668.171(c)(2)(xi), the institution or any entity included in the financial
statements submitted in the current or prior fiscal year under 34 CFR
600.20(g) or (h), § 668.23, or subpart L of this part enters into a line of
credit, loan agreement, security agreement, or other financing arrangement
whereby the institution or entity may be subject to a default or other
adverse condition as a result of any action taken by the Department; or
* Under § 668.171(d)(2)(v), the institution or any entity included in the
financial statements submitted in the current or prior fiscal year under 34
CFR 600.20(g) or (h), § 668.23, or this subpart L has a monetary judgment
entered against it that is subject to appeal or under appeal;
* Under § 668.171(d)(3), the institution displays a significant fluctuation in
consecutive award years, or a period of award years, in the amount of Direct
Loan or Pell Grant funds received by the institution that cannot be accounted
for by changes in those title IV, HEA programs;
* Under § 668.171(d)(4), an institution has high annual dropout rates, as
calculated by the Department;
• Under § 668.171(d)(5), an institution that is required to provide additional
financial reporting to the Department due to a failure to meet the regulatory
financial responsibility standards and has any of these Start Printed Page 32362
indicators: negative cash flows, failure of other liquidation ratios, cash flows
that significantly miss projections, significant increased withdrawal rates, or
other indicators of a material change in the institution's financial condition;
* Under § 668.171(d)(6), the institution has pending claims for borrower relief
discharges from students or former students and the Department has formed a
group process to consider claims and, if approved, those claims could be
subject to recoupment. Our goal is to determine if the pending claims for
borrower relief, when considered along with any other financial triggers,
pose any threat to the institution to the extent that a potential closure
could result. If we believe such a threat exists, we would seek financial
protection to protect the interests of the institution's students and the
taxpayers;
* Under § 668.171(d)(7), the institution discontinues academic programs that
enroll more than 25 percent of students at the institution; Under
§ 668.171(d)(8), the institution closes more than 50 percent of its
locations, or closes locations that enroll more than 25 percent of its
students. Locations for this purpose include the institution's main campus
and any additional location(s) or branch campus(es) as described in § 600.2;
* Under § 668.171(d)(9), the institution is cited by a State licensing or
authorizing agency for failing to meet requirements;
* Under § 668.171(d)(10), the institution has one or more programs that has
lost eligibility to participate in another Federal educational assistance
program due to an administrative action;
* Under § 668.171(d)(11), at least 50 percent of the institution is owned
directly or indirectly by an entity whose securities are listed on a domestic
or foreign exchange and the entity discloses in a public filing that it is
under investigation for possible violations of State, Federal or foreign law.
* Under § 668.171(d)(12), the institution is cited by another Federal agency
and faces loss of education assistance funds if it does not comply with the
agency's requirements.
Reasons: The Department is concerned that there are many factors or events that
are reasonably likely to, but would not in every case, have an adverse financial
impact on an institution. Compared to the mandatory triggers where the impact of
an action or event can be reasonably and readily assessed ( e.g., where claims,
liabilities, and potential losses are reflected in the recalculated composite
score), the materiality or impact of the discretionary triggers is not as
apparent and obtaining financial protection in every situation may not be
appropriate. The Department would have to conduct a case-by-case review and
analysis of the factors or events applicable to an institution to determine
whether one or more of those factors or events has an adverse financial impact.
In so doing, the Department may request additional information or clarification
from the institution about the circumstances surrounding the factors or events
under review. If we determine that the factors or events have a significant
adverse effect on the institution's financial condition or operations, we would
notify the institution of the reasons for, and consequences of, that
determination. When an institution moves toward a status of financial
instability or irresponsibility, it is necessary for the Department to be aware
of that at the earliest possible time so that the situation can be addressed.
These proposed discretionary triggers would be a tool with which the Department
can pursue that charge.
While there are existing discretionary triggers, the Department is concerned
that the current regulations are too limiting. They exclude too many situations
where institutions with questionable financial stability could continue to
operate without a streamlined mechanism for the Department to receive additional
financial protection. The current triggers also do not include certain events
that may be precursors to later more concerning events, such as an institution
first being placed on probation and then later having to show cause with an
accreditation agency. Having these discretionary triggers occur earlier in what
could end up being a series of events that results in an institution's impaired
financial stability increases the likelihood that the Department would be able
to obtain financial protection from institutions while they still possess the
resources to comply.
Absent stronger triggers, the Department is concerned that it will expose
taxpayers to unnecessarily significant risk of uncompensated discharges tied to
institutional closures or approved borrower defense claims. These new proposed
triggers would also deter overly risky behavior, as institutions would know
there is a possibility that they could be required to provide additional
financial protection if they engage in behavior that leads to violating
financing arrangements, an increase in borrower defense claims, or other actions
that indicate broader financial problems with an institution.
The Department proposes to amend § 668.171(d)(1) by establishing a discretionary
trigger for situations where the institution's accrediting agency or a Federal,
State, local or Tribal authority places the institution on probation or issues a
show-cause order or places the institution in a comparable status that poses an
equivalent or greater risk to its accreditation, authorization, or eligibility.
We further propose to expand this requirement to include compliance actions
initiated by governmental oversight and authorizing agencies since their actions
can be equally impactful on the institution's status. This proposal is similar
to two separate triggers that currently exist, and which were implemented in the
2019 Final Borrower Defense Regulations. This proposal expands and strengthens
the trigger to include institutions that are placed on probation by their
accrediting agency. This proposal uses similar language to a trigger linked to
accrediting agency actions that was implemented in the 2016 Final Borrower
Defense Regulations. The 2019 Final Borrower Defense Regulations kept
accrediting agency actions as a discretionary trigger but eliminated probation
as an action that would activate this trigger. We are now concerned that the
existing trigger is too limited in considering the types of situations that
represent significant concerns from accreditors, especially given the desire to
request financial protection before an institution is on the brink of closure.
It is not uncommon for institutions to be placed on probation before later
ending up on show cause—the status that currently activates a discretionary
trigger. Adding probation provides a path for the Department to take a closer
look at an institution before it is at the most serious stage of accreditor
actions. Institutions that are categorized by their accreditors as being on
probation, having to show cause, or having their accreditation status placed at
risk may be under stresses that would have a direct impact on their financial
stability. The proposed trigger includes compliance actions initiated by
governmental oversight or authorizing agencies. The current regulatory trigger,
implemented in the 2019 Final Borrower Defense Regulations, is similar to this
and is linked to a State licensing or authorizing agency taking action against
the institution in which the agency will move to withdraw or terminate the
institution's licensure or Start Printed Page 32363 authorization. The proposal
would combine the actions taken by an accrediting agency and those taken by
governmental oversight or authorization agencies into one discretionary trigger.
Because this is a discretionary trigger, the Department would be able to examine
why an institution is placed on probation or other statuses to determine if they
do indicate severe enough situations that financial protection is warranted.
The Department proposes to amend § 668.171(d)(2) by establishing a discretionary
trigger for situations where the institution is subject to a default or other
condition under a line of credit, loan agreement, security agreement, or other
financing arrangement; and a monetary or nonmonetary default or delinquency or
other event occurs that allows the creditor to require or impose an increase in
collateral, a change in contractual obligations, an increase in interest rates
or payments, or other sanctions, penalties, or fees. This would capture
situations that are similar to but not otherwise addressed by the mandatory
trigger in proposed § 668.171(c)(2)(xi). This proposed discretionary trigger is
similar to a discretionary trigger that was implemented in the 2016 Final
Borrower Defense Regulations and was retained in the 2019 Final Borrower Defense
Regulations. The proposed regulation would clarify that the rule includes not
only the institution but also any entity included in the financial statements
submitted in the current or prior fiscal year under §§ 600.20(g) or (h), 668.23,
or subpart L of part 668.
The Department is concerned that the situations described in this trigger could
result in an institution or associated entity suddenly needing to remove
significant resources from the institution, such as to put up greater collateral
or to address a sudden increase in the costs of servicing its debt. Such
situations mean that an institution or associated entity that may have seemed
financially responsible is now in a situation where they cannot afford their
debt payments or may be at other risk of significantly negative financial
outcomes. Moreover, including these items makes it possible for the Department
to be aware earlier about the possible need for financial protection from the
institution, improving our ability to protect students' and taxpayers'
interests. However, given that institutions and their associated entities may
have a significant number of creditors and contracts, we think it is prudent to
treat this as a discretionary trigger so that the Department is able to better
analyze the specific facts of the situation and then determine what degree of a
threat to an institution's financial health it represents.
The Department proposes to further amend § 668.171(d)(2) by establishing a
discretionary trigger for judgments awarding damages or other monetary relief
that are subject to appeal or under appeal. Even if under appeal, such judgments
against institutions or their owners should not be taken lightly because they
may negatively impact the institution's financial strength in the future.
Additionally, appeals of such judgments can and often do take years to resolve.
In the event the Department determines that the potential liability resulting
from the judgment against the institution or entity could have a significant
adverse effect on the institution, the Department believes it should be able to
take sensible steps to protect the Federal fiscal interest during the pendency
of those proceedings.
The Department proposes to amend § 668.171(d)(3) to establish a discretionary
trigger for situations where the institution displays a significant fluctuation
in consecutive award years, or a period of award years, in the amount of Federal
Direct Loan or Federal Pell Grant funds received by the institution that cannot
be accounted for by changes in those title IV, HEA programs. This proposed
discretionary trigger is similar to a discretionary trigger that was implemented
in the 2016 Final Borrower Defense Regulations and was subsequently removed in
the 2019 Final Borrower Defense Regulations. The rationale at that time for
removing this trigger was that fluctuation in these program funds did not
indicate financial instability at the institution. Additionally, we stated that
linking Pell Grant fluctuations to a discretionary trigger would harm low-income
students because it would discourage institutions from serving students who rely
on Pell Grants. However, we have observed that significant increases or
decreases in the volume of Federal funds may signal rapid contraction or
expansion of an institution's operations that may either cause, or be driven by,
negative turns in the institution's financial condition or its ability to
provide educational services. A significant contraction in aid received may
indicate that an institution is struggling to attract students and may be at
risk of closure. On the other hand, an institution that grows rapidly may
present risks that its growth will outpace its capacity to serve students well.
In the past, the Department has seen situations, particularly among publicly
traded private for-profit institutions, where institutions experienced
hypergrowth, resulting in significant concerns about the value delivered,
followed a few years later by a significant contraction, and, in some cases,
closure. Being aware of this status at an earlier time than provided under
current regulations allows us to seek financial protection from the institution
when we determine that it is necessary to protect students' and taxpayers'
interests. In evaluating this trigger again, we have come to disagree with the
way we framed our concerns around the effect of this trigger on low-income
students in the 2019 regulation. The institutions with the largest shares of
Pell Grant recipients are open access institutions, meaning they accept any
qualified applicant without consideration of that student's finances. The
institutions with the lowest shares of low-income students, by contrast, tend to
be the institutions that reject the most students and have the greatest
financial resources. Because these aspects are core to an institution's
structure and mission, we do not see a circumstance where this trigger might
affect an institution's decision on the type of students to serve. We also
believe that it is important to ensure that low-income students have access to
educational options at financially stable institutions offering a high-quality
education and are not attending schools that may be at risk of sudden closure.
The Department proposes to amend § 668.171(d)(5) to establish a discretionary
trigger for when an institution is required to provide additional interim
financial reporting to the Department due to a failure to meet the regulatory
financial responsibility standards or due to a change in ownership and has any
of these indicators: negative cash flows, failure of other liquidation ratios,
cash flows that significantly miss projections, significant increased withdrawal
rates, or other indicators of a material change in the institution's financial
condition. This proposed discretionary trigger is new. It would only apply to
those institutions that fail to meet the financial responsibility standards in
subpart L of part 668 or experience a change in ownership. Additionally, one or
more of the indicators mentioned in the proposed rule—negative cash flows,
failure of other liquidation ratios, cash flows that significantly miss the
projections submitted to the Department, withdrawal rates that increase
significantly, or other indicators of a material change in the financial
condition of the institution—would have to be present for the trigger Start
Printed Page 32364 to apply. These indicators are of sufficient severity that it
is important for the Department to examine the overall financial picture of the
institution and determine if financial protection would be required to protect
the interests of students and taxpayers.
The Department proposes to amend § 668.171(d)(6) to establish a discretionary
trigger for when an institution has pending claims for borrower defense
discharges from students or former students and the Department has formed a
group process to consider claims. This would only apply in situations where, if
approved, the institution might be subject to recoupment for some or all of the
costs associated with the approved group claim. This proposed discretionary
trigger is similar to a discretionary trigger that was implemented in the 2016
Final Borrower Defense Regulations and was subsequently removed in the 2019
Final Borrower Defense Regulations due to the burden placed on institutions with
borrower defense claims, that were otherwise financially stable. At the time the
Department argued that the amounts associated with an institution's borrower
defense claims were estimates and could create false-positive outcomes resulting
in a financially responsible institution having to inappropriately provide
financial protection. Further, it was believed that this false-positive
situation would impose a significant burden on the Department to monitor and
analyze an institution that was financially responsible. However, we have
reconsidered our position and adjusted the trigger to address some of our
previously stated concerns. First, we have clarified that this trigger applies
to group processes, not just decisions on individual claims. To date, groups of
borrowers who have received loan discharges based upon borrower defense findings
have been very large, representing tens of millions of dollars. The formation of
the group process also occurs after the review of evidence and a response from
the institution, so there is already some consideration of the relevant evidence
before this trigger would potentially be met. Furthermore, this would be a
discretionary trigger, so the Department would be required to assess to assess
the institution's financial stability and determine if the borrower defense
claims pose a threat to the institution's financial responsibility. That would
mean that a group process involving a very small number of claims would be less
likely to result in a request for financial protection, especially if the
institution is large and otherwise financially stable. If it is determined that
the group process is a real financial threat, it is only then that financial
protection would be obtained from the institution. The Department believes it is
important that institutions be held accountable when they take advantage of
student loan borrowers. Unfortunately, the Department has often observed that an
institution has closed long before a borrower defense process concludes. Asking
for financial protection earlier in the process increases the likelihood that
the Department would be able to offset losses from a group claim that is later
approved.
The Department intentionally limits this trigger to situations where there may
be a recoupment action. The borrower defense rule published on November 1,
2022,[130] notes that institutions would not be subject to recoupment in
situations in which the claims would not have been approved under the standards
in place when loans were first disbursed. Since the Department is concerned with
whether an approved group claim could result in a significant liability for an
institution that could create financial problems it would not be appropriate to
have this trigger occur if the Department was not going to seek to recoup on
that discharge if it is approved.
The Department proposes to add § 668.171(d)(7) by establishing a discretionary
trigger for when an institution discontinues academic programs that affect more
than 25 percent of enrolled students. This would be a new discretionary trigger.
The Department is concerned that ending programs that affect a significant share
of enrollment may be a precursor to an overall closure of the entire
institution. While the ending of any program that negatively impacts any
students is a matter of concern for the Department, we propose that the
cessation of a program or programs that enroll 25 percent of an institution's
students is the threshold that we would evaluate the institution's financial
stability to ensure the termination of the programs has not negatively impacted
the institution's financial status.
The goal of this trigger is to identify a situation in which the share of
enrollment affected by a program or location closure is significant enough that
it merits further institution-specific analysis to determine if the closure
suggests a sufficiently large financial impairment where greater protection
would be warranted. The Department chose this 25 percent threshold because we
believe that could indicate a serious impairment to an institution's finances
that merits a closer and case-by-case review. By way of example, we believe a
threshold at this level would allow us to capture the situation where an
institution closed all of its programs in a given degree level, only to later
shutter the entire institution. As with other triggers, this ability to take a
closer look is important because historically the Department has collected very
little funds to offset the costs of closed school discharges after an
institution goes out of business.
The Department proposes to add § 668.171(d)(8) by establishing a discretionary
trigger for when an institution closes more than 50 percent of its locations or
closes locations that enroll more than 25 percent of its students. Locations for
this purpose include the institution's main campus and any additional
location(s) or branch campus(es) as described in § 600.2. This would be a new
discretionary trigger. This proposed discretionary trigger is similar to the
trigger linked to an institution terminating academic programs in that an
institution closing locations in this number may be a harbinger of an imminent
closure of the institution. The Department chose the threshold of more than 25
percent of enrolled students for the same reasons that it selected that level
for the discontinuation of academic programs.
This trigger considers closures both in terms of the number of campus closures
as well as separately considering the amount of enrollment at locations. Both
can be concerns. For instance, the Department has seen instances where an
institution started closing a number of its additional locations before later
shuttering its main campus. We propose the threshold of more than 50 percent of
an institution's locations closing as that number of locations, regardless of
the percentage of students impacted, may indicate an overall lack of financial
stability. A negotiator in the negotiated rulemaking process stated that an
institution may be strengthening its financial status by closing locations with
zero or very low enrollment or usage. We acknowledge that and believe that our
evaluation as a result of this proposed trigger would make that very
determination. If an institution is made financially stronger, then financial
protection would not be necessary but if the institution is made weaker by the
closure of more than half of its locations, then we would obtain financial
protection to ensure that students and taxpayers are protected in the event of
an overall institutional closure. Similarly, this analysis could Start Printed
Page 32365 consider if the locations being closed are in fact sizable sources of
an institution's enrollment versus being small satellite locations.
The Department proposes to add § 668.171(d)(9) by establishing a discretionary
trigger for when an institution is cited by a State licensing or authorizing
agency for failing to meet requirements. This captures less severe circumstances
related to States than are addressed under the mandatory triggers. This proposed
trigger was originally implemented in the 2016 Final Borrower Defense
Regulations. The 2019 Final Borrower Defense Regulations kept the trigger but
narrowed its scope to only be activated if the State licensing or authorizing
agency stated that it intended to withdraw or terminate the licensure or
authorization if the institution failed to take steps to comply with the
requirement. The rationale at that time was that the trigger would be linked to
a known and quantifiable event, in this case, the State agency's intent to
withdraw or terminate the agency's licensure or authorization. Proposed
§ 668.171(d)(9) would return to the original concept where the Department would
be aware and be able to obtain financial protection if an institution is cited
by its State licensing or authorizing agency. We have observed some institutions
with this pattern of behavior that have been unable to correct the area of
noncompliance and find its normal operations are more difficult to pursue. An
institution's eligibility to administer the title IV, HEA programs is dependent
on obtaining and maintaining authorization or licensure from the appropriate
State agency in its State. When a State agency cites an institution, its
continued eligibility may be in jeopardy. This proposed discretionary trigger
would allow the Department to evaluate the situation and determine if the State
action is of the magnitude that financial protection would be required. In worst
case scenarios, findings and citations of this type are precursors to the
institution losing its authorization or licensure and the subsequent loss of
eligibility to administer the title IV, HEA programs. Such a loss would have a
negative impact on the institution's overall financial stability requiring the
Department to make a determination if obtaining financial protection for the
institution is warranted to protect students' and taxpayers' interests.
The Department proposes to add § 668.171(d)(10) to establish a discretionary
trigger for when an institution has one or more programs that has lost
eligibility to participate in another Federal educational assistance program due
to an administrative action. This would be a new discretionary trigger and
complements the mandatory trigger that occurs if the institution loses
eligibility for another Federal educational assistance program. Other Federal
agencies administer educational assistance programs including the Departments of
Veterans Affairs, Defense, and Health and Human Services. Currently, when an
institution has lost its ability to participate in an educational program
administered by another Federal agency due to an administrative action by that
agency, the Department of Education lacks a regulatory mechanism to include this
fact in consideration of the institution's overall financial status, despite the
fact that losing eligibility for a Federal educational assistance program can
have a very significant impact on a school's revenue and financial stability.
This proposed trigger is necessary to allow the Department to make a
determination if obtaining financial protection for institutions in this
situation is warranted to protect students' and taxpayers' interests.
The Department proposes to add § 668.171(d)(11) to establish a discretionary
trigger for when at least 50 percent of the institution is owned directly or
indirectly by an entity whose securities are listed on a domestic or foreign
exchange and the entity discloses in a public filing that it is under
investigation for possible violations of State, Federal, or foreign law. This
level of ownership is the threshold for blocking control over the institution's
actions. This would be a new discretionary trigger. Institutions that find
themselves in this category may have their normal operations and financial
stability impacted negatively due to the public filing. In some scenarios, legal
actions such as this may damage the institution's public reputation, thereby
reducing the institution's enrollment, revenue, and profitability, which would
result in the institution's financial stability being shaken. In worst case
scenarios, these legal actions may result in the institution's closure and the
ensuing negative consequences associated with closure. This proposed trigger is
necessary to allow the Department to make a determination if obtaining financial
protection for institutions facing legal actions such as this is warranted to
protect students' and taxpayers' interests.
The Department proposes to add § 668.171(d)(12) to establish a discretionary
trigger for when an institution is cited by another Federal agency for
noncompliance with requirements associated with a Federal educational assistance
program and that could result in the loss of Federal education assistance funds
if the institution does not comply with the agency's requirements. An action by
another Federal agency, such as the Department of Veterans Affairs placing an
institution on probation, is a risk factor that could result in the loss of
Federal funds. We propose this as a discretionary trigger since these actions
may be fleeting.
FINANCIAL RESPONSIBILITY—RECALCULATING THE COMPOSITE SCORE (§ 668.171)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.171(e) states when the Department will
recalculate an institution's composite score. Specifically, we recalculate an
institution's most recent composite score by recognizing the actual amount of
the institution's liability, or cumulative liabilities as defined in regulation,
as an expense, or by accounting for the actual withdrawal, or cumulative
withdrawals, of owner's equity as a reduction in equity. The current regulations
account for those expenses and withdrawals as follows:
* For liabilities incurred by a proprietary institution:
For the primary reserve ratio, increasing expenses and decreasing adjusted
equity by that amount;
For the equity ratio, decreasing modified equity by that amount; and
For the net income ratio, decreasing income before taxes by that amount;
* For liabilities incurred by a non-profit institution;
For the primary reserve ratio, increasing expenses and decreasing expendable net
assets by that amount;
For the equity ratio, decreasing modified net assets by that amount; and
For the net income ratio, decreasing change in net assets without donor
restrictions by that amount; and
* For the amount of owner's equity withdrawn from a proprietary institution—
For the primary reserve ratio, decreasing adjusted equity by that amount; and
For the equity ratio, decreasing modified equity by that amount.
Proposed Regulations: The Department proposes to amend § 668.171(e) to expand
when we would recalculate the institution's composite score. The proposed
regulations would establish several mandatory triggers in Start Printed Page
32366 § 668.171(c) that require a recalculation of the institution's composite
score to determine if financial protection is required from the institution. The
first of these triggers is found in proposed § 668.171(c)(2)(i)(A). It would
require recalculation for institutions with a composite score of less than 1.5
(other than a composite score calculated as part of a change in ownership
application) that are required to pay a debt or incur a liability from a
settlement, arbitration proceeding, or a final judgment in a judicial
proceeding. If the recalculated composite score for the institution or entity is
less than 1.0 as a result of the debt or liability, the institution would be
required to provide financial protection. The second mandatory trigger that
would require recalculation is found in proposed § 668.171(c)(2)(i)(C) related
to when the Department seeks to recoup the cost of approved borrower defense to
repayment discharges. If the recalculated composite score for the institution or
entity is less than 1.0 as a result of the liability sought in recoupment, the
institution would be required to provide financial protection. The third
mandatory trigger that would require recalculation is in proposed
§ 668.171(c)(2)(ii), which would require recalculation for proprietary
institutions with a composite score of less than 1.5 where there is a withdrawal
of owner's equity by any means. If the withdrawal results in a recalculated
composite score for the institution or entity that is less than 1.0, the
institution would be required to provide financial protection. Under
§ 668.171(e)(3), the composite score would also be recalculated in the case of a
proprietary institution that has undergone a change in ownership where there is
a withdrawal of owner's equity through the end of the institution's first full
fiscal year. If the withdrawal results in a recalculated composite score for the
institution or entity that is less than 1.0, the institution would be required
to provide financial surety. The final mandatory trigger that would require a
recalculation of an institution's composite score is found in proposed
§ 668.171(c)(2)(x), which would require that any institution's composite score
be recalculated when (1) its audited financial statements reflect a contribution
in the last quarter of the fiscal year and (2) it makes a distribution during
the first two quarters of the next fiscal year. If the offset of the
distribution against the contribution results in a recalculated composite score
of less than 1.0, the institution would be required to provide financial
protection.
Under proposed § 668.171(e), we would adjust liabilities incurred by the entity
who submitted its financial statements in the prior fiscal year to meet the
requirements of § 668.23, or in the year following a change in ownership, for
the entity who submitted financial statements to meet the requirements of
§ 600.20(g) as follows:
* For the primary reserve ratio, we propose to increase expenses and decrease
the adjusted equity by that amount;
* For the equity ratio, we propose to decrease the modified equity by that
amount; and
* For the net income ratio, we propose to decrease income before taxes by that
amount.
The proposed regulations under § 668.171(e) would also clarify how liabilities
would impact a nonprofit institution's composite score. We would adjust
liabilities incurred by any nonprofit institution or entity who submitted its
financial statements in the prior fiscal year to meet the requirements of
§ 600.20(g), § 668.23, or subpart L of part 668 and described in
§§ 668.171(c)(2)(i)(B) or (C) as follows:
* For the primary reserve ratio, we propose to increase expenses and decrease
expendable net assets by that amount;
* For the equity ratio, we propose to decrease modified net assets by that
amount; and
* For the net income ratio, we propose to decrease change in net assets without
donor restrictions by that amount.
The proposed regulations would also clarify how withdrawal of equity would
impact a proprietary institution's composite score. If the withdrawal of equity
occurred for an entity who submitted its financial statements in the prior
fiscal year to meet the requirements of § 668.23, or in the year following a
change in ownership, we would adjust the entity's composite score calculation as
follows:
* For the primary reserve ratio, we propose to decrease adjusted equity by that
amount; and
* For the equity ratio, we propose to decrease modified equity by that amount.
For a proprietary institution that makes a contribution and distribution under
proposed § 668.171(c)(2)(x), we would adjust the composite score as follows:
* For the primary reserve ratio, we propose to decrease adjusted equity by the
amount of the contribution; and
* For the equity ratio, we propose to decrease modified equity by the amount of
the contribution.
The proposed regulations would not modify the actual formula used to calculate
the composite score.
Reasons: Proposed § 668.171(e) states how and when we would recalculate an
institution's composite score based on certain mandatory triggers in proposed
§ 668.171(c). The recalculation is performed to address liabilities incurred
under proposed § 668.171(c)(2)(i)(A) and (C); withdrawals of an owner's equity
under proposed § 668.171(c)(2)(ii); and the accounting for contributions and
distributions under proposed § 668.171(c)(2)(x). The proposed regulations
describe the specific adjustments to the primary reserve ratio, the equity
ratio, and the net income ratio that would result from the identified triggers.
The proposed regulations would clarify that the adjustment would be made in the
financial statements of the entity that submitted the audited financial
statements for the prior fiscal year, or the entity that submitted the audited
financial statements to comply with the regulatory requirements for a materially
complete application following a change of ownership.
The multiple triggers identified in proposed § 668.171(e) would all diminish the
entity's cash position, and the Department would perform a recalculation of the
composite score to determine to what extent the triggering event actually
impacts the institution's composite score. If we determine that the recalculated
composite score is less than 1.0, meaning it has failed, we would require the
institution to provide financial protection. In addition, by making an
adjustment to the prior year's financial statements, the institution would be
relieved from submitting interim audited financial statements when one of the
identified triggering events occurs. The Department believes that the triggers
identified in proposed § 668.171(e) that would require recalculation of the
composite score (and which are described in § 668.171(c)(2)(i)(A) (C), (ii), and
(x)) pose a serious threat to the institution's financial stability. The threat
is such that we believe that when the triggering event occurs an immediate
determination of how the institution's composite score is impacted by the event
must be made. To wait for the annual submission of the institution's audited
financial statements would allow an excessive amount of time to elapse before
this determination could be made based on the annual submission. When an
institution encounters one of the identified triggering events, the quick
recalculation of the composite score will Start Printed Page 32367 inform us
whether the triggering event has had minimal impact on the institution's
financial stability or has had such a detrimental impact that financial
protection becomes necessary to protect the interests of students and taxpayers.
FINANCIAL RESPONSIBILITY—REPORTING REQUIREMENTS (§ 668.171)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.171(f) lists the following conditions that must
be reported to the Department under the existing financial responsibility
reporting requirements:
* When an institution incurs a liability as described in § 668.171(c)(2)(i)(A);
* When there is a withdrawal of an owner's equity as described in
§ 668.171(c)(2);
* When an institution is subject to provisions relating to a publicly traded
institution described in § 668.171(c)(2)(i)(A);
* When an institution's accrediting agency has issued an order, that if not
satisfied, could result in the loss of accreditation;
* When an institution is subject to the loan agreement provisions in
§ 668.171(d)(2) and a loan violation occurs, the creditor waives the
violation, or the credit imposes sanctions or penalties in exchange or as a
result of granting the waiver;
* When an institution is informed that its State authorizing agency is
terminating its authorization or licensure;
* When an institution is found to be non-compliant with the requirement that at
least 10 percent of its revenues originate from non-title IV, HEA sources.
The deadline for this notification is no later than 45 days after the end of
the institution's fiscal year.
Proposed Regulations: The Department proposes to amend § 668.171(f) by adding
several new events to the existing reporting requirements and expanding others.
These events must be generally reported generally no later than 10 days
following the event. Institutions would notify the Department of these events by
sending an email to: FSAFinancialAnalysisDivision@ed.gov.
Under proposed § 668.171(f), the reportable events are situations where:
* The institution incurs a liability described in proposed
§ 668.171(c)(2)(i)(A);
* The institution is served with a complaint stating that the institution is
being sued. An updated notice would be required after the lawsuit has been
pending for 120 days;
* The institution receives a civil investigative demand, subpoena, request for
documents or information, or other formal or informal inquiry from any
government entity;
* As described in proposed § 668.171(c)(2)(ii), there is a withdrawal of an
owner's equity;
* As described in proposed § 668.171(c)(2)(x), the institution makes a
contribution in the last quarter of its fiscal year and makes a distribution
in the first or second quarter of the following fiscal year;
* As described in proposed §§ 668.171(c)(2)(vi) and in (d)(11), the institution
is subject to the provisions related to a publicly listed entity;
* The institution is subject to any action by an accrediting agency, or a
Federal, State, local, or Tribal authority, that is either a mandatory or
discretionary trigger;
* As described in proposed § 668.171(c)(2)(xi), the institution is subject to
actions initiated by a creditor of the institution;
* As described in proposed § 668.171(d)(2), the institution is subject to
provisions related to a default, delinquency, or creditor event;
* As described in proposed § 668.171(c)(2)(vii), the institution fails the
non-Federal funds provision. This notification deadline would be 45 days
after the end of the institution's fiscal year;
* An institution or entity has submitted an application for a change in
ownership under 34 CFR 600.20 that is required to pay a debt or incurs a
liability from a settlement, arbitration proceeding, final judgment in a
judicial proceeding, or a determination arising from an administrative
proceeding described in proposed § 668.171(c)(2)(i)(B) or (C). This reporting
requirement is applicable to any action described herein occurring through
the end of the second full fiscal year after the change in ownership has
occurred.;
* As described in proposed § 668.171(d)(7), the institution discontinues
academic programs that enrolled more than 25 percent of students;
* The institution declares a state of financial exigency to a Federal, State,
Tribal, or foreign governmental agency or its accrediting agency;
* The institution, or an owner or an affiliate of the institution that has the
power, by contract or ownership interest, to direct or cause direction of the
management of policies of the institution, files for a State or Federal
receivership, or an equivalent proceeding under foreign law or is subject to
an order appointing a receiver, or appointing a person of similar status
under foreign law;
* The institution closes more than 50 percent of its locations or closes
locations that enroll more than 25 percent of its students. Locations for
this purpose include the institution's main campus and any additional
location(s) or branch campus(es) as described in § 600.2;
* The institution is directly or indirectly owned at least 50 percent by an
entity whose securities are listed on a domestic or foreign exchange, and the
entity discloses in a public filing that it is under investigation for
possible violations of State, Federal or foreign law.
* The institution fails to meet any of the standards in proposed § 668.171(b).
We also propose to remove current § 668.171(f)(3)(i)(A) which provides that the
institution may demonstrate that the reported withdrawal of owner's equity was
used exclusively to meet tax liabilities of the institution or liabilities of
the institution's owners that result from income derived from the institution.
Reasons: Implementation of the proposed reportable events would make the
Department more aware of instances that may impact an institution's financial
responsibility or stability. The proposed reportable events are linked to the
financial standards in § 668.171(b) and the proposed financial triggers in
§ 668.171(c) and (d) where there is no existing mechanism for the Department to
know that a failure or a triggering event has occurred. Notification regarding
these events would allow the Department to initiate actions to either obtain
financial protection, or determine if financial protection is necessary, to
protect students from the negative consequences of an institution's financial
instability and possible closure. A school closure can have severe negative
consequences for students including disruption of their education, delay in
completing their educational program, and a loss of academic credit upon
transfer. Furthermore, negative consequences of a school's closure not only
impact students but have negative effects on taxpayers as a result of the
Department's obligation to pay student loan discharges of borrowers impacted by
the closure and our inability to collect liabilities owed to the Federal Start
Printed Page 32368 government due to the insolvency of the closed institution.
Current § 668.171(f)(3)(i)(A) provides that the institution may demonstrate that
the reported withdrawal of owner's equity was used exclusively to meet tax
liabilities of the institution or its owners for income derived from the
institution. We propose to remove this provision because taxation, whether it is
an individual or institutional liability, is not significantly different from
other liabilities borne by the individual or institution. Therefore, we do not
see the necessity to treat taxation differently when examining a withdrawal of
owner's equity for financial responsibility purposes.
DIRECTED QUESTIONS
We request that commenters submit feedback through the comment process about the
requirement under proposed § 668.171(f)(1)(iii) that an institution must report
to the Department when it receives a civil investigative demand, subpoena,
request for documents or information, or other formal or informal inquiry from
any government entity (local, State, Tribal, Federal, or foreign). As proposed,
§ 668.171(f)(1)(iii) is a reporting requirement only and is not included as a
mandatory triggering event in § 668.171(c) nor as a discretionary triggering
event in § 668.171(d). We believe that an institution subject to an action or
actions described here must alert the Department so that we can consider these
actions in any compliance activity we undertake. We are especially interested in
receiving input as to whether an investigation as described in
§ 668.171(f)(1)(iii) warrants inclusion in final regulations as either a
mandatory or discretionary financial trigger. If inclusion would be warranted,
we would ask for suggestions regarding what actions associated with the
investigation would have to occur to initiate the financial trigger. We also
request commenters provide any other information, thoughts, or opinions on this
issue.
FINANCIAL RESPONSIBILITY—PUBLIC INSTITUTIONS (§ 668.171)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.171(g) states what a public domestic or foreign
institution must do to be considered financially responsible. These requirements
include notifying the Department that the institution is designated a public
institution by the appropriate foreign or domestic government entity.
Proposed Regulations: The Department proposes to amend § 668.171(g) by adding
paragraph (g)(1)(ii), which would also require a public institution to provide
to the Department a letter from an official of the government entity or other
signed documentation acceptable to the Department. The letter or documentation
must state that the institution is backed by the full faith and credit of the
government entity. The Department also proposes similar amendments to paragraph
(g)(2)(ii) which is applicable to foreign institutions. We propose to add
paragraph (g)(2)(iv) which would subject a foreign institution to the mandatory
triggers described in paragraph (c) of this section, and the discretionary
triggers described in paragraph (d) of this section where the Department has
determined that the triggering event would have significant adverse effect on
the financial condition of the institution. The Secretary would treat the
foreign public institution subject to these triggers in the same way as a
domestic public institution, which could include heightened cash monitoring or
provisional certification.
Reasons: The Department has long held that public institutions establish
financial responsibility because of having full faith and credit backing by
their State or appropriate government entity. That backing means that if the
institution were to run into financial trouble the State or appropriate
government entity is able to step in and provide the necessary financial
support. As a result, the Department does not typically collect surety from a
public institution. However, the current regulations do not explicitly require a
demonstration of full faith and credit backing by public institutions. That
creates a risk that an institution could be deemed public but not actually have
the inherent financial backing needed to assuage concerns if the institution
were to face financial troubles. The proposed change to § 668.171(g) would allow
the Department to secure a document guaranteeing that the public institution is
backed by the full faith and credit of the relevant government entity. This
change would ensure that we can collect any liability from the entity making the
guarantee, thereby protecting taxpayers and students.
FINANCIAL RESPONSIBILITY—AUDIT OPINIONS AND DISCLOSURES (§ 668.171)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.171(h) states that even if an institution meets
all of the financial responsibility factors listed in at § 668.171(b), the
Department does not consider the institution to be financially responsible if
the institution's audited financial statements include an opinion that was
adverse, qualified, disclaimed, or the financial statements contain a disclosure
in the notes that there is substantial doubt about the institution's ability to
continue as a going concern. The Department may determine whether the
aforementioned opinions have a significant bearing on the institution's
financial condition or whether the going concern issues have been alleviated and
may then act on that determination and obtain financial protection from the
institution.
Proposed Regulations: The Department proposes to amend § 668.171(h) to clarify
that an institution would not be considered financially responsible, even if all
financial responsibility factors in § 668.171(b) are met, if the notes to the
institution's or entity's audited financial statements include a disclosure
about the institution or entity's diminished liquidity, ability to continue
operations, or ability to continue as a going concern. If we determine that the
auditor's adverse, qualified, or disclaimed opinion does not have significant
bearing on the institution's financial condition, we may decide that the
institution is financially responsible. Similarly, if we determine that the
institution has alleviated the condition(s) in the disclosure (diminished
liquidity, ability to continue operations, or ability to continue as a going
concern), we may decide the institution is financially responsible. The
Department would determine, on its own, whether these issues are alleviated even
when the disclosure states that alleviation has been completed.
Reasons: The Department must have the ability to make its own determination
regarding any issues that impact an institution's diminished liquidity, ability
to continue operations, or ability to continue as a going concern. In these
cases, the Department seeks financial statement disclosures whereby auditors
agree with the institution's plan to address such issues or note that the
institution has successfully addressed them. However, the Department would
determine, on its own, if the issues identified by the Start Printed Page 32369
auditor have been alleviated by the institution.
FINANCIAL RESPONSIBILITY—PAST PERFORMANCE (§ 668.174)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.174 states that an institution is not
financially responsible if it has been limited, suspended, terminated, or
entered into a settlement agreement to resolve any of those actions initiated by
the Department or a guaranty agency. Further, the regulations state that the
institution is not financially responsible if the institution has an audit
finding in either of its two most recent compliance audits, or a Departmental
program review finding for its current fiscal year or the prior two fiscal
years, that resulted in the institution being required to repay an amount
greater than five percent of the title IV, HEA program funds received during the
year covered by that audit or program review. Also, an institution is not
financially responsible if it is cited during the preceding five years for not
submitting on-time, acceptable compliance audits and financial statements.
Finally, an institution is not financially responsible if it has failed to
satisfactorily resolve any compliance problems identified in an audit or program
review.
Proposed Regulations: The Department proposes to amend § 668.174(a) to clarify
that the time period that the Department would evaluate for purposes of
determining if the institution had a program review finding resulting in a
requirement to repay an amount greater than five percent of title IV, HEA
program funds received, is the institution's fiscal year in which the Department
issued a report, including a Final Program Review Determination (FPRD) report,
and the two prior fiscal years, regardless of the years covered by the report.
Reasons: This clarification would address confusion about whether the period for
past performance relates to the period in which the conduct that gives rise to
the past performance finding or the date of issuance of the FPRD. Because it can
take some time to issue a Program Review Report (PRR) and finalize it into an
FPRD, the proposed amendment would clarify that the time period for past
performance does not refer to when the finding occurred, but to when we issue
the FPRD that establishes the liability for that finding. When financial
protection is required under any provision of subpart L, including this section,
each requirement for financial protection is separate.
FINANCIAL RESPONSIBILITY—PAST PERFORMANCE (§ 668.174)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: None.
Proposed Regulations: The Department proposes to add § 668.174(b)(3) to state
that an institution is not financially responsible if an owner who exercises
substantial control, or the owner's spouse, has been in default on a Federal
student loan, including parent PLUS loans, in the preceding five years, unless—
* The defaulted Federal student loan has been fully repaid and five years have
elapsed since the repayment in full;
* The defaulted Federal student loan has been approved for, and the borrower is
in compliance with, a rehabilitation agreement and has been current for five
consecutive years; or
* The defaulted Federal student loan has been discharged, canceled or forgiven
by the Department.
Reasons: Defaulting on a Federal student loan is a serious failure of financial
responsibility that relates to the title IV, HEA programs. The Department holds
school owners to a higher standard than we hold students, and we expect school
owners to be more financially responsible than the students who attend their
schools. A student or parent borrower may immediately reestablish eligibility to
receive an award under the Title IV, HEA program by rehabilitating,
consolidating, or repaying defaulted Federal student loans in full, but this is
not an appropriate standard to apply to a school's owner. The Department
proposes to apply a higher standard to school owners who have defaulted on a
Federal student loan to ensure they have established a long-term track record of
loan repayment and financial responsibility before the Department would consider
the school owner financially responsible under the past performance regulations
in § 668.174. This proposed regulation would ensure that school owners cannot
buy their way out of a past performance violation related to their own Federal
student loan default(s) by merely rehabilitating their defaulted Federal student
loans or repaying them in full.
This regulation would apply to Federal student loans, including parent PLUS
loans, borrowed by a school owner and by a school owner's spouse. This
regulation would recognize that a school owner should be aware that a spouse is
in default on a Federal student loan and the regulation holds the school owner
responsible for the spouse's Federal student loan default. However, the
regulation would also recognize that a school owner is not responsible for
managing the family budgets of all of their family members, as that term is
defined in § 600.21(f), nor for ensuring that all of their family members repay
their Federal student loans.
FINANCIAL RESPONSIBILITY—ALTERNATIVE STANDARDS AND REQUIREMENTS (§ 668.175)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.175(c) explains how an institution that has
failed the financial responsibility requirements under the general standards and
provisions at § 668.171 can qualify under an alternate standard. One of the
requirements an institution must meet is to not have an audit opinion that is
adverse, qualified or disclaimed or that includes a disclosure stating that
there is substantial doubt about the institution's ability to continue as a
going concern as described under § 668.171(h).
Proposed Regulations: Under proposed § 668.175(c), the Department would clarify
that a disclosure, as required under the applicable accounting or auditing
standards, about the institution's liquidity, ability to continue operations, or
ability to continue as a going concern, places the institution in the status of
not being financially responsible. We would then require the institution to
pursue an alternate standard of financial responsibility to comply with the
associated regulatory requirements under § 668.175. Proposed § 668.175(f) would
further clarify that an institution which is not financially responsible could
be permitted to participate in the title IV, HEA programs under a provisional
certification for no more than three consecutive years and providing the
Department an irrevocable letter of credit for an amount determined by the
Department. This requirement would not apply to public institutions.
Institutions would be required to remedy the issue(s) that gave rise to the
failure of financial responsibility. Start Printed Page 32370
Reasons: This proposed amendment to § 668.175(c) clarifies that an auditor's
disclosure may include not only a disclosure expressing doubt about the
institution's ability to continue as a going concern but may also include a
disclosure about the institution's liquidity or its ability to continue
operations. An audit disclosure such as this would demonstrate that the
institution is not financially responsible, and we would obtain financial
protection. When financial protection is required under any provision of subpart
L, including this section, each requirement for financial protection is
separate. Additionally, the proposed regulation clarifies that an institution
that is not financially responsible due to noncompliance with the requirements
under § 668.171(b)(2) or (3) must remedy those areas of noncompliance in order
to demonstrate compliance with financial responsibility requirements rather than
rely upon other alternatives.
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.175(f) permits an institution that is not
financially responsible to participate in title IV, HEA programs under a
provisional certification, as long as it (1) Provides the Department an
irrevocable letter of credit that is acceptable and payable to the Secretary, or
other financial protection, for an amount determined by the Department that is
not less than 10 percent of the title IV, HEA program funds received by the
institution during its most recently completed fiscal year, except that this
requirement does not apply to a public institution that the Department
determines is backed by the full faith and credit of the State; (2) Demonstrates
that it was current on its debt payments and has met all of its financial
obligations, for its two most recent fiscal years; and (3) Complies with the
provisions under the zone alternative.
Proposed Regulations: The Department proposes to add a condition in
§ 668.175(f)(2)(ii) that would require an institution to remedy the issue(s)
that gave rise to its failure under § 668.171(b)(2) and (3).
Reasons: This proposed amendment is consistent with the proposed amendments to
§ 668.175(c) because it would help to ensure that an institution that is not
financially responsible due to failing to meet the requirements under
§ 668.171(b)(2) or (3) must remedy those areas of noncompliance in order to
participate in the title IV, HEA programs under a provisional certification.
This proposed language replaces the current language in § 668.175(f)(2)(ii)
which states that an institution pursuing this avenue must demonstrate it was
current on debt payments and met all financial obligations. The proposed
language clarifies that all factors stated in 668.171(b)(2) and (3), which
include being current on debt payments and meeting financial obligations, must
have been remedied to the Department's satisfaction for the purpose of obtaining
provisional certification.
FINANCIAL RESPONSIBILITY—CHANGE IN OWNERSHIP REQUIREMENTS (§ 668.176)
Statute: Section 498(c) of the HEA directs the Secretary to determine whether
institutions participating in, or seeking to participate in, the title IV, HEA
programs are financially responsible.
Current Regulations: Section 668.15 originally established the financial
responsibility requirements for all institutions participating, or seeking to
participate, in the title IV, HEA programs. In 1997, subpart L was implemented
and established revised financial responsibility factors for institutions
participating in the title IV HEA programs but did not address the factors that
would specifically be applied to institutions undergoing a change in ownership.
The Department continued to apply the financial responsibility rules still
existing in § 668.15 to change in ownership situations even though those
regulations were not specific to such institutions.
Proposed Regulations: The Department proposes to remove § 668.15 and reserve
that section. We propose to redesignate current § 668.176 as § 668.177. The
proposed new § 668.176 would contain all updated financial responsibility
requirements applicable to institutions undergoing a change in ownership.
Under proposed § 668.176(b), an institution undergoing a change in ownership
would be required, as a part of their materially complete application, to submit
audited financial statements of the institution's new owner's two most recently
completed fiscal years prior to the change in ownership. These statements must
be prepared and audited at the highest level of unfractured ownership (meaning
100 percent direct or indirect ownership of the institution) or at the level
required by the Department. If the institution's new owner does not have two
years of acceptable audited financial statements, or in circumstances where no
new owner obtains control, but the combined new ownership exceeds the ownership
share of the existing ownership, the institution would have to provide financial
protection in the form of a letter of credit or cash to the Department in the
amount of 25 percent of the title IV, HEA program funds received by the
institution during its most recently completed fiscal year.
Under proposed § 668.176(b)(3), an institution must demonstrate it is a
financially responsible. To comply with this requirement a for-profit
institution would be required to:
* Demonstrate it has not had operating losses in either or both of its two
latest fiscal years that in sum, result in a decrease in tangible net worth
exceeding 10 percent of the institution's tangible net worth at the beginning
of the first year of the two-year period. The Department may calculate an
operating loss for an institution by excluding prior period adjustments and
the cumulative effect of changes in accounting principle;
* Demonstrate it has, for its two most recent fiscal years, a positive tangible
net worth. In applying this standard, a positive tangible net worth occurs
when the institution's tangible assets exceed its liabilities;
* Document it has a passing composite score and meets the other financial
requirements of part 668, subpart L for its most recently completed fiscal
year.
To demonstrate it is financially responsible, a nonprofit institution would be
required to:
* Demonstrate it has, at the end of its two most recent fiscal years, positive
net assets without donor restrictions. The Department proposes to exclude all
related party receivables/other assets from net assets without donor
restrictions and all assets classified as intangibles in accordance with the
composite score;
* Document it has not had an excess of net assets without donor restriction
expenditures over net assets without donor restriction revenues over both of
its two latest fiscal years that results in a decrease exceeding 10 percent
in either the net assets without donor restrictions from the start to the end
of the two-year period or the net assets without donor restriction in either
one of the two years;
* Document it has a passing composite score and meets the other financial
requirements of part 668, subpart L for its most recently completed fiscal
year.
Under proposed § 668.176(b)(4), a for-profit or nonprofit institution that is
not financially responsible under proposed § 668.176(b)(3) would be required to
Start Printed Page 32371 provide financial protection in the form of a letter of
credit or cash in an amount that is not less than 10 percent of the prior year's
title IV, HEA funding or an amount determined by the Department, and follow the
zone requirements in § 668.175(d).
Proposed § 668.176(c) would allow the Department to determine that the
institution is not financially responsible following a change in ownership if
the amount of debt assumed to complete the change in ownership requires payments
(either periodic or balloon) that are inconsistent with available cash to
service those payments based on enrollments for the period prior to when the
payment is or will be due. An institution in this status would be required to
provide financial protection in the form of a letter of credit or cash in an
amount that is not less than 10 percent of the prior year's title IV, HEA
funding or an amount determined by the Department, and follow the zone
requirements in § 668.175(d).
Under proposed § 668.176(d), to meet the requirements for a temporary
provisional PPA following a change in ownership, as described in
§ 600.20(h)(3)(i), the Department would continue to require a proprietary or
nonprofit institution to provide us with a same day balance sheet for a
proprietary institution or a statement of financial position for a nonprofit
institution. As part of the same day balance sheet or statement of financial
position, the institution would be required to include a disclosure that
includes all related-party transactions and such details that would enable the
Department to identify the related party.
If the institution fails to meet the requirements in proposed
§ 668.176(d)(1)(i), the institution would be required to provide financial
protection in the form of a letter of credit or cash to the Department in the
amount of at least 25 percent of the title IV, HEA program funds received by the
institution during its most recently completed fiscal year, or an amount
determined by the Department, and would be required to follow the zone
requirements of § 668.175(d).
For a public institution, the institution would be required to have its
liabilities backed by the full faith and credit of a State, or by an equivalent
governmental entity, or follow the requirements of this section for a
proprietary or nonprofit institution.
Reasons: Current regulations related to the assessment of financial
responsibility for institutions undergoing a change in ownership are spread out
across § 668.15 and subpart L of part 668, where the composite score rule
resides. The result of having requirements in multiple places is that it is not
easy to identify which elements from across both sections apply to institutions
undergoing a change in ownership. We are proposing to consolidate and revise the
section to align with the Department's current practice in processing and
applying financial responsibility factors to change in ownership applications.
When financial protection is required under any provision of subpart L,
including this section, each requirement for financial protection is separate.
The proposed new regulatory section states with a new level of clarity exactly
what institutions would have to do to demonstrate financial responsibility when
undergoing a change in ownership.
We additionally propose a change with respect to how the Department would test
the financial responsibility of an institution undergoing a change in ownership.
Under current regulations, we primarily evaluate the entity acquiring the
institution by examining its same day balance sheet or statement of financial
position. If the new owner does not have two years of audited financial
statements, but has one year of audited financial statements, we require
financial protection at an amount that would be a least 10 percent of the
institution's title IV, HEA volume. This is the same minimum amount the
Department chooses for institutions that seek the provisional certification
alternative in § 668.175(f) for an institution that is failing to meet the
standards of financial responsibility. Under the proposed regulations, we would
test the new owner's financial statements and would require financial protection
if those financial statements fail financial responsibility standards as part of
the change in ownership application rules in § 600.20(g). To make that
determination we would evaluate the composite score or other financial factors
on those financial statements.
In addition, the minimum financial protection for the failure to meet the
financial responsibility standards for the submission of the same day balance
sheet or statement of financial protection for compliance with § 600.20(h) would
be increased from the current 10 percent to 25 percent. We chose this amount
because it is what we commonly require for a new owner who does not have two
years of financial statements and we think the associated risk levels are
similar.
The Department's interest in establishing a clear picture of an institution's
ownership is crucial to our making determinations on the financial stability of
the institution as it emerges from the change in ownership. During this period
of change, it is imperative that we are able to obtain a level of financial
protection sufficient enough to protect the students who are impacted by the
change in ownership, if necessary. It is also important to protect the interests
of the taxpayers as we extend the institution's eligibility to participate in
the title IV, HEA programs under the new owner's control. When financial
protection is required under any provision of subpart L, including this section,
each requirement for financial protection is separate.
This proposal would also address challenges we have encountered in evaluating
the financial statements of institutions undergoing changes in ownership,
including by clarifying that financial statements must be provided at the level
of highest unfractured ownership (meaning 100 percent direct or indirect
ownership of the institution) or at the level determined by the Department;
clarifying how a situation where no individual new owner obtains control, but
the combined ownership of the new owners is equal to or exceeds the ownership
share of the existing ownership will be handled, and clarifying what
institutions undergoing a change in ownership must do to receive a temporary
provisional PPA following the change in ownership. This proposed rule would
enable us to ensure that entities acquiring an eligible institution demonstrate
that they are financially responsible by the mechanisms detailed in this
proposed regulation or provide financial protection. The proposed approach
provides a more predictable and robust examination of financial responsibility
for changes in ownership.
STANDARDS OF ADMINISTRATIVE CAPABILITY (§ 668.16)
ADMINISTRATIVE CAPABILITY—FINANCIAL AID COUNSELING (§ 668.16(H))
Statute: Section 498(a) of the HEA grants the Secretary the authority to
establish requirements postsecondary institutions must follow to prove that they
are administratively capable.
Current Regulations: The current regulations under § 668.16(h) require that, for
an institution to be administratively capable, the institution must provide
adequate financial aid counseling to eligible students who apply for title IV,
HEA program assistance. In determining whether an institution provides adequate
counseling, the Department considers whether its counseling includes Start
Printed Page 32372 information regarding the source and amount of each type of
aid offered, and the method by which aid is determined and disbursed, delivered,
or applied to a student's account. The institution must also provide counseling
that includes the rights and responsibilities of the student with respect to
enrollment at the institution and receipt of financial aid. This information
includes the institution's refund policy, the requirements for treatment of
title IV, HEA program funds when a student withdraws under § 668.22, its
standards of satisfactory progress, and other conditions that may alter the
student's aid package.
Proposed Regulations: The Department proposes to amend paragraph § 668.16(h) to
include the details of what should be included in the financial aid
communications given to students. We are also proposing to require clear and
accurate information about financial aid, alongside existing requirements around
what constitutes adequate financial aid counseling. We propose that financial
aid counseling and financial aid communications advise students and families to
accept the most beneficial types of financial assistance available to them. We
further propose to establish requirements with respect to financial aid
counseling and communications as follows:
* We propose to require that institutions provide information regarding the
cost of attendance of the institution, including the individual components of
those costs and a total of the estimated costs that will be owed directly to
the institution, for students, based on their enrollment status and
attendance.
* Currently the regulation requires the source and amount of each type of aid
offered. We propose to add to this provision that each source of aid, which
could include Title IV, HEA assistance, private loans, income-share
agreements, and tuition payment plans, be separated by the type of the aid
and whether it must be earned or repaid.
* We propose to require that institutions provide information regarding the net
price, as determined by subtracting the amount of each type of aid offered
from the cost of attendance.
* Currently the regulation requires financial aid counseling to include the
method by which aid is determined and disbursed, delivered, or applied to a
student's account. We propose to add to this provision that the counseling
must also include instructions and applicable deadlines for accepting,
declining, or adjusting award amounts.
Reasons: The Department proposes amendments to the requirement to provide
adequate financial aid counseling under § 668.16(h) because we want to ensure
that students understand the cost of attendance for the program, including costs
charged directly by the institution, and the financial aid offered by an
institution. The Department already requires institutions to provide adequate
financial aid counseling to their students, but we realize that some financial
aid offers may be confusing. Providing students with unclear, confusing, or
misleading financial aid offers can undo the benefits of financial aid
counseling and result in a student being unable to apply the concepts explained
through financial aid counseling to their own financial situation. This in turn
jeopardizes their ability to make an informed decision whether to enroll in a
given program and how much to borrow in student loans.
The requirements added into this section thus establish requirements for what
would be considered sufficiently clear communication, including on financial aid
offers. These changes emphasize areas where the Department has seen problematic
materials in the past, such as aid offers that fail to explain the full cost of
attendance or use confusing terminology that makes it difficult to tell whether
or not the aid being offered to the student must be repaid. The items included
in these proposed regulations are also informed by the Department's experience
in crafting a model financial aid offer, known as the College Financing Plan to
address one aspect of financial aid communications. The College Financing Plan
reflects feedback from consumer testing and an emphasis on clarity and is used
by roughly half of institutions. Some of the items included in these proposed
rules are already included in the College Financing Plan and, as such, using the
College Financing Plan would be one way for institutions to ensure they meet
some of the standards we propose here.
ADMINISTRATIVE CAPABILITY—DEBARMENT OR SUSPENSION (§ 668.16(K))
Statute: Section 498(a) of the HEA grants the Secretary the authority to
establish requirements postsecondary institutions must follow to prove that they
are administratively capable.
Current Regulations: Current regulations under § 668.16(k) require that for an
institution to be administratively capable, it is not, and does not have any
principal or affiliate of the institution (as those terms are defined in 2 CFR
parts 180 and 3485) that is debarred or suspended under Executive Order 12549 or
the Federal Acquisition Regulations (FAR), 48 CFR part 9, subpart 9.4. Section
668.16(k) also requires that the institution not engage in any activity that is
a cause under 2 CFR 180.700 or 180.800, as adopted at 2 CFR 3485.12, for
debarment or suspension under Executive Order 12549 or the FAR, 48 CFR part 9,
subpart 9.4.
Proposed Regulations: We propose to maintain the current requirements and add
new requirements under a revised § 668.16(k)(2) that would prohibit an
institution from having any principal or affiliate of the institution (as those
terms are defined in 2 CFR parts 180 and 3485), or any individual who exercises
or previously exercised substantial control over the institution as defined in
§ 668.174(c)(3), who has been:
* Convicted of, or has pled nolo contendere or guilty to, a crime involving the
acquisition, use, or expenditure of Federal, State, Tribal, or local
government funds, or administratively or judicially determined to have
committed fraud or any other material violation of law involving those funds.
* Is a current or former principal or affiliate (as those terms are defined in
2 CFR parts 180 and 3485), or any individual who exercises or exercised
substantial control as defined in § 668.174(c)(3), of another institution
whose misconduct or closure contributed to liabilities to the Federal
government in excess of 5 percent of that institution's title IV, HEA program
funds in the award year in which the liabilities arose or were imposed.
Reasons: The Department proposes amendments to § 668.16(k)(2) to improve
institutional oversight of the individuals that are hired to make significant
decisions that could have an impact on the institution's financial stability and
its administration of title IV, HEA funds. Institutions participating in the
title IV, HEA programs have a fiduciary responsibility to safeguard title IV,
HEA funds and ensure those funds are used to benefit students and must meet all
applicable statutory and regulatory requirements. An institution's ability to
meet these responsibilities is impaired if a principal, employee, or third-party
servicer of the institution committed fraud involving Federal, State, or local
funds, or engaged in prior conduct that caused a loss to the Federal Government.
A similar risk occurs if one of the aforementioned individuals has been
convicted of, or had pled nolo Start Printed Page 32373 contendere or guilty to,
a crime, involving the acquisition, use, or expenditure of a Federal agency or
State, Tribal, or local government. To mitigate this risk, we are adding this
component to the administrative capability standards. We expect institutions to
thoroughly examine the background of its principals, employees, affiliates, and
third-party servicers as part of this compliance. We believe the school must
take action or risk being deemed administratively incapable.
ADMINISTRATIVE CAPABILITY—NEGATIVE ACTIONS (§ 668.16(N))
Statute: Section 498(a) of the HEA grants the Secretary the authority to
establish requirements postsecondary institutions must follow to prove that they
are administratively capable.
Current Regulations: Current regulations under § 668.16(n) provide that an
institution is administratively capable if it does not otherwise appear to lack
the ability to administer title IV, HEA programs competently.
Proposed Regulations: We propose to add a new § 668.16(n) to require that an
institution has not been subject to a significant negative action, or a finding
by a State or Federal agency, a court or an accrediting agency where the basis
of the action is repeated or unresolved, such as non-compliance with a prior
enforcement order or supervisory directive, and the institution has not lost
eligibility to participate in another Federal educational assistance program due
to an administrative action against the institution. We propose to redesignate
current § 668.16(n) as proposed § 668.16(v).
Reasons: The Department proposes that an institution is not administratively
capable if it has been subject to a significant negative action or a finding by
a State or Federal agency, a court or an accrediting agency where the basis of
the action is repeated or unresolved, such as non-compliance with a prior
enforcement order or supervisory directive, and the institution has not lost
eligibility to participate in another Federal educational assistance program due
to an administrative action against the institution. § 668.16(n). Such measures
are an indication of potentially serious problems with the institution's
administrative functions. Adding this proposed section would provide the
Department the ability to consider whether those circumstances warrant
compliance actions and better align the oversight work across the regulatory
triad of States, the Federal government, and accreditation agencies. Examples
include provisionally recertifying the institution with applicable conditions on
its eligibility, obtaining protection against potential losses to the
government, placing an institution on a different method of payment (such as
heightened cash monitoring), or terminating title IV, HEA eligibility due to
negative actions of an outside public agency. For example, if the United States
Department of Veterans Affairs (VA) took a significant negative action against
an institution and that institution lost its ability to participate in the VA
education and training benefits programs, the Department could use the VA's
determination as a factor in assessing an institution's administrative
capability. This would more clearly establish a link between administrative
capability and when another Federal agency has revoked an institution's
eligibility for one or more of their programs. Other examples are when a State
levies sanctions against an institution or an accrediting agency places an
institution on probation, or its equivalent, based on an ongoing consumer
protection issue.
ADMINISTRATIVE CAPABILITY—HIGH SCHOOL DIPLOMA (§ 668.16(P))
Statute: Section 498(a) of the HEA grants the Secretary the authority to
establish requirements postsecondary institutions must follow to prove that they
are administratively capable.
Current Regulations: Current regulations under § 668.16(p) provide that an
institution must develop and follow procedures to evaluate the validity of a
student's high school completion if the institution or the Department has reason
to believe that the high school diploma is not valid or was not obtained from an
entity that provides secondary school education.
Proposed Regulations: We propose to maintain the current requirement that an
institution must develop and follow adequate procedures to evaluate the validity
of a student's high school completion if the institution or the Department has
reason to believe that the high school diploma is not valid or was not obtained
from an entity that provides secondary school education. We propose to update
the references to high school completion in the current regulation to high
school diploma.
Under proposed § 668.16(p)(1) we would add requirements for adequate procedures
to evaluate the validity of a student's high school diploma when the institution
or the Secretary has reason to believe that the high school diploma is not valid
or was not obtained from an entity that provides secondary school education to
include the following:
* Obtaining documentation from the high school that confirms the validity of
the high school diploma, including at least one of the following: a
transcript, written descriptions of course requirements, or written and
signed statements by principals or executive officers at the high school
attesting to the rigor and quality of coursework at the high school;
* If the high school is regulated or overseen by a State agency, Tribal agency,
or Bureau of Indian Education, confirming with or receiving documentation
from that agency that the high school is recognized or meets requirements
established by that agency; and
* If the Secretary has published a list of high schools that issue invalid high
school diplomas, confirming that the high school does not appear on that
list.
Under proposed § 668.16(p)(2) a high school diploma would not be valid if it:
* Did not meet the applicable requirements established by the appropriate State
agency, Tribal agency, or Bureau of Indian Education in the State where the
high school is located and, if the student does not attend in-person classes,
the State where the student was located at the time the diploma was obtained.
* Has been determined to be invalid by the Department, the appropriate State
agency in the State where the high school was located, or through a court
proceeding.
* Was obtained from an entity that requires little or no secondary instruction
or coursework to obtain a high school diploma, including through a test that
does not meet the requirements for a recognized equivalent of a high school
diploma under § 600.2.
* Was obtained from an entity that maintains a business relationship or is
otherwise affiliated with the eligible institution at which the student is
enrolled and that entity is not accredited.
Reasons: Ensuring that students have a valid high school diploma is a critical
part of maintaining integrity in the title IV, HEA financial aid programs.
Failure to ensure that a student is qualified to train at a postsecondary level
often results in students withdrawing from institutions after incurring
significant debt and investing time and personal resources. The Department has
seen multiple leaders of institutions face significant financial liabilities and
even jail time for receiving Federal aid for students who did not have a valid
high school diploma. However, the Department believes that the existing
requirements for an institution to have Start Printed Page 32374 procedures in
place to evaluate the validity of a high school diploma may not be sufficient.
These proposed regulations would provide institutions with additional
information if necessary to determine the validity of a high school diploma when
the institution or the Secretary has reason to believe that the high school
diploma is not valid or was not obtained from an entity that provides secondary
school education.
With regard to how these proposed requirements would apply to certain private
religious secondary schools, as noted in § 668.16(p)(1)(ii), the process of
confirming or receiving documentation from the State or Tribal agency or the
Bureau of Indian Education only applies to high schools that are regulated or
overseen by one of those entities. Moreover, the proposed requirements
establishing when a high school diploma is not considered valid in
§ 668.16(p)(2)(i) note that the school would have to meet applicable
requirements established by the State or Tribal agency or the Bureau of Indian
Education. If those entities do not have applicable requirements for the type of
school in question, then the diplomas awarded by the school would not be
considered invalid simply for that reason. The institution would still need to
ensure that the diploma meets the other requirements of 668.16(p)(2).
The approach in this NPRM addresses concerns raised during negotiated rulemaking
that private secondary schools with a demonstrated ability to prepare students
for success in title IV, HEA institutions would be considered to not offer valid
diplomas simply because they are not regulated by a State. If private secondary
schools are not subject to State agency oversight, then the requirement to
receive documentation from a State agency would not apply.
In conducting its oversight activities, the Department has seen an increase in
institutions directing students to questionable entities to obtain diplomas and
institutions accepting questionable diplomas without conducting a proper review
of the issuing entity. These actions not only undermine the integrity of the
title IV, HEA programs, but also cause undue harm to students who are not
actually prepared to succeed at the postsecondary level. These amendments would
protect students, postsecondary institutions, and the taxpayer investment in
postsecondary education by ensuring adequate standards are in place for
institutions to evaluate high school diplomas.
ADMINISTRATIVE CAPABILITY—CAREER SERVICES (§ 668.16(Q))
Statute: Section 498(a) of the HEA grants the Secretary the authority to
establish requirements postsecondary institutions must follow to prove that they
are administratively capable.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.16(q) to determine if an
institution is providing adequate career services to eligible students who
receive title IV, HEA program assistance. In making this determination, the
Department would consider:
* The share of students enrolled in programs designed to prepare students for
gainful employment in a recognized occupation.
* The number and distribution of career services staff.
* The career services the institution promises to its students.
* The presence of institutional partnerships with recruiters and employers who
regularly hire graduates of the institution.
Reasons: Students regularly indicate on surveys [131] that getting a job is one
of their top reasons for pursuing postsecondary education. While there are many
non-financial benefits to education beyond high school, being able to find a job
is critical for many students who have to repay debt they acquired to attend a
program. Many programs explicitly market their offerings with employment in
mind, telling students about the services they will help provide for students to
find a job, the connections with employers, and the alignment of curricula with
employer needs, to identify a few examples. The Department proposes to require
adequate career counseling services under new § 668.16(q) because we believe it
is critical that institutions have sufficient career services to help their
students find jobs and make good on any commitments conveyed about this kind of
assistance they can provide. We are not proposing any required ratios for the
number of career services staff, but rather proposed § 669.16(q) would ensure
that institutions have established a connection between the commitments they
make to students and the services they actually provide.
Finally, we believe that when appropriate, an institution should establish or
develop partnerships with recruiters and employers. Institutions that make
commitments about employment and do not provide career services or do not have
established partnerships with recruiters and employers may leave students
unprepared to enter the job market and obtain employment upon completion.
Students expect to have access to career services as promised as they transition
from their programs into the workforce. An institutions failure to provide such
career services may indicate a lack of administrative capability.
ADMINISTRATIVE CAPABILITY—ACCESSIBLE CLINICAL OR EXTERNSHIP OPPORTUNITIES
(§ 668.16(R))
Statute: Section 498(a) of the HEA grants the Secretary the authority to
establish requirements postsecondary institutions must follow to prove that they
are administratively capable.
Current Regulations: None.
Proposed Regulations: The Department proposes to add a new § 668.16(r) to
require that an institution provide students with geographically accessible
clinical, or externship opportunities related to and required for completion of
the credential or licensure in a recognized occupation within 45 days of the
successful completion of other required coursework.
Reasons: We propose to require institutions to provide accessible clinical or
externship opportunities related to relevant credentialing or licensure
requirements under proposed § 668.16(r) because we are aware through program
reviews and student complaints that some institutions do not make such
opportunities broadly accessible to students, even when students are required to
complete an externship or clinical to earn a degree or certificate. In these
cases, students may be left to identify their own clinicals or externships. We
are also aware of numerous instances where students have been offered a clinical
or externship that is geographically distant and inaccessible from the student's
location. We are aware of other instances where the work performed at the
clinical or externship offered by an institution does not assist the student in
meeting the requirements for credentialing or licensure. Therefore, the
Department proposes these amendments to require institutions to provide
geographically accessible clinical or externship opportunities related to and
required for completion of the credential or licensure related to their program.
An institution would be considered in compliance with this provision if a
student turns down the offer of the externship or clinical opportunity so long
as the opportunity offered otherwise meets the requirements of this section.
Start Printed Page 32375
ADMINISTRATIVE CAPABILITY—DISBURSING FUNDS (§ 668.16(S))
Statute: Section 498(a) of the HEA grants the Secretary the authority to
establish requirements postsecondary institutions must follow to prove that they
are administratively capable.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.16(s) to require that an
institution disburse funds to students in a timely manner that would best meet
the students' needs. The Secretary would not consider the manner of
disbursements to be consistent with students' needs, if, among other conditions:
* The Secretary is aware of multiple verified and relevant student complaints.
* The institution has high rates of withdrawal attributable to delays in
disbursements.
* The institution has delayed disbursements until after the withdrawal date
requirements in § 668.22(b) and (c).
* The institution has delayed disbursements with the effect of ensuring an
institution passes the 90/10 ratio.
Reasons: By law, students have a right to receive their Federal financial aid
including amounts in excess of the cost of direct expenses, such as tuition and
fees. When a student does not receive their funds in a timely manner, they may
struggle to stay enrolled due to an inability to cover costs like food, housing,
and transportation. They may also struggle to succeed in a course because of an
inability to purchase required textbooks. Students may also accrue expenses
which may affect their ability to remain in school, and ultimately graduate.
Failing to disburse financial aid in a timely manner thus results in an
institution holding on to funds that are not theirs for longer than is
appropriate resulting in a detriment to its students. Therefore, the Department
proposes that an institution would not be considered administratively capable if
the Secretary determines that the institution failed, including for reasons
related to the use of a third-party servicer, to disburse funds to students in a
timely manner that will best meet the student's needs.
ADMINISTRATIVE CAPABILITY—GAINFUL EMPLOYMENT (§ 668.16(T))
Statute: Section 498(a) of the HEA grants the Secretary the authority to
establish requirements postsecondary institutions must follow to prove that they
are administratively capable.
Current Regulations: None.
Proposed Regulations: The Department proposes to add a new § 668.16(t). The
Department considers an institution to be administratively capable if it offers
GE programs subject to part 668 subpart S and at least half of its total title
IV, HEA funds in the most recent award year are not from programs that are
failing under part 668 subpart S, and at least half of its full-time equivalent
title IV, HEA receiving students are not enrolled in programs that are failing
under part 668 subpart S.
Reasons: The proposed gainful employment regulations in subpart S of part 668
would operate on a programmatic basis. This would allow the Department to
identify situations where specific offerings at an institution may not provide
sufficient financial value. However, when a majority of an institution's title
IV, HEA funds and enrollment is in failing GE programs, those results would
indicate a more widespread and systemic set of concerns that is not limited to
individual programs. This would allow the Department to take additional steps to
increase its oversight of these institutions, such as placing them on a
provisional PPA.
Accordingly, the Department proposes that an institution that obtains most of
its revenue from, or enrolls most of its Title IV-eligible students in, failing
GE programs would lack administrative capability.
ADMINISTRATIVE CAPABILITY—MISREPRESENTATION (§ 668.16(U))
Statute: Section 498(a) of the HEA grants the Secretary the authority to
establish requirements postsecondary institutions must follow to prove that they
are administratively capable.
Current Regulations: None.
Proposed Regulations: We propose to add a new § 668.16(u) to prohibit an
institution from engaging in misrepresentation, as defined in 34 CFR part 668,
subpart F, or aggressive and deceptive recruitment tactics or conduct, as
defined in 34 CFR part 668, subpart R.
Reasons: The Department proposes administrative capability requirements about an
institutions' misrepresentation under § 668.16(u) because of the detrimental
effects such activity could have on students and the risks it poses to
taxpayers. Current § 668.71 defines “misrepresentation” as any false, erroneous
or misleading statement an eligible institution or one of its representatives
makes directly or indirectly to a student. The definition of “aggressive and
deceptive recruitment tactics or conduct” appears in our final rule published in
the Federal Register on November 1, 2022.[132] Activities that we consider
misrepresentation and aggressive recruitment increase risk to students and
taxpayers, specifically with respect to borrower defense claims. The student is
often left with a worthless degree, certificate, or credential as a result of
institutional misrepresentation or aggressive recruitment into a program with
questionable earnings and employment outcomes, and student's debt may be
discharged under an approved borrower defense claim. The Department proposes to
incorporate these as practices prohibited in the standards of administrative
capability. Doing so ensures there is greater alignment between our
administrative capability requirements and the standards that relate to other
oversight and enforcement work.
CERTIFICATION PROCEDURES (§§ 668.2, 668.13, 668.14)
GENERAL DEFINITIONS (§ 668.2)
Statute: Section 410 of the General Education Provisions Act (GEPA) grants the
Secretary authority to make, promulgate, issue, rescind, and amend rules and
regulations governing the manner of operations of, and governing the applicable
programs administered by, the Department. This authority includes the power to
promulgate regulations relating to programs that we administer, such as the
title IV, HEA programs that provide Federal loans, grants, and other aid to
students, whether to pursue eligible non-GE programs or GE programs. Moreover,
section 414 of the Department of Education Organization Act (DEOA) authorizes
the Secretary to prescribe those rules and regulations that the Secretary
determines necessary or appropriate to administer and manage the functions of
the Secretary or the Department.
Current Regulations: None.
Proposed Regulations: We propose to adopt OMB's definition of a “metropolitan
statistical area” in our regulations. Under the proposed definition, a
“metropolitan statistical area” would mean a core area containing a substantial
population nucleus, together with adjacent communities having a high degree of
economic and social integration with that core.[133]
Reasons: This added definition is necessary given other changes in this section
that set requirements for clock Start Printed Page 32376 hours, credit hours, or
the equivalent based upon where the institution is physically located or where
the students it serves work. To that end, we would define “metropolitan
statistical area” as part of the proposed requirements in § 668.14(b)(26)(ii)(B)
to determine the minimum number of clock hours, credit hours, or the equivalent
required for training in the recognized occupation in a State in which the
institution is not located. Our proposed changes would reference the
institution's metropolitan statistical area in one of three scenarios in which
the minimum number of clock hours, credit hours, or the equivalent required for
training in the recognized occupation for which the program prepares the student
could be determined by a State in which the institution is not located. We
choose to include a State other than the institution's home State when
determining a program's licensure and accreditation requirements because we
understand that some students may not currently reside in the State in which the
institution is located or have plans to reside in a different State from which
the institution is located. Institutions may also be located near borders with
other States. Thus, we want institutions to have the flexibility to determine
the State in which the student would need to meet licensure and accreditation
requirements. Specifically, for a program offered within the same metropolitan
statistical area as the institution's home State, we would look for a majority
of students that upon enrollment in the program during the most recently
completed award year stated in writing which State they intended to work in
within the metropolitan statistical area. Using the New York metropolitan area
as an example, if a student attended school in Connecticut but had plans to work
in New York after graduation, we would permit the institution to use New York's
minimum number of clock hours, credit hours, or the equivalent required for
training in the recognized occupation to meet our licensure and accreditation
requirements.
PERIOD OF PARTICIPATION (§ 668.13(B)(3))
Statute: HEA section 498 requires the Secretary to determine the process through
which a postsecondary institution applies to the Department certifying that it
meets all applicable statutory and regulatory requirements to participate in the
title IV, HEA programs. HEA section 498(g)(1) outlines timing limitations on the
certification renewal process.
Current Regulations: Current § 668.13(b)(3) specifies the period of
participation for which a postsecondary institution may participate in the title
IV, HEA programs. If the Secretary does not grant or deny certification within
12 months of the expiration of its current period of participation, the
institution is automatically granted renewal of certification, which may be
provisional.
Proposed Regulations: We propose to eliminate current § 668.13(b)(3) that
automatically grants an institution renewal of certification if the Secretary
does not grant or deny certification within 12 months of the expiration of its
current period of participation.
Reasons: As part of the 2020 final rule for Distance Education and
Innovation,[134] the Department believed automatically granting an institution
renewal of certification after 12 months would encourage prompt processing of
applications, timely feedback to institutions, proper oversight of institutions,
and speedier remedies for deficiencies identified. However, since then, the
Department has realized that giving ourselves a time constraint negatively
impacts our most important goal, program integrity. In fact, a premature
decision to grant or deny a certification application when unresolved issues
remain under review creates substantial negative consequences for students,
institutions, taxpayers, and the Department.
Institutions that remain on month-to-month approval for an extended period of
time are typically undergoing extensive investigation. Month-to-month
participation beyond the current maximum period of one year would allow the
Department additional time to investigate issues more fully and would maintain
institutions in a month-to-month status while the Department completes its
review. If we are forced to issue a decision under a limited timetable, we are
likely to put the institution on a provisional certification for one year, which
adds burden for both institutions and the Department. For example, if we place
the institution on one-year provisional certification, the institution would
need to start the recertification process all over again after nine months. The
result is more overall work than simply keeping the institution in a
month-to-month status while any issues related to the institution are reviewed
by the Department.
Eliminating this provision would allow the Department to take the necessary time
to investigate institutions thoroughly prior to deciding whether to grant or
deny a certification application and ensure institutions are approved only when
they comply with Federal rules. Ultimately, the Department, institutions,
students, and taxpayers benefit from the Department having the necessary time to
thoroughly review each application and make an informed decision that protects
students and taxpayers from high-risk institutions.
PROVISIONAL CERTIFICATION (§ 668.13(C))
Statute: HEA section 498 requires the Secretary to determine the process through
which a postsecondary institution applies to the Department certifying that it
meets all applicable statutory and regulatory requirements to participate in the
title IV HEA programs. Section 498(h) of the HEA discusses provisional
certification of institutional eligibility to participate in the title IV, HEA
programs. This provisional certification can occur for up to one year if the
institution is seeking initial certification; and for up to three years if the
institution's administrative capability and financial responsibility are being
determined for the first time, there is a change of ownership, or the Department
determines that an institution seeking to renew its certification is in an
administrative or financial condition that may jeopardize its ability to perform
its financial responsibilities.
Current Regulations: Current § 668.13(c)(1)(i)(C) includes a list of
circumstances in which the Department may provisionally certify a participating
institution. These include circumstances where the Department is certifying a
participating institution that—
* Is applying for a certification and meets the standards for an institution to
participate in any title IV, HEA program;
* The Secretary determines has jeopardized its ability to perform its financial
responsibilities by not meeting the factors of financial responsibility under
§ 668.15 and subpart L or the standards of administrative capability under
§ 668.16; and
* Has had its participation limited or suspended by the Department under
subpart G, or voluntarily enters into provisional certification.
The Department may also provisionally certify an institution under current
§ 668.13(c)(1)(i)(D) if the institution seeks a renewal of participation in a
Title IV, HEA program after the expiration of a prior period of participation in
that program. Under current § 668.13(c)(1)(i)(F) an institution may be
provisionally certified if the institution is a participating institution that
has been provisionally recertified under the automatic recertification Start
Printed Page 32377 requirement in current § 668.13(b)(3). Current
§ 668.13(c)(1)(ii) provides that a proprietary institution's certification
automatically becomes provisional at the start of a fiscal year after it did not
derive at least 10 percent of its revenue for its preceding fiscal year from
sources other than Title IV, HEA program funds, as required under
§ 668.14(b)(16). Current § 668.13(c)(2) specifies the maximum period for which
an institution, provisionally certified by the Department, may participate in a
title IV, HEA program, except as provided in 668.13(c)(3) and (4). Under this
paragraph a provisionally certified institution's period of participation
expires:
* Not later than the end of the first complete award year following the date on
which the Secretary provisionally certified the institution under paragraph
(c)(1)(i)(A) of this section.
* Not later than the end of the third complete award year following the date on
which the Secretary provisionally certified the institution under paragraphs
(c)(1)(i)(B), (C), and (D) or paragraph (c)(1)(ii) of this section.
* If the Secretary provisionally certified the institution under paragraph
(c)(1)(i)(E) of this section, no later than 18 months after the date that the
Secretary withdrew recognition from the institution's nationally recognized
accrediting agency.
Proposed Regulations: Under § 668.13(c)(1), the Department proposes to amend
existing conditions and add new conditions for when an institution may be
provisionally certified. Under § 668.13(c)(2), the Department proposes to add a
new time frame for when an institution's provisionally certified status would
expire. The Department also proposes to make a few technical corrections and
replace outdated cross references with descriptions on what is being referenced
in § 668.13(c)(1) and § 668.13(c)(2).
In § 668.13(c)(1)(i)(C), we propose to revise the existing language to specify
the Department's provisional certification of an institution that is not only a
participating institution, but an institution applying for a renewal
certification that fits one of the three circumstances previously included in
current § 668.13(c)(1)(i)(C). We also propose to replace current
§ 668.13(c)(1)(i)(F) with a new condition in which the Secretary may
provisionally certify an institution if the Secretary has determined that the
institution is at risk of closure. In § 668.13(c)(1)(i)(G), we propose to add
another new condition in which the Secretary may provisionally certify an
institution if it is permitted to use the provisional certification alternative
under subpart L. We propose to revise and redesignate current § 668.13(c)(1)(ii)
as proposed § 668.13(c)(1)(iii). In redesignated § 668.13(c)(1)(iii), we propose
to amend “Title IV, HEA program funds” as “Federal educational assistance funds”
to conform with the 2022 final rule for 90/10.[135] We propose to add a new
§ 668.13(c)(1)(ii) that provides that an institution's certification would
become provisional upon notification from the Secretary, if the institution
either triggers one of the financial responsibility events under § 668.171(c) or
(d) and, as a result, the Secretary requires the institution to post financial
protection; or any owner or interest holder of the institution with control over
that institution, as defined in § 600.31, also owns another institution with
fines or liabilities owed to the Department and is not making payments in
accordance with an agreement to repay that liability.
The Department also proposes to add subpart L as an exception to § 668.13(c)(2).
In addition, we propose to replace the cross reference of “paragraph
(c)(1)(i)(A)” in § 668.13(c)(2)(i) with “for its initial certification.” We also
propose to redesignate current § 668.13(c)(2)(ii) as § 668.13(c)(2)(iii). We
propose a new § 668.13(c)(2)(ii) to state that a provisionally certified
institution's period of participation would expire no later than the end of the
second complete award year following the date on which the Secretary
provisionally certified an institution for reasons related to substantial
liabilities owed or potentially owed to the Department for borrower defense to
repayment or false certification discharges, or for other consumer protection
concerns as identified by the Secretary. We consider consumer protection
concerns as instances where an institution may create a high-risk situation for
students, such as by misleading students about educational programs,
institutions falsely certifying students' eligibility to receive a loan, or an
institution being at risk of closure. Note that institutions would not
automatically lose title IV eligibility if they are found to have consumer
protection concerns.
Reasons: In § 668.13(c)(1)(i)(C), the Department proposes to clarify, consistent
with its current practice, that the Secretary may provisionally certify an
institution that is not meeting the requirements for financial responsibility
and administrative capability or is subject to an action under subpart G. The
reference to subpart G as currently written does not clearly separate subpart G
from the requirements for financial responsibility and administrative
capability, and so our proposed changes would clarify that subpart G is not a
required element for provisional certification, but rather a separate and
independent basis for provisional certification. In addition, we propose to
remove the language in existing § 668.13(c)(1)(i)(F) because it is related to
the automatic certification requirement in § 668.13(b)(3) the Department is
proposing to eliminate. In its place, we propose to add a new condition to
§ 668.13(c)(1)(i)(F) that would allow the Secretary the option to place an
institution on provisional status if the Department has determined the
institution is at risk of closure. This proposed condition aligns with
additional conditions the Department proposes to add to provisionally certified
schools at risk of closure in § 668.14 and would make it easier to apply
conditions, such as prohibiting transcript withholding, if the Secretary is
concerned about the institution's viability. Institutional closures create
significant disruption for students and the Department, which often leave
students no choice but to restart their education. In addition, students often
lose credits when transferring to another institution because teach-out plans
were not in place, resulting in significant liabilities tied to closed school
discharges. In fact, a GAO report stated that students who transferred lost an
estimated 43 percent of their credits. However, that differed greatly across
types of colleges.[136] Students transferring among for-profit colleges lost an
average of 83 percent of their credits, compared to a loss of 50 percent and 37
percent for transfers among non-profit and public colleges, respectively. Thus,
it is imperative for the Department to address risks associated with
institutions that are at risk of closure before they close, including by
encouraging more orderly closures, increasing the possibility of financial
protection for both the Department and students, and support students during
this difficult transition. As stated during negotiations, the Department would
notify the institution when it has determined that the school is at risk for
closure and provisionally certify it. In addition, we propose to add a new
condition in § 668.13 (c)(1)(i)(G) in which the Secretary may provisionally
certify an institution if it is permitted to Start Printed Page 32378 use the
provisionally certified alternative under subpart L. The provisional
certification alternative in subpart L is not dependent on an initial
application, a change of ownership, reinstatement or a recertification, but
permits an institution that is not financially responsible to participate in the
title IV, HEA programs under a provisional certification for no more than three
consecutive years.
The Department proposes new language in § 668.13(c)(1)(ii) designed to better
protect students and taxpayers by placing certain high-risk institutions under
provisional status. It also aligns the certification procedures regulations with
other changes being made to financial responsibility in other parts of this
NPRM. Institutions are currently placed on provisional status for a variety of
reasons, including changes in ownership, late submission of compliance audits,
and State or accreditor actions. The Department believes it is appropriate to
additionally place an institution under provisional status when an institution
lacks financial responsibility or any owner or interest holder of the
institution with control over that institution owns or owned another institution
with fines or liabilities owed to the Department. Placing an institution under
provisional certification for these reasons provides the Department the ability
to closely monitor that institution and it allows us to impose conditions in a
PPA to address our concerns ( e.g., by limiting the growth in an institution if
it is subject to an adverse condition by a creditor that indicates the
institution may be at risk of closure).
The Department proposes to add subpart L in § 668.13(c)(2) to provide a
provisional certification alternative that is not currently reflected in
§ 668.13(c). Unlike § 668.13(c), the alternative is not dependent on an initial
application, change of ownership, reinstatement, or recertification.
Proposed § 668.13(c)(2)(ii), would require institutions exhibiting consumer
protection concerns to recertify within two years. The Department believes this
proposed language would ensure more frequent oversight of institutions and would
allow the Department to reassess any problems regularly. While there are many
consumer protection concerns the Department would reassess institutions for, we
are particularly interested in reassessing changes of ownership with new owners
who have never operated a school, as well as where there has been an approved
conversion from proprietary to nonprofit status, for any continued involvement
after the change in ownership with prior owners that show signs of possible
prohibited insider advantage. As stated in a December 2020 GAO report [137] on
for-profit college conversions, it is imperative for the Department to develop
and implement procedures to monitor newly converted colleges. Proposed
§ 668.13(c)(2)(ii) would particularly help with changes in ownership as it would
require reassessment of provisionally certified institutions that have
significant consumer protection concerns by the end of their second year of
receiving certification.
The December 2020 GAO report [138] identified 59 changes of ownership from a
for-profit entity to a nonprofit entity, which involved 20 separate tax-exempt
organizations, between January 2011 and August 2020. Notably, one chain included
13 separate institutions that closed prior to the Department deciding whether to
approve the requested conversion to nonprofit status. Three-fourths of the
institutions were sold to a formerly for-profit entity (or nonprofit affiliate
of a for-profit entity) that had no previous experience operating an institution
of higher education, increasing the risk that an institution would not be
well-managed, or might be on shaky financial footing that depends upon
unrealistic assumptions about enrollment growth or profitability, or that is
unable to deliver an educational experience to students that has been promised.
This is the type of population of new owners we would reassess more frequently.
Without prior experience, we are not confident these owners would know how to
properly administer the title IV, HEA programs. For instance, one of the most
high-profile college failures in the last several years involved an owner that
had no prior experience running a postsecondary institution. On the other hand,
one-third of the institutions had what GAO termed “insider involvement” in the
purchasing of the nonprofit organization ( i.e., someone from the former
for-profit owner was involved in the nonprofit purchaser, as well), suggesting
greater risk of impermissible benefits to those insiders. We would reassess
prior owners that show signs of possible prohibited insider advantage because
“insider involvement” is typically done for an owner's own financial benefit and
not necessarily as a benefit for students.
DIRECTED QUESTION
We seek feedback from commenters about whether to maintain the proposed two-year
limit or extend recertification to no more than three years for provisionally
certified schools with major consumer protection issues. Both approaches would
operate as maximum lengths, allowing the Department to certify individual
institutions for shorter periods of time. We want to further consider whether
two years is long enough to evaluate how well the institution has addressed
consumer protection issues. If the Department makes a recertification decision
before it has enough information, it could mean not taking a fully informed
action when the institution reaches its recertification or taking a premature
action to deny recertification to an institution that is making a real effort to
improve. Since continuing to let an institution operate for longer could result
in significant increases in the total amount of potential liabilities, we are
especially interested to receive feedback from commenters.
SUPPLEMENTARY PERFORMANCE MEASURES (§ 668.13(E))
Statute: HEA section 498 requires the Secretary to determine the process through
which a postsecondary institution applies to the Department certifying that it
meets all applicable statutory and regulatory requirements to participate in the
title IV, HEA programs. This includes the requirement for institutions to enter
a written PPA with the Department.
Current Regulations: Current § 668.13 stipulates certain procedures governing
the Department's determination to certify an institution's eligibility to
participate in the title IV, HEA programs or condition the institution's
participation.
Proposed Regulations: We propose to add paragraph (e) to establish supplementary
performance measures the Department may consider in determining whether to
certify or condition the participation of the institution. Under proposed
§ 668.13(e), when making certification decisions, we could assess and consider
(1) the institution's withdrawal rate, defined as the percentage of students in
the enrollment cohort who withdrew from the institution within 100 percent or
150 percent of the published length of the program; (2) D/E rates of programs
offered by the institution, if applicable; (3) Earnings premium measures of
programs offered by the institution, if applicable; (4) the amounts the
institution spent on instruction/ Start Printed Page 32379 instructional
activities, academic support, and support services, and the amounts spent on
recruiting activities, advertising, and other pre-enrollment expenditures, as
provided through a disclosure in the institution's required audited financial
statements required under § 668.23; and (5) the licensure pass rate of programs
offered by the institution that are designed to meet educational requirements
for a specific professional license or certification that is required for
employment in an occupation, if the institution is required by an accrediting
agency or State to report licensure passage rates.
Reasons: Metrics such as withdrawal rates, D/E rates, earnings premium measures,
and spending on instruction, student support, and recruitment, can provide the
Department useful information regarding the value of an institution's
educational offerings and the outcomes students experience. To safeguard the
interests of students and taxpayers, we believe it is important that the
Department consider this information when making decisions about whether to
certify or condition an institution's title IV, HEA participation. Codifying
these supplemental performance measures would also provide additional clarity
and transparency to institutions regarding the types of information the
Department will likely consider when making certification decisions.
SIGNING A PROGRAM PARTICIPATION AGREEMENT (§ 668.14(A))
Statute: HEA section 498 requires the Secretary to determine the process through
which a postsecondary institution applies to the Department certifying that it
meets all applicable statutory and regulatory requirements to participate in the
title IV, HEA programs. This includes the requirement for institutions to enter
a written PPA with the Department. HEA section 498(e) specifies that the
Secretary may, to the extent necessary to protect the financial interest of the
United States, require financial guarantees from an institution participating or
seeking to participate in a title IV, HEA program, or from one or more
individuals who exercise substantial control over the institution.
Current Regulations: Current § 668.14(a) states that an institution may
participate in any title IV, HEA program, other than the LEAP and NEISP
programs, only if the institution enters a written PPA with the Secretary. A PPA
conditions the initial and continued participation of an eligible institution in
any title IV, HEA program upon compliance with the conditions specified in the
PPA.
Proposed Regulations: The Department proposes to add a new paragraph in current
§ 668.14 that would specify who must sign an institution's PPA. The Department
proposes new § 668.14(a)(3), which would state that an institution's PPA must be
signed by an authorized representative of the institution. Proprietary or
private nonprofit institutions would also be required to have an authorized
representative of an entity with direct or indirect ownership sign the PPA if
that entity has the power to exercise control over the institution. The
Secretary would consider the following as examples of circumstances in which an
entity has such power—
* If the entity has at least 50 percent control over the institution through
direct or indirect ownership, by voting rights, or by its right to appoint
board members to the institution or any other entity, whether by itself or in
combination with other entities or natural persons with which it is
affiliated or related, or pursuant to a proxy or voting or similar agreement.
* If the entity has the power to block significant actions.
* If the entity is the 100 percent direct or indirect interest holder of the
institution.
* If the entity provides or will provide the financial statements to meet any
of the requirements of § 600.20(g) or (h), or § 668 subpart L.
Reasons: Electronic Announcement (EA) GENERAL 22–16 updated PPA signature
requirements for entities exercising substantial control over non-public
institutions of higher education.[139] To protect taxpayers and students, the
Department believes that entities that exert control over institutions should
assume responsibility for institutional liabilities. Requiring owner entities to
sign the PPA and assume such liability provides protection in the event that an
institution fails to pay its liabilities, which has been a recurring problem
when institutions close, particularly those that close precipitously. While EA
GENERAL 22–16 used a rebuttable presumption, here we propose language in
§ 668.14(a)(3) that would not only require a representative of the institution
to sign a PPA, but also an authorized representative of an entity with direct or
indirect ownership or control of non-public institutions. The difference is we
would then be able to require these signatures in all situations that meet the
regulatory threshold, rather than on a case-by-case basis using the rebuttable
presumption.
When an institution closes, the Department often struggles to access funds from
the closing institution to pay its liabilities. This is particularly troublesome
knowing that some entities that own the institution continue to operate or have
the resources to repay the liabilities. In the event of closure, this protection
would allow the Department to ensure owner entities with at least a 50 percent
interest in the institution are liable for taxpayer losses that may be incurred
by the institution. Since owning more than 50 percent is considered a simple
majority, we believe this is a suitable percent to use as the threshold. As
discussed in our Final Rule for closed school discharges,[140] section 438 of
the HEA states that the Secretary must subsequently pursue any claim available
to such borrower (who received a closed school discharge) against the
institution and its affiliates and principals or settle the loan obligation
pursuant to the financial responsibility authority under subpart 3 of part H.
Consequently, we would pursue affiliates and principals, along with the
institution, to settle the loan obligation associated with a closed school
discharge. Specifically, we would consider owner entities with at least a 50
percent interest in the institution to be among those considered to be
affiliates or principals.
ENTERING INTO A PROGRAM PARTICIPATION AGREEMENT (§ 668.14(B)(5), (17), (18),
(26))
Statute: HEA section 498 requires the Secretary to determine the process through
which a postsecondary institution applies to the Department certifying that it
meets all applicable statutory and regulatory requirements to participate in the
title IV, HEA programs. This includes the requirement for institutions to enter
a written PPA with the Department. HEA section 498(c) outlines the criteria used
to determine whether an institution demonstrates financial responsibility.
Current Regulations: Current § 668.14(b)(5) states that by entering into a PPA,
an institution agrees that it will comply with the provisions of § 668.15
relating to factors of financial responsibility. Current § 668.14(b)(17) Start
Printed Page 32380 states that the Secretary, guaranty agencies and lenders as
defined in § 682, nationally recognized accrediting agencies, the Secretary of
Veterans Affairs, State agencies recognized under § 603 for the approval of
public postsecondary vocational education, and State agencies that legally
authorize institutions and branch campuses or other locations of institutions to
provide postsecondary education, have the authority to share with each other any
information pertaining to the institution's eligibility for or participation in
the title IV, HEA programs or any information on fraud and abuse. Current
§ 668.14(b)(18)(ii) states that an institution will not knowingly contract with
an institution or third-party servicer that has been terminated under section
432 of the HEA for a reason involving the acquisition, use, or expenditure of
Federal, State, or local government funds, or an institution or third-party
servicer that has been administratively or judicially determined to have
committed fraud or any other material violation of law involving Federal, State,
or local government funds. Current § 668.14(b)(18)(iii)(B) states that an
institution will not knowingly contract with or employ any individual, agency,
or organization that has been administratively or judicially determined to have
committed fraud or any other material violation of law involving Federal, State,
or local government funds. Current § 668.14(b)(26)(i) states that if an
educational program offered by the institution is required to prepare a student
for gainful employment in a recognized occupation, the institution must
demonstrate a reasonable relationship between the length of the program and
entry level requirements for the recognized occupation for which the program
prepares the student. In current § 668.14(b)(26)(i)(A) and (B), the Secretary
considers the relationship to be reasonable if the number of clock hours
provided in the program does not exceed the greater of one hundred and fifty
percent of the minimum number of clock hours required for training in the
recognized occupation for which the program prepares the student, or the minimum
number of clock hours required for training in the recognized occupation for
which the program prepares the student as established in a State adjacent to the
State in which the institution is located.
Proposed Regulations: The Department proposes to add three new paragraphs in
§ 668.14(b), amend one paragraph due to other changes made in the financial
responsibility regulations, and amend the program length requirements of GE
programs. We also propose to add language to extend to all federal agencies the
authority to share with each other any information pertaining to the
institution's eligibility for or participation in the title IV, HEA programs or
any information on fraud, abuse, or other violations of law.
The Department proposes to amend current § 668.14(b)(5) to refer to all factors
of financial responsibility in an expanded subpart L, instead of the current
mention of § 668.15, the text of which is being deleted with the section
reserved. In § 668.14(b)(17), the Department proposes to broaden the reference
of “the Secretary of Veterans Affairs” to “Federal agencies” and add State
attorneys general to the list of entities authorized to share information with
each other. Additionally, we propose to add “or other violations of law are
included within the fraud and abuse purposes of this information-sharing
provision. In § 668.14(b)(18), the Department proposes to restructure the
language to clarify the requirements for contracting and employing an
individual, agency, or organization. In § 668.14(b)(18)(ii)(C), the Department
proposes for an institution to not knowingly contract with any institution,
third-party servicer, individual, agency, or organization that has, or whose
owners, officers or employees have, been judicially determined to have committed
fraud or had participation in the title IV programs terminated, certification
revoked, or application for certification or recertification for participation
in the title IV programs denied. This would include any individuals who
exercised substantial control by ownership interest or management over the
institution, third-party servicer, agency, or organization that has had its
participation in title IV programs terminated or revoked, or its certification
or recertification denied. We also propose to add to the list of reasons in
which an institution or third-party servicer may be terminated from
participating in the title IV, HEA programs. Specifically, we propose to add
that an institution may not have owners, officers, or employees of the
institution or its third-party servicer that have exercised substantial control
over an institution, or a direct or indirect parent entity of an institution
that owes a liability for a violation of a title IV, HEA program, requirement
and is not making payments in accordance with an agreement to repay that
liability. The Department also proposes for an institution to not knowingly
contract with or employ any individual, agency, or organization that has been,
or whose officers or employees have been, ten-percent-or-higher equity owners,
directors, officers, principals, executives, or contractors at an institution in
any year in which that institution incurred a loss of Federal funds in excess of
5 percent of the institution's annual title IV, HEA program funds.
The Department proposes to make several revisions in § 668.14(b)(26) regarding
an educational program offered by an institution that is required to prepare a
student for gainful employment in a recognized occupation. Namely, in new
§ 668.14(b)(26)(ii), we propose to limit the number of hours in gainful
employment programs 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 any Federal
agency or the institution's accrediting agency.
If certain criteria are met, then a program may instead be limited to another
State's required minimum number of clock hours, credit hours, or the equivalent
required for training in the recognized occupation for which the program
prepares the student. Another State's requirements could only be used if the
institution can demonstrate that:
* A majority of students resided in that other State while enrolled in the
program during the most recently completed award year;
* A majority of students who completed the program in the most recently
completed award year were employed in that State; or
* The other State is part of the same metropolitan statistical area as the
institution's home State and a majority of students, upon enrollment in the
program during the most recently completed award year, stated in writing that
they intended to work in that other State.
For any programmatic and licensure requirements that come from a State other
than the home State, the institution must provide documentation of the State
meeting one of the three qualifying requirements listed above and the
documentation provided must be substantiated by the certified public accountant
who prepares the institution's compliance audit report as required under
§ 668.23.
Reasons: Current § 668.14(b)(5) refers to a legacy section of the General
Provisions (§ 668.15) that would be reserved under these proposed regulations.
Accordingly, in signing a Start Printed Page 32381 PPA, an institution would now
agree to comply with the provisions of subpart L of part 668 (instead of
§ 668.15 as is currently required), where all requirements related to financial
responsibility would now be located.
The Department's proposed changes to § 668.14(b)(17) broadening the list of
entities authorized to share information related to an institution's eligibility
for or participation in the title IV, HEA programs to include all Federal
agencies, as well as State attorneys general, would create an improved
accountability structure. Many Federal agencies provide student assistance and
are in possession of information potentially relevant to the Department's
oversight of institutions' participation in the title IV, HEA programs. This is
especially the case where such information indicates that an institution is in a
tenuous financial position or in danger of closing. Likewise, the addition of
State attorneys general to the list of entities included in information-sharing
related to title IV, HEA participation would codify in regulation access to one
of the best outside sources of knowledge available to the Department about
activities that may be detrimental to program integrity or the interests of
students. States play an important role in oversight of institutions, and we
believe the actions of attorneys general, especially where fraud or abuse are
suspected, and where an institution is in imminent danger of closing, are of
primary interest to the Department in meeting its responsibilities to oversee
the title IV, HEA programs and protect the interests of students. Evidence
generated from State attorneys general has enabled the Department to conduct a
more thorough and rigorous review of borrower defense claims against
institutions such as Corinthian Colleges, Inc., ITT Technical Institute (ITT),
the Court Reporting Institute, Minnesota School of Business and Globe
University, and Westwood College.[141] In several of these instances, State
attorneys general submitted internal company documents, presentations, emails,
and memos that assisted in establishing that these institutions engaged in
misrepresentations. The financial implications on borrowers of approved borrower
defense claims are significant. For example, the approval of 18,000 borrower
defense claims for individuals who attended ITT resulted in borrowers receiving
100 percent of their loans discharged, which amounted to approximately $500
million in relief.[142] Thus, State attorneys general have been an invaluable
source of evidence for many of the Department's approvals of borrower defense
claims and we anticipate they will continue to be an important source of
evidence. Not only would adding State attorneys general to the list of entities
included in information-sharing related to title IV, HEA participation formalize
an existing relationship that has greatly facilitated the Department's oversight
activities and granting of relief to borrowers, it would make possible an
exchange of information (applicable to all entities listed in § 668.14(b)(17))
that is mutually beneficial to the oversight activities of all involved. Lastly,
the addition in § 668.14(b)(17) of fraud, abuse, and other violations of law in
the type of information that may be shared among listed entities recognizes the
need for the Department, specifically the Office of the Inspector General, to be
informed whenever such activity is suspected and would establish in regulation a
protocol for that to occur.
In § 668.14(b)(18), the Department proposes to separate the employee and
contractor requirements between two romanettes because although they have
similar requirements, it reads clearer when splitting them into two paragraphs
and eliminates the duplication that previously occurred when additional criteria
was added. Current regulations found in § 668.14(b)(18)(ii) prohibit
institutions from contracting with other institutions or third-party servicers
that have been terminated from participation in title IV, HEA programs for a
reason involving the acquisition, use, or expenditure of Federal, State, or
local government funds, or that have been administratively or judicially
determined to have committed fraud or any other material violation of the law
involving Federal, State, or local government funds. The regulations are silent
on the principals of such entities except to the extent that current
§ 668.14(b)(18)(iii) prohibits an institution from contracting with or employing
any individual, agency, or organization that has been, or whose officers or
employees have been convicted of or pled nolo contendere to a crime involving
the use or expenditure of Federal, State, or local government funds or has been
administratively determined to have committed fraud or any other material
violation of law involving Federal, State, or local government funds. In
conducting oversight activities, the Department has become aware of individuals
involved with the administration of title IV, HEA programs who, though not
convicted of a crime or determined to have committed fraud involving public
funds, have nevertheless been principally involved in the operation of
institutions that have unpaid liabilities assessed against them. These
individuals often contract with another institution or third-party servicer who
have been terminated from participation in title IV, HEA, or whose owners,
officers, or employees had substantial control over an institution that still
owes a liability to the Department for a title IV, HEA violation that is not
being repaid. In addition, we also propose language that would ensure that
institutions may not employ or contract with owners or officers from an
institution that incurred a loss of Federal funds in excess of 5 percent of the
institution's annual title IV, HEA volume. In both cases, the Department is
concerned that allowing such individuals to continue to work with title IV, HEA
funds presents an ongoing risk to the integrity of the programs and could result
in additional future liabilities.
The proposed changes in § 668.14(b)(26) address concerns the Department has
about institutions offering programs tied to licensure that are longer than
required by their State, which results in those students using up more of their
lifetime eligibility for Pell Grants or other Federal financial aid, potentially
making it harder for them to pursue later training. Longer programs associated
with State minimum licensure requirements are more likely to result in higher
debt and a longer period of enrollment without requisite career benefits. To
that end, we propose changes to § 668.14(b)(26) that would limit the occasions
when an institution can offer a GE program that requires students to complete
more hours than are required by the institution's State for licensure or
certification purposes. Such a change ensures that students will still obtain
the necessary hours that the State requires so that they will be able to work in
a given profession but protects against accumulation of student debt and usage
of a student's lifetime limits for title IV, HEA financial assistance that go
beyond that required point. The current regulations, which permit an Start
Printed Page 32382 institution to offer a program that includes the greater of
150 percent of the hours required by the State in which the institution is
located, or the minimum hours required by an adjacent State, have led to
situations where institutions have offered more hours than were necessary for a
student to become licensed in the State where the institution was located, even
when the adjacent State that had a requirement for a greater number of hours was
many miles away and students were unlikely to seek to become employed there.
Our proposed changes in § 668.14(b)(26)(ii)(A) would generally allow for
programs to be at least as long as required by the State in which the
institution is located but allow for exceptions under § 668.14(b)(26)(ii)(B).
Namely, the institution would be permitted to offer a longer program that
fulfills another State's greater minimum requirements if an institution can
demonstrate that a majority of students resided in that State while enrolled in
the program during the most recently completed award year, were employed in such
a State during the most recently completed award year after completing the
program, or affirmed in writing upon enrollment that they intended to work in
such a State, as long as the State was in the same metropolitan statistical area
as the institution. In other words, if one of the exception criteria is met, the
institution could increase the minimum number of hours in the program to align
with the required number of hours in the State where students reside, were
employed, or intend to be employed. We included “credit hours, or the
equivalent” to codify our current policy that a program with credit hours must
perform a conversion to ensure that the converted hours in the program do not
exceed the minimum requirements for the State. Furthermore, to improve the
integrity and accuracy of the information supporting an exception, our proposed
changes in § 668.14(b)(26)(ii)(B) would add a required auditor attestation of
the institution's documentation that a majority of the students in its program
have a relationship with another State that meets one of the aforementioned
exemption criteria. In the three paragraphs under proposed
§ 668.14(b)(26)(ii)(B), we also added timeframes that reflect the most current
information that an institution could reasonably be expected to have in its
possession.
Notably, these changes leave untouched many existing provisions of the current
regulatory requirement in § 668.14(b)(26). This includes that the language only
applies to programs that are required to prepare a student for gainful
employment in a recognized occupation, that the institution establishes the need
for the training, and the concept that there be a reasonable relationship
between the length of the program and the requirements for working in the
occupation for which the student is being prepared.
ENTERING INTO A PROGRAM PARTICIPATION AGREEMENT (§ 668.14(B)(32–34))
Statute: HEA section 498 requires the Secretary to determine the process through
which a postsecondary institution applies to the Department certifying that it
meets all applicable statutory and regulatory requirements to participate in the
title IV, HEA programs. This includes the requirement for institutions to enter
a written PPA with the Department. HEA section 498(c) outlines the criteria used
to determine whether an institution demonstrates financial responsibility.
Current Regulations: None.
Proposed Regulations: The Department proposes to add three additional new
paragraphs to § 668.14(b). We propose § 668.14(b)(32) to require that 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 § 600.9(c)(2), the institution must determine that each program
eligible for title IV, HEA program funds—
* Is programmatically accredited if the State or a Federal agency requires such
accreditation, including as a condition for employment in the occupation for
which the program prepares the student, or is programmatically pre-accredited
when programmatic pre-accreditation is sufficient according to the State or
Federal agency;
* Satisfies the applicable educational prerequisites for professional licensure
or certification requirements in the State so that a student who completes
the program and seeks employment in that State qualifies to take any
licensure or certification exam that is needed for the student to practice or
find employment in an occupation that the program prepares students to enter;
and
* Complies with all State consumer protection laws related to closure,
recruitment, and misrepresentations, including both generally applicable
State laws and those specific to educational institutions.
The Department also proposes for § 668.14(b)(33) to state that an institution
will not withhold transcripts or take any other negative action against a
student related to a balance owed by the student that resulted from an error in
the institution's administration of the title IV, HEA programs, any fraud or
misconduct by the institution or its personnel, or returns of funds under the
Return of Title IV Funds process under § 668.22 unless the balance owed was the
result of fraud on the part of the student. We propose for § 668.14(b)(34) to
state that an institution will not maintain policies and procedures to
encourage, or condition institutional aid, including income-share agreements,
tuition payment plans, or other student benefits in a manner that induces, a
student to limit the amount of Federal student aid, including Federal loan
funds, that the student receives. The institution may provide a scholarship,
however, on the condition that a student forego borrowing if the amount of the
scholarship -provided is equal to or greater than the amount of Federal loan
funds that the student agrees not to borrow.
Reasons: Proposed § 668.14(b)(32) would require that an institution offering a
program that leads to an occupation meet all applicable requirements,
particularly if a program needs to meet programmatic accreditation or has
licensure requirements in order for program graduates to qualify to work in that
occupation. We are aware of institutions enrolling students in programs that do
not meet such requirements. Students in these programs often find themselves
struggling to find employment and owing student loans on credentials that do not
qualify them to work in the occupations for which they were trained. Thus, this
additional requirement would further protect students so that they do not waste
their time and money on programs that will not qualify them for licensure or
certification in an occupation in that State. The proposed regulations would
also further strengthen protection of the financial investment that taxpayers
are making in education so that Federal funds are not expended on programs that
will not qualify a student for licensure or certification.
To operate legally in a State, an institution is already required to comply with
that State's authorization requirements, including any State consumer protection
requirements. For an institution covered by a State authorization reciprocity
agreement to be considered legally offering postsecondary distance education in
a State, it is subject to any limitations in that agreement and to any State
requirements not relating to authorization of distance education. Start Printed
Page 32383
The additional requirement of § 668.14(b)(32)(iii) specifies that an institution
would have to make a determination that each of its programs eligible for title
IV, HEA program funds comply with all of a State's consumer protection laws
related to closure, recruitment, and misrepresentations, including both
generally applicable State laws and those specific to educational institutions.
In crafting this language, the Department is balancing the goals of ensuring
that institutions have a reasonable path to offer distance education to students
who do not reside within their borders while ensuring that States have the
ability to protect their students if an institution located in another State
tries to take advantage of students or is at risk of closure. We are concerned
about past situations in which States have raised concerns about institutions
that are physically located outside of its borders and taking advantage of
students while the State is limited in its ability to apply its own consumer
protection laws in these areas to protect its residents. That can hamper State
efforts to try and step in and help students if there is evidence that an
out-of-State school is taking advantage of students. It can also minimize the
ability of students to access tuition recovery funds to repay any tuition paid
out of pocket. Our proposed approach intentionally only applies to laws in three
areas: closure, recruitment, and misrepresentation. These are the three areas
where the Department has historically incurred the greatest expenses from
student loan discharges related to either closed schools or borrower defense.
This includes instances where closed institutions left students with no path to
complete a credential, cases where students were pressured into enrollment, and
cases where institutions misled students about key elements of the education. At
the same time, this language would not apply to other types of laws that may
represent significant variation across States in ways that would make it harder
for an institution to operate through a reciprocity agreement. This includes
tuition refund policies, rules on site visits, and State-specific outcomes
metrics.
While crafting this proposed requirement we recognize that there is a great
diversity in the types of different consumer protection laws and the benefits
they can provide students. Therefore, we seek feedback on the best way to
construct this requirement so that students are protected, financially and
otherwise, without creating unnecessary burden on institutions.
Furthermore, we propose a PPA requirement in § 668.14(b)(33) that prohibits
institutions from 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 administrative error with respect to the student's title IV, HEA funds,
if the balance otherwise results from the institution's fraud or misconduct, or
if the balance results solely from returns of title IV, HEA funds under the
Return of Title IV Funds requirements under § 668.22. We have seen instances
where institutions have improperly calculated a student's aid and, after
correcting the error and returning title IV, HEA funds back to the Department,
the institutions bill the student for those amounts. Additionally, following the
conclusion of negotiated rulemaking, the Department performed a comprehensive
analysis of the impact of the CARES Act waiver of returns of funds under Return
of Title IV Funds requirements on a student's likelihood to immediately
re-enroll following the withdrawal. The results of this analysis suggest that
students who qualified for the CARES Act waiver of returns of funds under the
Return of Title IV process were more likely to re-enroll in the following
semester at either their current or a new postsecondary institution. Given this
analysis, the stated concerns of negotiators regarding the practice of
transcript withholding, and several recent policy reports [143 144] regarding
the negative consequences for students related to transcript withholding, we
also believe that transcript withholding and debt collection procedures are
inappropriate in cases where account balances or other debts to the institution
result solely from the Return of Title IV Funds process. Institutional tuition
refund policies often stop providing refunds to students sooner than the point
at which institutions no longer have to return title IV, HEA aid from a student
who withdrew during a term. The result is that many students who withdraw after
tuition refund periods are over are frequently left with significant balances
owed to the institution simply because they withdrew from the institution and
were subject to the mandated Return of Title IV funds process. An institution
taking further negative action against a student in those circumstances could
exacerbate a situation that was already difficult for the student. In all these
circumstances, holding transcripts or taking other negative actions against the
student make it more difficult for the student to re-enroll or transfer credit
to another institution. Thus, in these circumstances we believe that withholding
transcripts for additional charges is counterproductive and inappropriate. The
proposed regulations would benefit students by not allowing institutions to
withhold transcripts from them when it was the institution's own actions
(whether unintentional or through fraud or other malfeasance) or the Return of
Title IV Funds process that resulted in an unanticipated charge. Furthermore, as
mentioned during negotiations, the Department oversees the administration of
title IV, HEA funds on students' behalf; however, separate from title IV, HEA,
the student has an agreement with the institution. Title IV Funds calculations
and institutional errors, misconduct, and fraud related to the awarding or
disbursement of title IV, HEA funds. Note that if an institution is
provisionally certified, we may apply other conditions that are necessary or
appropriate to the institution, including, but not limited to releasing holds on
student transcripts if the institution is at risk of closure, is teaching out or
closing, or is not financially responsible or administratively capable.
We propose a PPA condition in § 668.14(b)(34) that would address a problem where
institutions may prevent students from taking out Federal financial aid that
students are entitled to through various inducements, incentives, or
unnecessarily burdensome barriers. The last category includes setting up hurdles
such as requiring the completion of unnecessary or duplicative forms. We believe
it is critical that students be able to access all the Federal aid to which they
are entitled, especially to afford necessities like food and housing. We would,
however, make an exception for cases where the institution offers institutional
scholarships of the same or greater amounts as the Direct Loan funds for which
the student would otherwise be eligible to borrow. In such situations the
student would still have access to, and be able to receive, the full amount of
funding for which the school determined was needed. We believe this exception
would promote greater affordability and potentially leave students less indebted
at graduation, while still ensuring that the students Start Printed Page 32384
have funds to pay for educational expenses.
Note that this proposed provision that would prevent institutions from
establishing obstacles or inducements against borrowing is distinct from and
would not impact an institution's ability to refuse to originate a student's
Direct Loan under § 685.301(a)(8). Under those regulations, an institution may
refuse to originate or reduce the amount of a student's Direct Loan if the
reason for that action is documented and provided to the borrower in writing,
and if the institution makes such determinations on a case-by-case basis,
maintains documentation of each decision, and does not engage in any pattern or
practice that results in a denial of a borrower's access to Direct Loans because
of the borrower's race, gender, color, religion, national origin, age,
disability status, or income. The proposed restriction is on institutional
policies or practices designed to limit borrowing generally, not specific
refusals for individual students that are documented and made solely on a
case-by-case basis.
CONDITIONS THAT MAY APPLY TO PROVISIONALLY CERTIFIED INSTITUTIONS (§ 668.14(E)).
Statute: HEA section 498 requires the Secretary to determine the process through
which a postsecondary institution applies to the Department certifying that it
meets all applicable statutory and regulatory requirements to participate in the
title IV, HEA programs. HEA section 498(c) outlines the criteria used to
determine whether an institution has met the standards of financial
responsibility. HEA section 498(d) authorizes the Secretary to establish
reasonable procedures and requirements to ensure that institutions are
administratively capable. HEA section 498(h) discusses provisional certification
of institutional eligibility to participate in the title IV, HEA programs. HEA
section 498(k) outlines the treatment of teach-outs.
Current Regulations: Current § 668.14(e) states that a PPA becomes effective on
the date that the Secretary signs the agreement.
Proposed Regulations: We propose to redesignate current § 668.14(e) as
§ 668.14(h). The Department also proposes to add a new paragraph (e) that
outlines a non-exhaustive list of conditions that we may opt to apply to
provisionally certified institutions. We propose for institutions at risk of
closure to submit an acceptable teach-out plan or agreement to the Department,
the State, and the institution's recognized accrediting agency. We also propose
that institutions at risk of closure must submit an acceptable records retention
plan that addresses title IV, HEA records, including but not limited to student
transcripts, and evidence that the plan has been implemented, to the Department.
We also propose for an institution at risk of closure that is teaching out,
closing, or that is not financially responsible or administratively capable, to
release holds on student transcripts. Other conditions for institutions that are
provisionally certified would include—
* Restrictions or limitations on the addition of new programs or locations;
* Restrictions on the rate of growth, new enrollment of students, or Title IV,
HEA volume in one or more programs;
* Restrictions on the institution providing a teach-out on behalf of another
institution;
* Restrictions on the acquisition of another participating institution, which
may include, in addition to any other required financial protection, the
posting of financial protection in an amount determined by the Secretary but
not less than 10 percent of the acquired institution's Title IV, HEA volume
for the prior fiscal year;
* Additional reporting requirements, which may include, but are not limited to,
cash balances, an actual and protected cash flow statement, student rosters,
student complaints, and interim unaudited financial statements;
* Limitations on the institution entering into a written arrangement with
another eligible institution or an ineligible institution or organization for
that other eligible institution or ineligible institution or organization to
provide between 25 and 50 percent of the institution's educational program
under § 668.5(a) or (c);
• For an institution alleged or found to have engaged in misrepresentations to
students, engaged in aggressive recruiting practices, or violated incentive
compensation rules, requirements to hire a monitor and to submit marketing and
other recruiting materials ( e.g., call scripts) for the review and approval of
the Secretary.
Reasons: We propose new language under § 668.14(e), and to redesignate current
§ 668.14(e) as § 668.14(h). The Department proposes a non-exhaustive list of
conditions in new paragraph (e) to ensure greater monitoring and oversight on
provisionally certified institutions where we may already have concerns. This
non-exhaustive list of conditions would allow the Department to formalize tools
that are currently available but are not typically used. The list of conditions
we have included proactively address some of the issues we have seen with some
provisionally certified institutions, namely those at risk of closure, those
that are teaching out or closing, and those that are not financially responsible
or administratively capable. We propose a non-exhaustive list because we do not
want to foreclose any current flexibility that we have with respect to
monitoring provisionally certified institutions and we will publish updates to
the list as needed. The proposed § 668.14(e)(2) respond to concerns regarding
transcript withholding we heard during negotiations. Several negotiators stated
that students of color are disproportionately unable to access their transcripts
due to transcript withholding. In addition, one negotiator stated that if an
institution was being considered as a risk for closure, most students would want
to transfer institutions, but transcript holds for certain amounts would
negatively impact a student's ability to transfer to another institution.
Accordingly, we have expanded the provisional conditions related to transcript
withholding to increase students' access to their educational records at
institutions with risk of closure or institutions that are not financially
responsible or administratively capable. Moreover, we believe the other
conditions under proposed paragraph (e) for institutions at risk of closure
would better protect students from sudden closures that often leave them without
opportunities to complete their credentials or to transfer to another
institution. As described in a GAO report,[145] school closures derail the
education of many students, leaving them with loans but no degree. In fact,
college closure represented the end of many borrowers' educational pursuits.
Forty-three percent of borrowers enrolled at a college that closed did not
complete their program or continue their education by transferring to another
college.
The proposed restrictions and limitations are directed at institutions we
already have significant concerns with. These proposed conditions would make it
easier to manage the size of a risky institution and ensure that it does not
keep growing when it may be in dire straits. Specifically, we propose expressly
providing the authority to limit the addition of new programs and locations,
including in cases where we have concerns about an institution's ability to
adequately administer aid for Start Printed Page 32385 the programs they
currently offer. In addition, we propose expressly authorizing restrictions on
the rate of growth, new enrollment of students, or Title IV, HEA volume in one
or more programs. Such restrictions would help the Department manage an
institution's risk of imminent closure and mitigate the resulting harms to
students.
We also propose prohibiting provisionally certified institutions to provide a
teach-out on behalf of another institution. As GAO found,[146] some borrowers
who transfer after a school closure end up at a school that later shuts its
doors as well. From 2014 through 2020, nearly 11,500 borrowers transferred from
a closing college to another college that subsequently closed, accounting for
about 5 percent of borrowers affected by closures in that time. The government's
interest is to provide students the best possible chance of finishing their
education, and this could be substantially more challenging for students if they
transfer to institutions that are not providing adequate academic resources, are
not financially stable, are subject to State or accrediting agency actions or
program review findings, or generally lack administrative capability. We propose
to expressly authorize the Department to prevent institutions in these
situations from acquiring other institutions or participating in teach-outs of
closing institutions to limit risk to students. We also propose allowing for
additional reporting requirements, which may include, but are not limited to,
cash balances, an actual and protected cash flow statement, student rosters,
student complaints, and interim unaudited financial statements to monitor the
institution's progress. In addition, we propose allowing limitations on written
arrangements in which another eligible institution or ineligible organization
would provide more than 25 percent of a program because we are concerned about
institutions outsourcing their education to unregulated companies or to other
institutions. As indicated in DCL (GEN–22–07),[147] the Department is aware of
several arrangements between eligible institutions and ineligible entities that
have exceeded the regulatory limitations in § 668.5. For example, the Department
has witnessed cases where a program was offered in its entirety by an ineligible
entity, but the program was inaccurately represented as being offered by the
eligible institution for the primary purpose of obtaining title IV, HEA funds
for an otherwise ineligible program.
Furthermore, we are concerned with institutions that engage in misrepresentation
and aggressive recruitment because often these programs are not what they
advertise, and consequently this increases the likelihood of students filing a
borrower defense to repayment or false certification claim. As defined in
subpart F of part 668, misrepresentation includes false, erroneous, or
misleading statements, by an eligible institution, one of its representatives,
or any ineligible institution, organization, or person with whom the eligible
institution has an agreement to provide educational programs, or to provide
marketing, advertising, recruiting, or admissions services made directly or
indirectly to a student, prospective student, or any member of the public, or to
an accrediting agency, to a State agency, or to the Secretary. An eligible
institution has engaged in aggressive and deceptive recruitment tactics or
conduct when the institution itself, one of its representatives, or any
ineligible institution, organization, or person with whom the eligible
institution has an agreement to provide educational programs, marketing,
advertising, lead generation, recruiting, or admissions services, engages in one
or more of the prohibited practices in § 668.501. We propose that an institution
alleged or found to have misrepresented students, engaged in aggressive
recruiting practices, or that has violated incentive compensation rules, may be
required to hire a monitor and submit marketing and other recruiting materials (
e.g., call scripts) for the Department to review and approve. We included the
hiring of a monitor as a possible requirement because we believe a monitor would
help us get information that we do not readily get from audits. Conditions for
institutions that undergo a change in ownership seeking to convert from a
for-profit to a nonprofit institution (§ 668.14(f)).
Statute: HEA section 498 requires the Secretary to determine the process through
which a postsecondary institution applies to the Department certifying that it
meets all applicable statutory and regulatory requirements to participate in the
title IV, HEA programs. HEA section 498(i) outlines the treatment of changes of
ownership.
Current Regulations: Current § 668.14(f) states that except as provided in
current paragraphs § 668.14(g) and (h), the Secretary terminates a PPA through
the proceedings in subpart G of part 668.
Proposed Regulations: We propose to redesignate current § 668.14(f) as
§ 668.14(i). The Department proposes to add a new paragraph (f) that outlines
conditions that would be applied to institutions that undergo a change in
ownership seeking to convert from a for-profit institution to a nonprofit
institution. The first condition we propose is for the institution to continue
to meet the revenue percentage requirements under § 668.28(a) until the
Department has accepted, reviewed, and approved the institution's financial
statements and compliance audits that cover two complete consecutive fiscal
years in which the institution meets the requirements of § 668.14(b)(16) under
its new ownership, or until the Department approves the institution's request to
convert to nonprofit status, whichever is later. The second condition we propose
is for the institution to continue to meet the GE requirements of subpart S of
part 668 until we have accepted, reviewed, and approved the institution's
financial statements and compliance audits that cover two complete consecutive
fiscal years under its new ownership, or until we approve the institution's
request to convert to a nonprofit institution, whichever is later. The third
condition we propose is for the institution to submit regular and timely reports
on agreements entered with a former owner of the institution or a natural person
or entity related to or affiliated with the former owner of the institution, so
long as the institution participates as a nonprofit institution. In our fourth
condition, we propose to prohibit an institution from advertising that it
operates as a nonprofit institution for the purposes of title IV, HEA until the
Department approves the institution's request to convert to a nonprofit
institution. We also propose to apply any other conditions the Secretary deems
appropriate to serve the interests of students and taxpayers and ensure
compliance from institutions.
Reasons: We propose new language under § 668.14(f), thus the current § 668.14(f)
would be redesignated as § 668.14(i). Proposed § 668.14(f) expands on recent
changes made to § 600.31(d)(7), particularly on the Department's belief that it
is reasonable to require institutions seeking to convert from for-profit to
nonprofit status to continue to meet all the requirements applicable to
for-profit colleges for the later of two complete consecutive years under the
new ownership or until the Department approves the institution's request to
convert to nonprofit status. The conversion from a for-profit to a nonprofit
institution is among the Start Printed Page 32386 riskier types of transactions
we review, and we want to make certain that these transitions are not being made
to evade financial consequences or federal oversight for the school, such as
failures of the 90/10 rule or the proposed gainful employment requirements in
this NPRM. As explained in the recent final rule [148] regarding changes in
ownership (CIOs), a 2020 GAO report noted that of 59 CIOs (involving 20 separate
transactions) involving a conversion from a for-profit entity to a nonprofit
entity, one entire chain that comprised 13 separate institutions was granted
temporary continued access to title IV, HEA aid but ceased operations prior to
the Department reaching a decision on whether to approve the requested
conversion to nonprofit status. Three-fourths of these CIOs involved sales to a
nonprofit entity that had not previously operated an institution of higher
education, a particular challenge given that many of the institutions involved
in these CIOs had a history of lawsuits, settlements, and investigations into
the practices of the underlying institutions that suggested students were not
being served well. One-third of these CIOs had what GAO termed “insider
involvement” in the purchasing of the nonprofit organization ( i.e., someone
from the former for-profit ownership was also involved with the nonprofit
purchaser), suggesting greater risk of impermissible benefits to those insiders.
Altogether, the 59 institutions that underwent a change in ownership resulting
in a conversion received more than $2 billion in taxpayer-financed Federal
student aid in Award Year 2018–19. Given the potential risk in such
transactions, we want to ensure that they occur in a way that protects students,
the Department, and taxpayers. The conditions in proposed § 668.14(f) include
complying with 90/10 and gainful employment requirements for the later of two
years or until the Department approves the institution's request to convert to
non-profit status. This ensures there is no change in oversight of 90/10 until a
CIO has been thoroughly reviewed and approved. In addition, we believe it is
necessary for an institution to submit agreements with the former owner of the
institution to assess whether former owners are improperly benefitting from
those agreements.[149] These concerns are detailed in final regulations related
to change in ownership procedures that were published in the Federal Register on
October 28, 2022, and include ensuring that the institution is operating as a
nonprofit for the purposes of title IV aid and ensuring that the institution's
revenues are not impermissibly benefiting the prior owner or other parties.[150]
Lastly, we believe that if an institution's website or other public information
describes its ownership structure as private, the institution should identify
whether it participates in title IV, HEA programs as a nonprofit institution or
a proprietary institution for clarity as we would consider an institution to be
a for-profit institution until we have reviewed and approved the institution's
application for nonprofit college status.
This list of conditions under proposed § 668.14(f) would address the interim
period during which the Department is determining whether the institution
seeking to convert from a for-profit institution to a nonprofit institution
would be considered as a nonprofit institution for title IV, HEA purposes. The
Department does not take a position regarding an institution being designated a
501(c)(3) tax-exempt status by the IRS. However, the institution would have to
refrain from identifying itself as a nonprofit institution in any advertising
publications or other notifications until the Department recognizes and approves
the change of status. In other words, if the Department has not approved the
institution as a non-profit for purposes of the federal student aid programs,
then it cannot mislead prospective students or misrepresent itself as a
“nonprofit institution” in the context of title IV, HEA aid. Using the term
nonprofit prematurely could potentially confuse students and the public who may
interpret nonprofit as the Department having granted the institution nonprofit
status under its regulations, which would not be accurate. Thus, as the
institution would still be considered a for-profit entity during this interim
period, reporting requirements for the for-profit entity would continue to
apply.
CONDITIONS FOR INITIALLY CERTIFIED NONPROFIT INSTITUTIONS, OR INSTITUTIONS THAT
HAVE UNDERGONE A CHANGE OF OWNERSHIP AND SEEK TO CONVERT TO NONPROFIT STATUS
(§ 668.14(G)).
Statute: HEA section 498 requires the Secretary to determine the process through
which a postsecondary institution applies to the Department certifying that it
meets all applicable statutory and regulatory requirements to participate in the
title IV, HEA programs. HEA section 498(i) outlines the treatment of changes of
ownership.
Current Regulations: Current § 668.14(g) states conditions when an institution's
PPA automatically expires.
Proposed Regulations: We propose to redesignate current § 668.14(g) as
§ 668.14(j). The Department proposes to add a new paragraph (g) that outlines
conditions for initially certified nonprofit institutions, or institutions that
have undergone a change of ownership and seek to convert to nonprofit status,
which would apply upon initial certification or following the change in
ownership. The first condition we propose is for the institution to submit
reports on accreditor and State authorization agency actions and any new
servicing agreements within 10 business days of receipt of the notice of the
action or of entering into the agreement, as applicable. This condition would
continue to apply until (1) the Department has accepted, reviewed, and approved
the institution's financial statements and compliance audits that cover two
complete consecutive fiscal years following initial certification, (2) two
complete fiscal years after a change in ownership, or (3) until the Department
approves the institution's request to convert to nonprofit status, whichever is
later. Note that accreditors are already obligated to tell the Department about
actions related to the institutions they accredit. Accreditors currently use the
Database of Accredited Postsecondary Institutions and Programs (DAPIP) to submit
these reports, but in proposed § 668.14(g) the institution, irrespective of what
the accreditor does, would report this information to Department staff. The
second condition we propose is for the institution to submit a report and copy
of the communications from the IRS (Internal Revenue Service) or any State or
foreign country related to tax-exempt or nonprofit status within 10 business
days of receipt so long as the institution participates as a nonprofit
institution. We also propose to apply any other conditions that the Secretary
deems appropriate.
Reason: We propose new language under § 668.14(g), thus the current § 668.14(g)
would be redesignated as § 668.14(j). In proposed § 668.14(g) the Department
would be more hands-on with initially certified nonprofit institutions and
institutions that have undergone a change of ownership and seek to convert to
nonprofit status by helping them familiarize themselves with the Federal
financial aid programs. Start Printed Page 32387 With respect to proposed
§ 668.14(g) we believe it is important to obtain reports on accreditor and State
authorization agency actions and any new servicing agreements quickly because we
need access to the information to better assess the strength of the institution
and confirm that it is complying with the requirements of the other members of
the triad. The proposed language in § 668.14(g) would require institutions to
report more information to the Department from accreditors, States, and the IRS
ensures that the Department is made aware of any likely oversight actions by
other key entities. This is an improvement over current conditions in which
reporting may be irregular and is not required of institutions. Moreover, as
part of GAO's report addressing risks associated with some for-profit college
conversions, GAO recommended the IRS collect information that would enable the
agency to systematically identify tax-exempt colleges with a for-profit history
for audit and other compliance activities.[151] In the same GAO report, GAO
recommended that the Department develop and implement monitoring procedures for
staff to review the audited financial statements of all newly converted
nonprofit colleges for the risk of improper benefit. We believe that looking
over an institution's correspondence with the IRS would help us monitor
institutions for any improper benefits from their conversions to nonprofit
status.
ABILITY TO BENEFIT
The Committee reached consensus on the Department's proposed regulations on ATB.
The Department has published the proposed ATB amendatory language without
substantive alteration to the agreed-upon proposed regulations.
GENERAL DEFINITIONS (§ 668.2)
Statute: Section 484(d)(2) of the HEA defines “eligible career pathway program.”
Current Regulations: None.
Proposed Regulations: We propose to adopt almost the entire statutory definition
of an “eligible career pathway program” in our regulations. Under the proposed
definition, an “eligible career pathway program” would mean a program that
combines rigorous and high-quality education, training, and other services that—
* Align with the skill needs of industries in the economy of the State or
regional economy involved;
• Prepare an individual to be successful in any of a full range of secondary or
postsecondary education options, including apprenticeships registered under the
Act of August 16, 1937 (commonly known as the “National Apprenticeship Act”; 50
Stat. 664, chapter 663; 29 U.S.C. 50 et seq.);
* Include counseling to support an individual in achieving the individual's
education and career goals;
* Include, as appropriate, education offered concurrently with and in the same
context as workforce preparation activities and training for a specific
occupation or occupational cluster;
* Organize education, training, and other services to meet the particular needs
of an individual in a manner that accelerates the educational and career
advancement of the individual to the extent practicable;
* Enable an individual to attain a secondary school diploma or its recognized
equivalent, and at least one recognized postsecondary credential; and
* Help an individual enter or advance within a specific occupation or
occupational cluster.
Reasons: This definition is in large part a duplication of the statute, which
requires that students accessing title IV, HEA aid through ATB be enrolled in
eligible career pathway programs. The Department has proposed to exclude the
statutory definition's cross-reference to apprenticeship programs, which reads
in the statute as “(referred to individually in this chapter as an
`apprenticeship', except in section 171);” [152] because we do not discuss
apprenticeships elsewhere in part 668.
STUDENT ELIGIBILITY—GENERAL (§ 668.32)
Statute: Section 484(d) of the HEA establishes the student eligibility
requirement for students who are not high school graduates.
Current Regulations: Current § 668.32(e)(2) states that a student is eligible to
receive title IV, HEA aid if the student has obtained a passing score specified
by the Secretary on an independently administered test in accordance with
subpart J of the student assistance general provisions. Subpart J delineates the
process for approval of the independently administered tests and the
specifications of passing scores, among other criteria.
Current § 668.32(e)(3) states that a student is eligible to receive title IV,
HEA aid if he or she is enrolled in an eligible institution that participates in
a State “process” that is approved by the Secretary under subpart J of part 34.
Current § 668.32(e)(5) provides that a student is eligible for title IV, HEA aid
if the institution determines that the student could benefit from the education
offered based on satisfactory completion of 225 clock hours or six semester,
trimester, or quarter hours that are applicable toward a degree or certificate
offered by the institution.
Proposed Regulations: Throughout §§ 668.32(e)(2), (3) and (5), we propose
changes that clarify the differences between eligibility for students who
enrolled before July 1, 2012, and students who enrolled on or after that date.
We propose to amend § 668.32(e)(2), by allowing for student eligibility for
title IV, HEA aid if a student has obtained a passing score specified by the
Secretary on an independently administered test in accordance with subpart J of
this part, and either under proposed § 668.32(e)(2)(i) was first enrolled in an
eligible program before July 1, 2012; or under proposed § 668.32(e)(2)(ii) is
enrolled in an eligible career pathway program as defined in section 484(d)(2)
on the HEA.
We propose to amend § 668.32(e)(3) by allowing for student eligibility for title
IV, HEA aid if a student is enrolled in an eligible institution that
participates in a State process approved by the Secretary under subpart J of
this part, and either was first enrolled in an eligible program before July 1,
2012; or (ii) is enrolled in an eligible career pathway program as defined in
section 484(d)(2) of the HEA.
We propose to amend § 668.32(e)(5), by allowing for student eligibility for
title IV, HEA aid if it has been determined by the institution that the student
has the ability to benefit from the education or training offered by the
institution based on the satisfactory completion of six semester hours, six
trimester hours, six quarter hours, or 225 clock hours that are applicable
toward a degree or certificate offered by the institution, and either: (i) was
first enrolled in an eligible program before July 1, 2012; or (ii) is enrolled
in an eligible career pathway program as defined in section 484(d)(2) of the
HEA.
Reasons: These are technical changes. Section 309(c), Division F, title III of
the 2011 amendments to the HEA (Pub. L. 112–74), allows students who were
enrolled prior to July 1, 2012, to continue to be eligible for title IV, HEA aid
under the previous ability to benefit alternatives. The Department discussed the
amendment in Dear Colleague Letter Start Printed Page 32388 GEN–12–09 (June 28,
2012),[153] where we explained that the new provision in the 2014 amendments did
not affect the eligibility of students first enrolled in an eligible program or
registered to attend an eligible institution prior to July 1, 2012.
The 2014 amendments to the HEA, enacted on December 16, 2014 (Pub. L. 113–235),
amended section 484(d) to allow a student who does not have a high school
diploma or its recognized equivalent, or who did not complete a secondary school
education in a homeschool setting, to be eligible for title IV, HEA aid through
the three ATB alternatives discussed in the Background section of this NPRM, but
only if the student is enrolled in an eligible career pathway program. These
technical changes to the regulatory text would further clarify how student
eligibility applies in each case.
APPROVED STATE PROCESS (§ 668.156)
Statute: Section 484(d)(1)(A)(ii) of the HEA states that a non-high school
graduate shall be determined as having the ability to benefit from the education
or training in accordance with such process as the State prescribes.
Current Regulations: Section 668.156(a) provides that the State process is one
of the ATB alternatives. Under this section, if a State wishes the Department to
consider its State process, that State must list all of the institutions that
will participate in the State process.
Section 668.156(b) requires that if a State wishes the Department to consider
its state process, the State submit a success rate for non-high school graduates
that is within 95 percent of the success rate of students with high school
diplomas. The method for calculating the success rate is described in
§ 668.156(h) and (i).
Section 668.156(c) requires that the participating institution provide certain
services to each student admitted through the State process, which generally
include orientation, assessment of the student's existing capabilities,
tutoring, counseling, and follow-up by teachers and counselors regarding student
performance.
Section 668.156(d) requires that if a State wishes the Department to consider
its State process, a State monitor each participating institution on an annual
basis, prescribe corrective action for noncompliant institutions, and terminate
the participation of an institution that refuses or fails to comply. Section
668.156(e) requires the Secretary to respond to a State's application within six
months or the application is automatically approved. Section 668.156(f)
stipulates that the State process can be approved for up to five years.
Section 668.156(g) provides the Secretary with the authority to withdraw the
State process if the State violates any part of § 668.156. This provision also
provides the State with an appeal process.
Proposed Regulations: The Department proposes to restructure the section and add
several new provisions to § 668.156.
In § 668.156(a)(1) we propose to update the regulations to include the
six-credit hour ATB alternative in section 484(d)(1)(A)(iii). Currently the
regulations list only the test alternative and the State process.
Under § 668.156(a)(2) we propose that a State, in its application for the State
process:
* List all institutions that would be eligible to participate in the State
process.
* Describe the requirements that participating institutions must meet to offer
eligible career pathway programs under that process.
* Certify that each proposed eligible career pathway program meets the
definition under § 668.2 and documentation requirements under § 668.157 as of
the submission date of the application.
* List the criteria used to determine student eligibility in the State process.
* Exclude from participation in the State process any institution that has a
withdrawal rate that exceeds 33 percent of the institution's undergraduate
regular students. Institutions must count all regular students who were
enrolled during the latest completed award year, except those students who
withdrew from, dropped out of, or were expelled and received a refund of 100
percent of their tuition and fees.
In § 668.156(a)(3) we propose that the Secretary would verify that a sample of
eligible career pathway programs offered by institutions participating in the
State process meet the definition of an eligible career pathway program.
We propose to separate the State process application into the initial
application process, as described under § 668.156(b), and a subsequent
application process, as described under § 668.156(e). All applications, whether
initial or subsequent, would comply with requirements under § 668.156(a). In
both the initial and subsequent applications, we propose to remove the services
required under current § 668.156(c), and instead those services would largely
appear under the definition of an eligible career pathway program in proposed
§ 668.157.
In § 668.156(b)(1) we propose that a State's initial application may be approved
for two years if the State satisfies requirements under proposed § 668.156(a),
discussed above, and proposed §§ 668.156(c) and (d), which are discussed later
in this section. Under proposed § 668.156(b)(2), the States would be required to
agree not to exceed enrollment under the State process of more than 25 students
or one percent of the enrollment, whichever is greater, at each participating
institution.
In § 668.156(c)(1) we propose that institutions must adhere to the student
eligibility requirements under § 668.32 for access to title IV, HEA aid. We also
propose that States must ensure monitoring of the institutions that fall within
the State process and take appropriate action in response to that monitoring,
including:
* On an annual basis, monitoring each participating institution's compliance
with the State process, including the success rate requirement;
* Requiring corrective action if an institution is found to be noncompliant
with the State process;
* Providing participating institutions up to three years to come into
compliance with the success rate if, in the State's subsequent application
for continued participation of the State process, an institution fails to
achieve the success rate required under proposed § 668.156(e)(1) and (f); and
* Requiring termination of a participating institution from the State process
if there is a refusal or failure to comply.
Proposed § 668.156(d) simply redesignates the current § 668.156(e), with the
language otherwise unchanged.
We propose to outline the new subsequent application process under the new
§ 668.156(e). Each participating institution would be required to calculate a
success rate for non-high school graduates that is within 85 percent of the
success rate of students with high school diplomas. We would require the State
to continue to comply with proposed §§ 668.156(a) and (c)(related to the
contents of the application and monitoring requirements for the State). We would
require the State to report information about participating students in eligible
career pathway programs, including disaggregated by race, gender, age, economic
circumstances, and educational attainment, related to their enrollment and
success. Current § 668.156(d), which relates to the Start Printed Page 32389
Secretary's approval of the State process application, would continue to apply.
We propose several changes from current regulations under § 668.156:
* The success rate would be 85 percent. Currently it is 95 percent.
* The success rate would be calculated and reported separately for every
institution. Currently the success rate combines all institutional data into
one calculation.
* The success rate for participating institutions would compare non-high school
graduates to high school graduates in the same programs. Currently the
regulation compares non-high school graduates to high school graduates in any
program.
Current § 668.156(i), which states that the success rate would be based on the
last award year for which data are available during the last two completed award
years before the application is submitted, would be redesignated as proposed
§ 668.156(g)(1). The Department proposes to remove the requirement that the data
come from the last two completed award years. The Department also proposes to
add a new § 668.156(g)(2), to allow that if no students enroll through the State
process during the initial approval, we would extend the approval for one
additional year.
The Department also proposes under § 668.156(h) to require States to submit
reports on their process in accordance with deadlines and procedures established
in a notice published in the Federal Register . Proposed § 668.156(i), which
states that the maximum length of the State process approval is five years, is
simply redesignated from current § 668.156(f), which includes the same maximum
length.
Finally, proposed § 668.156(j)(1) clarifies that the Secretary would withdraw
approval of the State process for violation of the terms of § 668.156 or for the
submission of inaccurate information. Proposed § 668.156(j)(1)(i) would provide
that this withdrawal of approval occurs if the State fails to terminate an
institution from participation in the State process after its failure to meet
the success rate. However, proposed § 668.156(j)(1)(ii) would provide that,
under exceptional circumstances determined by the Secretary, the State process
can be approved once for a 2-year period. If more than 50 percent of
participating institutions across all States do not meet the 85 percent success
rate requirement, proposed § 668.156(j)(1)(iii) provides that the Secretary may
lower the success rate to no less than 75 percent for two years. Current
§ 668.156(g)(2) would be redesignated as proposed § 668.156(j)(2) and would
state that the Secretary provides the State an opportunity to contest a finding
that the State process violated the requirements of the section or that the
information submitted was inaccurate. Under proposed § 668.156(j)(3), we propose
that if the Secretary's termination of a State process is upheld after the
appeal, the State cannot reapply to the Department for approval of a State
process for five years.
Reasons: The change made to proposed § 668.156(a)(1) is a technical update to
include the six-credit hour or recognized equivalent alternative as defined in
section 484(d)(1)(A)(iii) of the HEA so that the list of alternatives in
regulation is complete.
Proposed § 668.156(a)(2) describes documentation that would be required in both
the initial and subsequent applications. The requirement to provide a list of
participating institutions in proposed § 668.156(a)(2)(i) aligns with the
current regulation. In § 668.156(a)(2)(ii), we propose to require a list of
standards that participating institutions must meet to offer an eligible career
pathway program under the State process as an alternative to including the list
of particular services that must be required of institutions under current
§ 668.156(c). We believe that the eligible career pathway program definition we
propose to add to the regulations includes substantially similar types of
services; and cross-referencing to that list would provide more clarity to the
field about how the State process connects to the definition of an eligible
career pathway program. We also propose under § 668.156(a)(2)(iii) to require
institutions to certify that the eligible career pathway program offered by
participating institutions under the State process meets the regulatory
definition and documentation requirements. This certification would provide
greater assurances to the Department that institutions are compliant with the
statutory requirements for ability to benefit, provide greater certainty that
students utilizing ability to benefit would receive the support services they
need to succeed, and would protect taxpayers from investing Federal financial
aid dollars in programs that do not meet the intended requirements. For those
reasons, we believe that the Secretary need only approve a sample of eligible
career pathway programs. To better understand the State process as it relates to
students, and to ensure that States have a process sufficiently rigorous to
comply with the law, the Department requires that student eligibility criteria
be outlined in all applications, as described under proposed
§ 668.156(a)(2)(iv). This would also provide deeper insights into the landscape
of programming that States and institutions are providing to students who have
not earned a high school diploma or equivalent. Proposed § 668.156(a)(2)(v)
would require that all institutions listed for the first time on an application
not have a withdrawal rate of over 33 percent as a consumer protection. This is
similar to the current administrative capability regulations in § 668.16(l),
which apply to all institutions seeking initial certification to participate in
the Federal aid programs. We believe that students who have not yet earned a
high school diploma or equivalent require substantial supports to ensure they
are able to succeed. As we noted when we added the withdrawal rate measure as an
eligibility requirement, the Secretary believes that these rates are appropriate
measures of an institution's past administrative performance, and that
withdrawal rates are a function of overall institutional performance and the
support services that are provided to students. The Department proposes under
§ 668.156(e)(1) to move the success rate calculation (the outcome metric) to the
subsequent application, since we recognize that before the State process is in
place, it is unlikely the State or its institutions would have calculated a rate
and may not even have enrolled students through ability to benefit. The
Department is aware that this challenge has kept many States from being able to
submit a complete State process application and believes this change would
provide States with sufficient time to make the success rate calculation.
Proposed § 668.156(b) describes the initial application process. Currently, the
regulations require the success rate to be included as a part of States' first
application to the Secretary. No currently approved State has provided the
success rate as a part of its application. The current success rate formula
outlined in current § 668.156(h) does not take into account eligible career
pathway programs, therefore, it has been difficult for the Department to provide
a consistent application to States. Further, many States would not be able to
complete the success rate calculation unless participating institutions have
their own funds to enroll non-high school graduates under a State process for at
least a year. The current regulation at § 668.156(b)(1) references students it
admits “under that process”, meaning that Start Printed Page 32390 participating
institutions must be enrolling non-high school graduates into programs prior to
their application to the Department, which is very difficult for institutions
without funds to support such students. Therefore, the Department proposes to
give States more time in their State process to gather the necessary data to
calculate the success rate after students become eligible for Title IV, HEA aid.
In proposed § 668.156(b)(2), the Department initially proposed to the Committee
a one percent cap on enrollment through the State process at each participating
institution. This cap is intended to serve as a guardrail against the rapid
expansion of eligible career pathway programs. We believe these protections are
particularly important because the required success metric is no longer included
at the initial application of a State process. A committee member believed the
cap on enrollment in the initial phase would restrict enrollment at smaller
institutions and suggested that the cap be established as the greater of a one
percent on enrollment or 25 students at each participating institution. The
Committee adopted that committee member's suggestion.
Proposed § 668.156(c) generally incorporates current § 668.156(d), in that it
would require the State to ensure annual monitoring, corrective action, and
termination of institutions that refuse or fail to comply with the State
process. Proposed § 668.156(c)(1) simply conveys that States and participating
institutions must comply with title IV, HEA student eligibility requirements. We
propose to add § 668.156(c)(4), which would allow an institution that does not
meet the success rate requirements up to three years to come back into
compliance. This would provide some latitude to States to ensure that the
failure to meet the success rate requirement is not due just to a single-year
variation and would grant institutions some time to demonstrate improved
outcomes, while ensuring that institutions that continue to miss the required
rate are not permitted to participate in the State process indefinitely. In
§ 668.156(c)(6), we propose to prohibit an institution that has been terminated
from the State process from participating for at least five years after the
action because we believe that is a reasonable amount of time for the
institution to rectify issues before returning to the State process. This
timeline also mirrors the proposed limitation in § 668.156(j)(1)(v) that limits
a State for which the Secretary has withdrawn approval of the State process from
reapplying for a State process for at least five years after the withdrawal.
Proposed § 668.156(e) establishes the requirements for the subsequent
application. During the negotiations, the Department originally wanted to
maintain the 95 percent success rate requirement established in current
regulations. However, the Department ultimately accepted a committee member's
recommendation of lowering the success rate from 95 percent to 85 percent in
proposed § 668.156(e)(1) because the member believed that 95 percent is too
difficult to achieve. The Department views this change as necessary to achieve
consensus, and notes all of the other guardrails and consumer protections that
would be put in place under the proposed changes to § 668.156, which would
ensure adequate student protections are in place even with a lower success rate.
The new proposed protections include withdrawal rate considerations, caps on
initial enrollment, review of a sample of eligible career pathway programs
during the application review to ensure that they meet the requirements in the
regulations, enhanced reporting by States, and expanded Departmental authority
to terminate a State process and bar participation for five years. The
Department also notes that, given an absence of existing data to either support
or contradict the 95 percent success rate, there is limited information with
which to consider this requirement; to that end, we invite commenters to submit
additional information about the success rates of ATB students to further inform
this rulemaking. Proposed § 668.156(e)(3) would require that States report on
the demographic information of participating students and on their outcomes
because the Department seeks to implement section 484(d) of the HEA, which
requires the Department to take into account the cultural diversity, economic
circumstances, and educational preparation of the populations served by the
institutions. The Department also believes that ensuring diversity,
disaggregating data to assess the outcomes of all students and student subgroups
and promoting equitable success for students are critical goals and central to
the purpose of the title IV, HEA programs.
The overall structure of the success rate calculation under proposed
§ 668.156(f) is based in large part on the success rate formula in current
§ 668.156(h). Due to the implementation of the eligible career pathway programs
as a requirement for students that fulfill an ATB alternative, not reflected in
the current regulations, we believe that it is necessary to further clarify the
comparison groups for the formula. In particular, proposed § 668.156(f) would
clarify that the success rate must be calculated for each participating
institution, rather than as an overall number for the State. We also believe
this would be better for States because if one institution continually fails to
produce the required success rate, that specific institution would be removed
from the State process without risking the termination of the entire State
process and every participating institution that falls under that process.
Proposed § 668.156(f)(1) would compare students in the same programs because we
believe it would yield more relevant outcomes data about specific programs.
Currently students in the State process are compared to all high school
graduates in any program, even if they were not programs that students admitted
through the State process engaged in. We do not believe the comparison is
targeted enough to yield data that States, participating institutions, or the
Department could use in making determinations about the State process.
We propose to provide participating institutions two years of initial approval,
so they have sufficient time to collect data needed to calculate and report the
success rate. Accordingly, we propose to revise § 668.156(g)(1) to reflect that
the data used in calculating the success rate must be from the prior award year,
rather than from either of the two prior award years. We also recognize that
some States may not see significant enrollment, and in fact, may have years in
which no ATB student enrolls in an eligible career pathway program. Accordingly,
in proposed § 668.156(g)(2), we would provide those States with a one-year
extension to the initial approval to allow for more time to enroll students to
calculate a success rate.
To have sufficient access to relevant and timely data about the State process,
and to provide for adequate oversight of States' efforts and the outcomes at
their participating institutions, proposed § 668.156(h) would require States to
submit reports in accordance with processes laid out in a Federal Register
notice. This would also aid us in monitoring areas where policy changes may be
needed to better support States, institutions, and ATB students.
Finally, proposed § 668.156(j) would grant the Secretary the authority to
rescind a State process approval and would grant the State an appeal process.
There was already similar language in current § 668.156(g) but we believe that
the proposed language provides a Start Printed Page 32391 clearer framework.
Furthermore, similar enforcement and due process requirements are included
throughout other parts of the Department's regulations. Among the changes from
current regulations, the Department proposes in § 668.156(j)(1)(iii) to clarify
that the Secretary may lower the success rate to not less than 75 percent in the
event that more than 50 percent of participating institutions across all States
fail the 85 percent success rate requirement. Given that there is little
information available about the current success rates of ATB students, we
believe that this ability to lower the requirement if most institutions are
unable to meet the requirement would provide some ability for the Department to
act in the event a change in the standard is needed. This may also account for
years in which external circumstances, like those seen during the pandemic, may
necessitate a system-wide accommodation. The Department believes that, by
setting a floor of not less than 75 percent, proposed § 668.156(j) would still
protect ATB students from poor-performing institutions and ensure they have
access to quality opportunities.
DIRECTED QUESTIONS
The Committee reached consensus on the Department's proposed regulations on ATB.
The Department has published the proposed ATB amendatory language without
substantive alteration to the agreed-upon proposed regulations. We would like
additional feedback on the regulations to further inform the rulemaking process.
We propose a success rate calculation under proposed § 668.156(f) and would like
to receive public comments specific to this success rate calculation) to further
inform this rulemaking. We specifically request comments on the proposed 85
percent threshold, the comparison groups in the calculation, the components of
the calculation, and whether the success rate itself is an appropriate outcome
indicator for the State process as well as any other information, thoughts, or
opinions on the success rate calculation. For more information on § 668.156(f),
please see the information discussed previously in this section and also the
current regulations in § 668.156(h). You can also review the proposed regulatory
language.
ELIGIBLE CAREER PATHWAY PROGRAM (§ 668.157)
Statute: Section 484(d)(2) of the HEA defines an eligible career pathway
program.
Current Regulations: None.
Proposed Regulations: The Department proposes to create new § 668.157 in subpart
J. This section would dictate the documentation requirements for eligible career
pathway programs for submission to the Department for approval as a title IV,
HEA eligible program. In proposed § 668.157(a)(1) an institution would
demonstrate to the Secretary that a student is enrolled in an eligible career
pathway program by documenting that the student has enrolled in or is receiving
all three of the following elements simultaneously—
* An eligible postsecondary program as defined in § 668.8;
* Adult education and literacy activities under the Workforce Innovation and
Opportunity Act as described in § 463.30 that assist adults in attaining a
secondary school diploma or its recognized equivalent and in the transition
to postsecondary education and training; and
* Workforce preparation activities as described in § 463.34.
In proposed § 668.157(a)(2) an institution would demonstrate to the Department
that a student is enrolled in an eligible career pathway program by documenting
that the program aligns with the skill needs of industries in the State or
regional labor market in which the institution is located, based on research the
institution has conducted, including—
* Government reports identifying in-demand occupations in the State or regional
labor market;
* Surveys, interviews, meetings, or other information obtained by the
institution regarding the hiring needs of employers in the State or regional
labor market; and
* Documentation that demonstrates direct engagement with industry;
In proposed § 668.157(a)(3) through (a)(6), an institution would demonstrate to
the Department that a student is enrolled in an eligible career pathway program
by documenting the following:
* The skill needs described in proposed § 668.157(a)(2) align with the specific
coursework and postsecondary credential provided by the postsecondary program
or other required training;
* The program provides academic and career counseling services that assist
students in pursuing their credential and obtaining jobs aligned with the
skill needs described in proposed § 668.157(a)(2), and identifies the
individuals providing the career counseling services;
* The appropriate education is offered, concurrently with and in the same
context as workforce preparation activities and training for a specific
occupation or occupational cluster through an agreement, memorandum of
understanding, or some other evidence of alignment of postsecondary and adult
education providers that ensures the secondary education is aligned with the
students' career objectives; and
* The program is designed to lead to a valid high school diploma as defined in
§ 668.16(p) or its recognized equivalent.
Under § 668.157(b) we propose that, for career pathway programs that do not
enroll students through a State process as defined in § 668.156, the Secretary
would verify the eligibility of eligible career pathway programs for title IV,
HEA program purposes pursuant to proposed § 668.157(a). Under proposed
§ 668.157(b), we would also provide an institution with the opportunity to
appeal any adverse eligibility decision.
Reasons: Currently, we do not approve individual career pathway programs and
have provided minimal guidance on documentation requirements. The Department is
aware of compliance and program integrity concerns with programs that claim to
offer an eligible career pathway program but do not offer all the required
components. While the Department believes that many institutions have made a
good-faith effort to comply with the statutory definition, we believe it is
necessary to establish baseline requirements in regulation to curtail bad
actors' efforts to provide subpar programming. These baseline requirements would
also support good actors by providing further regulatory clarity to support
their efforts, weeding out subpar eligible career pathway programs, and steering
students towards eligible career pathway programs with better outcomes.
This new section provides a reasonable baseline for documentation requirements
and allows the Department to better enforce the eligible career pathway program
statutory requirement through approval of all eligible career pathway programs
that enroll students through the six-credit and ATB test options. We received a
suggestion from a committee member to better align eligible career pathway
programs with integrated education and training programs. Proposed
§ 668.157(a)(1) would do this by referring to adult education and literacy
programs, activities, and workforce preparation activities described under the
Workforce Innovation and Opportunity Act (WIOA) implementing regulations
(§ 463.30 and § 463.34).
In proposed § 668.157(a)(2), we clarify that the eligible career pathway program
Start Printed Page 32392 would have to align with the skill and hiring needs of
the industry. By proposing that there be direct interaction by the institution
with a government source and that the collaboration is supported by other means
that demonstrate engagement with industry, we believe that institutions would
produce stronger analyses and demonstrate clearer connections with the workforce
needs of their communities. Proposed § 668.157(a)(3) supports the language in
proposed § 668.157(a)(2) by mandating that the coursework and postsecondary
credential would also have to align to these industry needs. We believe this
would provide for further connections between students' academic and career
needs, and ultimately would help to ensure that students are able to obtain a
career in their intended field.
The documentation required under proposed § 668.157(a)(4) is similar to section
484(d)(2)(C) of the HEA, which requires academic and career counseling. Proposed
§ 668.157(a)(5), which also largely mirrors section 484(d)(2)(D) of the HEA,
proposes further requirements regarding evidence of coordination to ensure
better alignment of adult education with post-secondary education. The language
in proposed § 668.157(a)(5) would not require an institution to develop a new
adult education curriculum to offer an eligible career pathway program, as it
would allow for workforce preparation activities and training to be offered
through an agreement, memorandum of understanding, or some other evidence of
alignment. The documentation proposed under § 668.157(a)(6) reflects the
statutory requirement in section 484 of the HEA that requires the program to
lead to a valid high school diploma for ATB students.
Under proposed § 668.157(b), we would review and approve every eligible career
pathway program that enrolls students through means other than exclusively the
State process. This is to ensure that the programs comply with the regulatory
definition and documentation requirements. By requiring this verification, the
Department would be able to address existing issues by which some programs may
have failed to meet statutory requirements and have still received aid for ATB.
EXECUTIVE ORDERS 12866 AND 13563
REGULATORY IMPACT ANALYSIS
Under Executive Order 12866, the Office of Management and Budget (OMB) must
determine whether this regulatory action is “significant” and, therefore,
subject to the requirements of the Executive Order and subject to review by OMB.
Section 3(f) of Executive Order 12866 defines a “significant regulatory action”
as an action likely to result in a rule that may—
(1) Have an annual effect on the economy of $100 million or more, or adversely
affect a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, or Tribal governments or
communities in a material way (also referred to as an “economically significant”
rule);
(2) Create serious inconsistency or otherwise interfere with an action taken or
planned by another agency;
(3) Materially alter the budgetary impacts of entitlement grants, user fees, or
loan programs or the rights and obligations of recipients thereof; or
(4) Raise novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles stated in the Executive Order.
This proposed regulatory action will have an annual effect on the economy of
more than $100 million because the proposed Financial Value Transparency and GE
provisions of the regulations alone could impact transfers between postsecondary
institutions, the Federal Government, and borrowers in excess of this amount.
Annualized transfers between borrowers and the Federal Government are estimated
to be $1.1 billion at a 7 percent discount rate and $1.2 billion at a 3 percent
discount rate in reduced Pell Grants and loan volume. This analysis also
estimates additional annualized transfers of $836 million (at a 3 percent
discount rate; $823 million at 7 percent discount rate) among institutions as
students shift programs and estimated annualized paperwork and compliance burden
of $115.1 million (at a 3 percent discount rate; $118 million at a 7 percent
discount rate) are also detailed in this analysis Therefore, this proposed
action is economically significant and subject to review by OMB under section
3(f)(1) of Executive Order 12866. We therefore have assessed the potential costs
and benefits, both quantitative and qualitative, of this proposed regulatory
action and have determined that the benefits would justify the costs.
We have also reviewed these regulations under Executive Order 13563, which
supplements and explicitly reaffirms the principles, structures, and definitions
governing regulatory review established in Executive Order 12866. To the extent
permitted by law, Executive Order 13563 requires that an agency—
(1) Propose or adopt regulations only on a reasoned determination that their
benefits justify their costs (recognizing that some benefits and costs are
difficult to quantify);
(2) Tailor its regulations to impose the least burden on society, consistent
with obtaining regulatory objectives and taking into account—among other things
and to the extent practicable—the costs of cumulative regulations;
(3) In choosing among alternative regulatory approaches, select those approaches
that maximize net benefits (including potential economic, environmental, public
health and safety, and other advantages; distributive impacts; and equity);
(4) To the extent feasible, specify performance objectives, rather than the
behavior or manner of compliance a regulated entity must adopt; and
(5) Identify and assess available alternatives to direct regulation, including
economic incentives—such as user fees or marketable permits—to encourage the
desired behavior, or provide information that enables the public to make
choices.
Executive Order 13563 also requires an agency “to use the best available
techniques to quantify anticipated present and future benefits and costs as
accurately as possible.” The Office of Information and Regulatory Affairs of OMB
has emphasized that these techniques may include “identifying changing future
compliance costs that might result from technological innovation or anticipated
behavioral changes.”
We are issuing these proposed regulations only on a reasoned determination that
their benefits would justify their costs. In choosing among alternative
regulatory approaches, we selected those approaches that maximize net benefits.
Based on the analysis that follows, the Department believes that these proposed
regulations are consistent with the principles in Executive Order 13563.
We also have determined that this regulatory action would not unduly interfere
with State, local, and Tribal governments in the exercise of their governmental
functions.
In this regulatory impact analysis, we discuss the need for regulatory action,
summarize the key provisions, present a detailed analysis of the Financial Value
Transparency and GE provisions of the proposed regulation, discuss the potential
costs and benefits, estimate the net budget impacts and paperwork burden as
required by the Paperwork Reduction Act, discuss distributional consequences,
and discuss regulatory alternatives we considered. The Start Printed Page 32393
Financial Value Transparency and GE provisions are the most economically
substantial components of the package, so we include a much more detailed
quantitative analysis of these components than the others and focus on the
budget impact of these provisions. For the purposes of the analysis contained in
this RIA, we combine the Financial Value Transparency and GE parts of the
regulation. However, we do present many results separately for eligible non-GE
programs (only subject to programmatic reporting and acknowledgment
requirements) and GE programs (additionally subject to ineligibility and
warnings about eligibility). Economic analysis for the proposed Financial
Responsibility, Administrative Capability, Certification Procedures, and Ability
to Benefit rules are presented separately.
The proposed Financial Value Transparency and GE regulations aim to generate
benefits to students, postsecondary institutions, and the Federal government
primarily by shifting students from low financial value to higher financial
value programs or, in some cases, from low-financial-value postsecondary
programs to non-enrollment.[154] This shift would be due to improved and
standardized market information about all postsecondary programs, allowing for
better decision making by students, prospective students, and their families;
the public, taxpayers, and the government; and institutions. Furthermore, the
proposed GE regulations aim to improve program quality by directly eliminating
the ability of low-financial-value programs to participate in the title IV, HEA
programs. Our analysis concludes that this enrollment shift and improvement in
program quality would result in higher earnings for students, which would
generate additional tax revenue for the Federal, State, and local governments.
Students would also likely benefit from lower accumulated debt and lower risk of
default. The primary costs of the proposed regulations would be the additional
reporting required by institutions, the time necessary for students to
acknowledge having seen program information and warnings, and additional
spending at institutions that accommodate students that would otherwise attend
failing programs. We anticipate that the proposed regulations would also
generate substantial transfers, primarily in the form of title IV, HEA aid
shifting between students, postsecondary institutions, and the Federal
government. Based on our analysis, we conclude that the benefits outweigh the
costs.
The proposed regulatory actions related to Financial Responsibility,
Administrative Capability, and Certification Procedures would provide benefits
to the Department by strengthening our ability to conduct more proactive and
real-time oversight of institutions of higher education. Specifically, under the
Financial Responsibility regulations, the Department would be able to more
easily obtain financial protection that can be used to offset the cost of
discharges when an institution closes or engages in behavior that results in
approved defense to repayment claims. The proposed changes to the Certification
Procedures would allow the Department more flexibility to increase its scrutiny
of institutions that exhibit concerning signs, including by placing them on
provisional status or adding conditions to their program participation
agreement. For Administrative Capability, we propose to expand the requirements
to address additional areas of concern that could indicate severe or systemic
administrative issues in properly managing the title IV, HEA programs, such as
failing to provide adequate financial aid counseling including clear and
accurate communications or adequate career services. Enhanced oversight ability
would better protect taxpayers and help students by dissuading institutions from
engaging in overly risky behavior or encouraging institutions to make
improvements. These benefits would come at the expense of some added costs for
institutions to acquire additional financial protection or potentially shift
their behavior. The Department believes these benefits of improved
accountability would outweigh those costs. There could also be limited
circumstances in which an institution that was determined to lack financial
responsibility and required to provide financial protection could choose to
cease participating in the Federal aid programs instead of providing the
required financial protection. The Department believes this would be most likely
to occur in a situation in which the institution was already facing severe
financial instability and on the verge of abrupt closure. In such a situation,
there could be transfers from the Department to borrowers that occur in the form
of a closed school loan discharge, though it is possible that the amount of such
transfers is smaller than what it would otherwise be as the institution would
not be operating for as long a period of time as it would have without the
request for additional financial protection. However, the added triggers are
intended to catch instances of potential financial instability far enough in
advance to avoid an abrupt closure.
Finally, the ability-to-benefit regulations would provide much-needed clarity on
the process for reviewing and approving State applications to offer a pathway
into title IV, HEA aid for individuals who do not have a high school diploma or
its recognized equivalent. Although States would incur costs in pursuing the
application proposed, for this population of students, the proposed regulations
would provide students with more opportunities for success by facilitating
States' creation and expansion of options.
1. NEED FOR REGULATORY ACTION
SUMMARY
The title IV, HEA student financial assistance programs are a significant annual
expenditure by the Federal government. When used well, Federal student aid for
postsecondary education can help boost economic mobility. But the Department is
concerned that there are too many instances in which the financial returns of
programs leave students with debt they cannot afford or with earnings that leave
students no better off than similarly aged students who never pursued a
postsecondary education.
The Department is also concerned about continued instances where institutions
shut down without sufficient protections in place and with no prior notice for
students, including instances where they do so without identifying alternative
options for students to continue their education. For instance, one study found
that 70 percent of students—more than 100,000 students—affected by a closure
between July 2004 and June 2020 were subjected to a sudden closure where there
was minimal notice and no teach out agreement in place.[155] Many of the
students affected by such closures may obtain a closed school discharge, but
even that financial assistance cannot make up for lost time invested in a
program or out of the labor force or any out-of-pocket payments made.
Significant shares of such students also no longer continue any sort of
postsecondary program. This same Start Printed Page 32394 study found that less
than half of students reenrolled after they experienced a closure and students
who went through an abrupt closure had significantly worse reenrollment and
completion outcomes. Taxpayers are also often left to bear the costs of student
loan discharges because existing regulations lack sufficient mechanisms for the
Department to seek financial protection from an institution before it suddenly
closes. Having tools for obtaining stronger upfront protection is particularly
important because many of the institutions that close suddenly exhibited a
series of warning indicators in the weeks, months, and years leading up to their
shuttering. Thus, while the Department would not have been able to anticipate
the exact date an institution would cease operating, greater regulatory
flexibility would have allowed the Department to act faster to obtain taxpayer
protection, more closely monitor or place conditions on the institution, and
gain additional protection for students such as a teach-out plan or agreement
that would allow them to transfer and continue their education. Going forward
this flexibility could have a deterrent effect to dissuade institutions from
engaging in some of the risky and questionable behavior that ultimately led to
their closure.
We have also found during program reviews that there are institutions receiving
title IV, HEA aid that lack the administrative capability necessary to
successfully serve students. Some of these indicators of a lack of
administrative capability can involve direct negative effects on students, such
as having insufficient resources to deliver on promises made about career
services and externships, or controls that are insufficient to ensure students'
high school diplomas (or equivalent credentials) are legitimate—a key criterion
for title IV, HEA student eligibility that may otherwise result in students
taking on aid when they are not set up to succeed academically. In other
situations, institutions may employ individuals who in the past exerted control
at another institution that was found to have significant problems with the
administration of the title IV, HEA student aid programs, which raises the
concern that the institution may engage in the same conduct as the institution
where the individual was previously involved, including mismanagement,
misrepresentations, or other risky behaviors.
The Department is also concerned that, in the past, institutions have shown
significant signs of problems yet remained fully certified to participate in the
Federal student aid programs. Existing regulations do not fully account for the
range of scenarios that might indicate risk to institutions or students. For
instance, current regulations do not allow the Department to address how
conditions placed on an institution's financing might affect their ability to
have the funds necessary to keep operating or how outside investors might affect
the health of an institution if those outside investors start to face their own
financial struggles. The current regulations also limit the Department's ability
to take swift action to limit the effects of an institution's closure on
taxpayers and students. In the past, a lack of financial protection in place
prior to an institutional closure has resulted in large amounts of closed school
loan discharges that are not otherwise reimbursed by the institution. Moreover,
borrowers whose institutions close while they are enrolled have high rates of
student loan default. In addition to expanding the Department's capacity to act
in such situations, the proposed changes to the regulation would help students
by dissuading the riskier behavior by an institution that could result in a
closure and by ensuring that more closures do not occur in an abrupt fashion
with no plans for where students can continue their programs.
The proposed regulations would provide stronger protections for current and
prospective students of programs where typical students have high debt burdens
or low earnings. Under a program-level transparency and accountability
framework, the Department would assess a program's debt and earnings outcomes
based on debt-to-earnings (D/E) and earnings premium (EP) metrics. The
regulations would require institutions to provide current and prospective
students with a link to a Department website disclosing the debt and earnings
outcomes of all programs, and students enrolling in non-GE programs that have
failed debt-to-earnings metrics must acknowledge they have viewed the
information prior to disbursing title IV, HEA funds. GE programs that
consistently fail to meet the performance metrics would become ineligible for
title IV, HEA funds. The proposed regulations would also expand the Department's
authority to require financial protection when an institution starts to exhibit
problems instead of waiting until it is too late to protect students and
taxpayers. This proactive accountability would be buttressed by proposed changes
to the way the Department certifies institutional participation in the title IV,
HEA programs to ensure that it can monitor institutions more easily and
effectively if they start to show signs of problems. The proposed approach would
help the Department better target its oversight to institutions that exhibit a
greater risk to students and taxpayers instead of simply allowing them to
receive substantial sums of Federal resources with minimal scrutiny every year.
By identifying additional indicators that an institution is not administratively
capable of participating in the aid programs, the proposed regulations would
enable the Department to step in and exert greater oversight and accountability
over an institution before it is too late.
The proposed regulations would, therefore, strengthen accountability for
postsecondary institutions and programs in several critical ways. All
institutions would be required to provide students a link to access information
about debt and earnings outcomes. Non-GE programs not meeting the D/E standards
would need to have students acknowledge viewing this information before
receiving aid, and career training programs failing either the D/E or EP metrics
would need to warn students about the possibility that they would lose
eligibility for federal aid. Some institutions would have to improve their
offerings or lose access to Federal aid. Concerning behavior would be more
likely to result in required financial protection or other forms of oversight.
As a result, students and taxpayers would have greater assurances that their
money is spent at institutions that deliver value and merit Federal support.
The Financial Value Transparency and GE provisions in subparts Q and S of the
proposed regulations are intended to address the problem that many programs are
not delivering sufficient financial value to students and taxpayers, and
students and families often lack the information on the financial consequences
of attending different programs needed to make informed decisions about where to
attend. These issues are especially prevalent among programs that, as a
condition of eligibility for title IV, HEA program funds, are required by
statute to provide training that prepares students for gainful employment in a
recognized occupation. Currently, many of these programs leave the typical
graduate with unaffordable levels of loan debt in relation to their income,
earnings that are no greater than what they would reasonably expect to receive
if they had not attended the program, or both.
Through this regulatory action, the Department proposes to establish: (1) A
Start Printed Page 32395 Financial Value Transparency framework that would
increase the quality, availability, and salience of information about the
outcomes of students enrolled in all title IV, HEA programs and (2) an
accountability framework for GE programs that would define what it means to
prepare students for gainful employment in a recognized occupation by
establishing standards by which the Department would evaluate whether a GE
program remains eligible for title IV, HEA program funds. As noted in the
preamble to this NPRM, there are different statutory grounds for the proposed
transparency and accountability frameworks.
The transparency framework (subpart Q and § 668.43) would establish reporting
and disclosure requirements that would increase the transparency of student
outcomes for all programs. This would ensure that the most accurate and
comparable information possible is disseminated to students, prospective
students, and their families to help them make better informed decisions about
where to invest their time and money in pursuit of a postsecondary degree or
credential. Institutions would be required to provide information about program
characteristics, outcomes, and costs and the Department would assess a program's
debt and earnings outcomes based on debt-to-earnings and earnings premium
metrics, using information reported by institutions and information otherwise
obtained by the Department. The proposed rule would seek to ensure information's
salience to students by requiring that institutions provide current and
prospective students with a link to view cost, debt, and earnings outcomes of
their chosen program on the Department's website. For non-GE programs failing
the debt-to-earnings metrics, the Department would require an acknowledgement
that the enrolled or prospective student has viewed the information, prior to
disbursing title IV, HEA funds. Further, the website would provide the public,
taxpayers, and the Government with relevant information to help understand the
outcomes of the Federal investment in these programs. Finally, the transparency
framework would provide institutions with meaningful information that they can
use to improve the outcomes for students and guide their decisions about program
offerings.
The accountability framework (subpart S) would define what it means to prepare
students for gainful employment by establishing standards that assess whether
typical students leave programs with reasonable debt burdens and earn more than
the typical worker who completed no more education than a high school diploma or
equivalent. Programs that repeatedly fail to meet these criteria would lose
eligibility to participate in title IV, HEA student aid programs.
OVERVIEW OF POSTSECONDARY PROGRAMS SUPPORTED BY TITLE IV, HEA
Under subpart Q, we propose, among other things, to assess debt and earnings
outcomes for students in all programs participating in Title IV, HEA programs,
including both GE programs and eligible non-GE programs. Under subpart S, we
propose, among other things, to establish title IV, HEA eligibility requirements
for GE programs. In assessing the need for these regulatory actions, the
Department analyzed program performance. The Department's analysis of program
performance is based on data assembled for all title IV, HEA postsecondary
programs operating as of March 2022 that also had completions reported in the
2015–16 and 2016–17 award years. This data, referred to as the “2022 Program
Performance Data (2022 PPD),” is described in detail in the “Data Used in this
RIA” section below, though we draw on it in this section to describe outcome
differences across programs.
Table 1.1 reports the number of programs and average title IV, HEA enrollment
for all institutions in our data for AY 2016 and 2017. Throughout this RIA, we
provide analysis separately for programs that would be affected only by subpart
Q (eligible non-GE programs) and those that would additionally be affected by
subpart S (GE programs).
Expand Table
Table 1.1—Combined Number of Title IV Eligible Programs and Title IV Enrollment
by Control and Credential Level Combining GE and Non-GE
Number ofProgramsEnrolleesPublic:UG
Certificates18,971869,600Associate's27,3125,496,800Bachelor's24,3385,800,700Post-BA
Certs87212,600Master's14,582760,500Doctoral5,724145,200Professional568127,500Grad
Certs1,93941,900Total94,30613,254,700Private, Nonprofit:UG
Certificates1,38777,900Associate's2,321266,900Bachelor's29,7522,651,300Post-BA
Certs6297,900Master's10,362796,100Doctoral2,854142,900Professional493130,400Grad
Certs1,39735,700Total49,1954,109,300Proprietary:UG
Certificates3,218549,900Associate's1,720326,800Bachelor's963675,800Start Printed
Page 32396Post-BA
Certs52800Master's478240,000Doctoral12254,000Professional3212,100Grad
Certs12810,800Total6,7131,870,100Foreign Private:UG
Certificates28100Associate's18100Bachelor's1,2285,500Post-BA
Certs2750Master's3,0759,000Doctoral7932,800Professional1041,500Grad
Certs771,500Total5,35020,400Foreign For-Profit:UG
Certificates150Master's6200Doctoral41,900Professional711,600Total1813,700Total:UG
Certificates23,6051,497,500Associate's31,3716,090,700Bachelor's56,2819,133,200Post-BA
Certs1,58021,400Master's28,5031,805,800Doctoral9,497346,800Professional1,204283,100Grad
Certs3,54189,900Total155,58219,268,200Note: Counts are rounded to the nearest
100.
There are 123,524 degree programs at public or private non-profit institutions
(hereafter, “eligible non-GE programs” or just “non-GE programs”) in the 2022
PPD that would be subject to the proposed transparency regulations in subpart Q
but not the GE regulations in subpart S. These programs served approximately
16.3 million students annually who received title IV, HEA aid, totaling $25
billion in grants and $61 billion in loans. Table 1.2 displays the number of
non-GE programs by two-digit CIP code, credential level, and institutional
control in the 2022 PPD. Two-digit CIP codes aggregate programs by broad subject
area. Table 1.3 displays enrollment of students receiving title IV, HEA program
funds in non-GE programs in the same categories.
Start Printed Page 32397
Start Printed Page 32398
GE programs are non-degree programs, including diploma and certificate programs,
at public and private non-profit institutions and nearly all educational
programs at for-profit institutions of higher education regardless of program
length or credential level.[156] Common GE programs provide training for
occupations in fields such as cosmetology, business administration, medical
assisting, dental assisting, nursing, and massage therapy. There were 32,058 GE
programs in the 2022 PPD.[157] About two-thirds of these programs are at public
institutions, 11 percent at private non-profit institutions, and 21 percent at
for-profit institutions. These programs annually served approximately 2.9
million students who received title IV, HEA aid in AY 2016 or 2017. The Federal
investment in students attending GE programs is significant. In AY 2022, these
students received approximately $5 billion in Federal Pell grant funding and
approximately $11 billion in Federal student loans. Table 1.4 displays the
number of GE programs grouped by two-digit CIP code, credential level, and
institutional control in the 2022 PPD. Table 1.5 displays enrollment of students
receiving title IV, HEA program funds in GE programs in the same categories.
Start Printed Page 32399
Tables 1.6 and 1.7 show the student characteristics of title IV, HEA students in
non-GE and GE programs, respectively, by institutional control, predominant
degree of the institution, and credential level. In all three types of control,
the majority of students served by the programs are female students. At public
non-GE programs, 58 percent of students received a Pell Grant, 31 percent are 24
years or older, 36 percent are independent, and 43 percent non-white. At
not-for-profit non-GE programs, 43 percent of students received a Pell Grant, 37
percent are 24 years or older, 44 percent are independent, and 43 percent are
non-white. The average public GE program has 68 percent of its students ever
received Pell, 44 percent are 24 years or older, 50 percent are independent, and
46 percent are non-white. At for-profit GE programs, 67 percent of students
received a Pell Grant, 66 percent are 24 years or older, 72 percent are
independent, and 59 percent are non-white.
Expand Table
Table 1.6—Characteristics of Non-GE Students by Control, Predominant Degree, and
Credential Level (Enrollment-Weighted)
Average EFCPercent of students who are . . .Age
24+MalePellNon-whiteIndependentPublic:Less-Than
2-Year:Associate's5,70036.437.273.841.841.7Bachelor's10,60059.440.654.037.462.6Master's8,70071.834.736.127.781.52-Year:Associate's5,80029.637.574.149.334.8Bachelor's9,30048.341.369.440.355.6Master's7,60079.637.452.263.790.9Professional5,800100.033.333.3100.04-Year
or
Above:Associate's7,60036.537.867.039.742.2Bachelor's16,60024.043.347.339.827.0Master's11,90060.635.932.940.272.7Start
Printed Page
32400Doctoral10,40069.941.428.044.184.1Professional7,80055.748.410.837.191.7Total:Total11,30030.540.257.843.235.6Private,
Nonprofit:Less-Than
2-Year:Associate's2,60064.633.889.765.974.8Bachelor's9,10065.837.167.062.670.0Master's9,20052.230.737.756.361.4Doctoral5,50024.714.632.141.258.5Professional4,60052.054.61.939.697.12-Year:Associate's6,30047.434.872.452.253.6Bachelor's8,30060.740.768.351.464.8Master's9,60086.534.028.969.989.2Doctoral9,60081.326.414.662.5100.04-Year
or
Above:Associate's6,80054.934.670.249.360.5Bachelor's17,60023.239.948.940.226.1Master's13,10067.335.325.045.978.0Doctoral12,20069.441.117.749.787.1Professional9,20057.248.810.143.089.1Total:Total15,40037.339.043.342.643.5Note:
Average EFC values rounded to the nearest 100. Credential levels with very few
programs and most table elements missing are suppressed.
Expand Table
Table 1.7—Characteristics of GE Students by Control, Predominant Degree, and
Credential Level
Average EFCPercent of students who are . . .Age
24+MalePellNon-whiteIndependentPublic:Less-Than 2-Year:UG
Certificates4,50045.537.576.542.453.1Post-BA Certs6,30075.930.457.978.2Grad
Certs8,10057.116.757.532.165.22-Year:UG
Certificates6,10041.937.870.350.946.8Post-BA Certs10,80047.223.758.459.5Grad
Certs7,60089.768.168.950.689.74-Year or Above:UG
Certificates23,30028.541.636.832.331.8Post-BA Certs11,50060.531.635.971.3Grad
Certs10,70069.830.139.236.279.0Total:Total7,10043.737.668.345.749.8Private,
Nonprofit:Less-Than 2-Year:UG Certificates4,90048.336.680.263.758.3Post-BA
Certs15,60051.059.23.365.3Grad Certs7,60028.238.73.147.262.12-Year:UG
Certificates3,30061.021.183.256.373.8Post-BA Certs10,10094.828.453.794.8Grad
Certs26,70089.510.519.3100.0100.04-Year or Above:UG
Certificates10,50037.435.866.465.842.1Post-BA Certs14,20060.131.836.068.5Grad
Certs11,50070.832.829.844.580.3Total:Total8,30055.132.360.657.364.2Proprietary:Less-Than
2-Year:UG
Certificates3,90045.731.582.463.056.5Associate's5,90056.632.280.663.263.7Bachelor's4,20054.236.986.583.357.3Start
Printed Page 32401Post-BA
Certs9,10070.744.736.877.2Master's9,20085.426.732.262.190.4Doctoral9,80098.619.232.047.699.7Professional14,10084.719.530.554.2100.0Grad
Certs6,20064.67.763.96.667.42-Year:UG
Certificates4,80048.439.877.864.257.1Associate's5,70051.833.377.860.658.1Bachelor's7,90061.642.770.565.067.9Post-BA
Certs13,40086.425.039.486.4Master's7,10082.342.131.065.189.5Doctoral00.00.0100.00.0Professional5,70071.646.014.636.799.0Grad
Certs3,70064.832.40.024.367.64-Year or Above:UG
Certificates5,40077.722.176.255.484.3Associate's5,40075.431.976.157.282.7Bachelor's9,70075.240.764.254.678.8Post-BA
Certs7,50084.628.554.792.3Master's11,30082.330.238.858.085.8Doctoral19,80092.930.025.257.995.2Professional7,10089.025.747.134.193.2Grad
Certs11,90088.627.138.263.290.7Total:Total7,70066.134.767.358.872.4Note: EFC
values rounded to the nearest 100.
OUTCOME DIFFERENCES ACROSS PROGRAMS
A large body of research provides strong evidence of the many significant
benefits that postsecondary education and training provides, both private and
social. Private pecuniary benefits include higher wages and lower risk of
unemployment.[158] Increased educational attainment also provides private
nonpecuniary benefits, such as better health, job satisfaction, and overall
happiness.[159] Social benefits of increases in the number of individuals with a
postsecondary education include productivity spillovers from a better educated
and more flexible workforce,[160] increased civic participation,[161] and
improvements in health and well-being for the next generation.[162] Improved
productivity and earnings increase tax revenues from higher earnings and lower
rates of reliance on social safety net programs. Even though the costs of
postsecondary education have risen, there is evidence that the average financial
returns to graduates have also increased.[163]
However, there is also substantial heterogeneity in earnings and other outcomes
for students who graduate from different types of institutions and programs.
Table 1.8 shows the enrollment-weighted average borrowing and default by control
and credential level. Mean borrowing amounts are for title IV recipients who
completed their program in AY 2016 or 2017, with students who did not borrow
counting as having borrowed $0. For borrowing, our measure is the average for
each institutional control type and credential level combination of program
average debt. For default, our measure is, among borrowers (regardless of
completion status) who entered repayment in 2017, the fraction of borrowers who
have ever defaulted three years later. The cohort default rate measure follows
the methodology for the official institutional cohort default rate measures
calculated by the Department, except done at the program level. Though average
debt tends to be higher for higher-level credential programs, default rates tend
to be lower. At the undergraduate level, average debt is much lower for public
programs than private non-profit and for-profit programs and default rates are
lower for public and non-profit programs than those at for-profit institutions.
Expand Table
Table 1.8—Average Debt and Cohort Default Rate, by Control and Credential Level
(Enrollment-Weighted)
Average debtCohort default ratePublic:Start Printed Page 32402UG
Certificates5,75916.9Associate's5,93217.4Bachelor's17,9357.6Post-BA
Certs7,3522.3Master's29,2222.9Doctoral71,1022.9Professional124,4810.8Grad
Certs24,8832.5Private, Nonprofit:UG
Certificates9,36712.0Associate's16,44514.9Bachelor's20,2677.3Post-BA
Certs9,4972.8Master's40,2722.9Doctoral128,9982.3Professional151,4731.3Grad
Certs40,7322.4Proprietary:UG
Certificates8,85714.2Associate's18,76615.3Bachelor's29,03812.4Post-BA
Certs15,79016.9Master's39,5074.1Doctoral99,4224.4Professional96,8360.7Grad
Certs47,8033.9Foreign Private:UG
Certificates(*)0.0Associate's(*)(*)Bachelor's17,0747.0Post-BA
Certs(*)(*)Master's40,4322.0Doctoral22,6003.5Professional247,2693.1Grad
Certs284,2000.2Foreign
For-Profit:Master's(*)0.0Doctoral84,2001.4Professional280,6671.3* Cell
suppressed because it based on a population of fewer than 30.
Table 1.9 shows median earnings ($2019) for graduates (whether or not they
borrow) along these same dimensions. Similar patterns hold for earnings, with
lower earnings in proprietary programs than in public and non-profit programs
for almost all types of credential level.
Expand Table
Table 1.9—Enrollment-Weighted Average of Program Median Earnings 3 Years After
Program Completion, by Control and Credential Level
Median earnings 3 years after completionPublic:UG
Certificates33,400Associate's34,400Bachelor's46,100Post-BA
Certs45,600Master's66,600Doctoral83,500Professional91,300Grad
Certs71,500Private, Nonprofit:UG
Certificates26,200Associate's35,700Bachelor's48,800Post-BA
Certs61,600Master's68,600Doctoral86,200Start Printed Page
32403Professional88,200Grad Certs74,800Proprietary:UG
Certificates25,400Associate's34,600Bachelor's45,600Post-BA
Certs43,500Master's59,300Doctoral78,000Professional49,200Grad Certs52,200Foreign
Private:UG CertificatesAssociate'sBachelor's8,200Post-BA
CertsMaster's38,600DoctoralProfessional88,400Grad Certs15,100Foreign
For-Profit:Master'sDoctoral65,900Professional100,400Note: Values rounded to the
nearest 100.
A growing body of research, described below, shows that differences in
institution and program quality are important contributors to the variation in
borrowing and earnings outcomes described above. That is, differences in
graduates' outcomes across programs are not fully (or primarily) explained by
the characteristics of the students that attend. Differences in program
quality—measured by the causal effect of attending the program on its students'
outcomes—are important.[164] It is, therefore, important to provide students
with this information and to hold programs accountable for poor student debt and
earnings outcomes. Research reviewed below also shows that GE programs are the
programs least likely to reliably provide an adequate return on investment, from
the perspective of both the student and society. These findings imply that
aggregate student outcomes—including their earnings and likelihood of positive
borrowing outcomes—would be improved by limiting students enrollment in
low-quality programs.
A recent study computed productivity—value-added per dollar of social
investment—for 6,700 undergraduate programs across the United States.[165]
Value-added in that study was measured using both private (individual earnings)
and social (working in a public service job) notions of value. A main finding
was that productivity varied widely even among institutions serving students of
similar aptitude, especially at less selective institutions. That is, a dollar
spent educating students does much more to increase lifetime earnings potential
and public service at some programs than others. The author concludes that
“market forces alone may be too weak to discipline productivity among these
schools.”
The finding of substantial variation in student outcomes across programs serving
similar students or at similar types of institutions or in similar fields has
been documented in many other more specific contexts. These include community
colleges in California,[166] public two- and four-year programs in Texas,[167]
master's degree programs in Ohio,[168] law and medical schools, and programs
outside the United States.[169] Variation in institutional and program
performance is a dominant feature of postsecondary education in the United
States.[170]
Start Printed Page 32404
The wide range of performance across programs and institutions means that
prospective students face a daunting information problem. The questions of where
to go and what to study are key life choices with major consequences. But
without a way to discern the differences between institutions through
comparable, reliably reported measures of quality, students may ultimately have
to rely on crude signals about the caliber of education a school offers.
Recent evidence demonstrates that information about colleges, delivered in a
timely and relevant way, can shape students' choices. Students at one large
school district were 20 percent more likely to apply to colleges that have
information listed on a popular college search tool, compared with colleges
whose information is not displayed on the tool. A particularly important finding
of the study is that for Black, Hispanic, and low-income students, access to
information about local public four-year institutions increases overall
attendance at such institutions. This, the author argues, suggests “that
students may have been unaware of these nearby and inexpensive options with high
admissions rates.” [171]
This evidence reveals both the power of information to shape student choices at
critical moments in the decision process and how a patchwork of information
about colleges maybe result in students missing out on opportunities. Given the
variation in quality across programs apparent in the research evidence outlined
above, these missed opportunities can be quite costly.
Unfortunately, the general availability of information does not always mean
students are able to find and use it. Indeed, evidence on the initial impact of
the Department's College Scorecard college comparison tool found minimal effects
on students' college choices, with any possible effects concentrated among the
highest achieving students.[172] But the contrast between these two pieces
evidence, one where information affects college choices and one where it
doesn't, is instructive: while students generally must seek out the College
Scorecard during their college search process, the college search tool from the
first study delivers information to students as they are taking other steps
through the tool, from requesting transcripts and recommendation letters to
submitting applications. And it tailors that information to the student,
providing information about where other students from the same high school have
gone to college and their outcomes there. Accordingly, there is some basis to
believe that personalized information delivered directly to students at key
decision points from a credible source can have an impact.
To that end, the transparency component of these regulations attempts not only
to improve the quality of information available to students (by newly collecting
key facts about colleges), but also its salience, relevance, and timing. Because
this information would be delivered directly to students about the college for
which they are finalizing their financial aid packages, students would be likely
to see it and understand its credibility at a time when they are likely to find
it useful for deciding. Better still, the information would not be ambiguous
when the message is most critical: if a school is consistently failing to put
graduates on better financial footing, students would receive a clear indication
of that fact before they make a financial commitment.
Still, the market-disciplining role of accurate information does not always
suffice. Such mechanisms may decrease, but not eliminate, the chance that
students will make suboptimal choices. The Department has concluded that
regulation beyond information provision alone is warranted due to evidence,
reviewed below, that such regulations could reduce the risk that students and
taxpayers put money toward programs that will leave them worse off. Program
performance is particularly varied and problematic among the non-degree
certificate programs offered by all types of institutions, as well as at
proprietary degree programs. These are the places where concerns about quality
are at their height, especially given the narrower career-focused nature of the
credentials offered in this part of the system.
Certificate programs are intended to prepare students for specific vocations and
have, on average, positive returns relative to not attending college at all. Yet
this aggregate performance masks considerable variability: certificate program
outcomes vary greatly across programs, States, fields of study, and
institutions,[173] and even within the same narrow field and within the same
institution.[174] Qualitative research suggests some of this outcome difference
stems from factors that providers directly control, such as how they engage with
industry and employers in program design and whether to incorporate
opportunities for students to gain relevant workforce experience during the
program.[175] Unfortunately, many of the most popular certificate programs do
not result in returns on investment for students who complete the program. An
analysis of programs included in the 2014 GE rule found that 10 of the 15
certificate programs with the most graduates have typical earnings of $18,000 or
less, well below what a typical high school graduate would earn.[176]
The proposed GE rule would subject for-profit degree programs to the proposed
transparency framework in § 668.43, the transparency framework in subpart Q, and
the GE program-specific eligibility requirements in subpart S. This additional
scrutiny, based in the requirements of the HEA, is warranted because for-profit
programs have demonstrated particularly poor outcomes, as was shown in Tables
1.8 and 1.9 above. A large body of research provides causal evidence on the many
ways students at for-profit colleges are at an economic disadvantage upon
exiting their institutions. This research base includes studies showing that
students who attend for-profit programs are significantly more likely to suffer
from poor employment prospects,[177] low earnings,[178] and loan repayment Start
Printed Page 32405 difficulties.[179] Students who transfer into for-profit
institutions instead of public or nonprofit institutions face significant wage
penalties.[180] In some cases, researchers find similar earnings or employment
outcomes between for-profit and not-for-profit associate and bachelor degree
programs.[181] However, students pay and borrow more to attend for-profit degree
programs, on average.[182] That means their overall earnings return on
investment is worse. This evidence of lackluster labor market outcomes accords
with the growing evidence that many for-profit programs may not be preparing
students for careers as well as comparable programs at public institutions. A
2011 GAO report found that, for nine out of 10 licensing exams in the largest
fields of study, graduates of for-profit institutions had lower passage rates
than graduates of public institutions.[183] This lack of preparation may not be
surprising, as many for-profit institutions devote more resources to recruiting
and marketing than to instruction or student support services. A 2012
investigation by the U.S. Senate Committee on Health, Education, Labor and
Pensions (Senate HELP Committee) found that almost 23 percent of revenues at
proprietary institutions were spent on marketing and recruiting but only 17
percent on instruction.[184] The report further found that at many institutions,
the number of recruiters greatly outnumbered the career services and support
services staff.
Particularly strong evidence comes from a recent study that found that the
average undergraduate certificate-seeking student that attended a for-profit
institution did not experience any earnings gains relative to the typical worker
in a matched sample of high school graduates. They also had significantly lower
earnings gains than students who attended certificate programs in the same field
of study in public institutions.[185] Furthermore, the earnings gain for the
average for-profit certificate-seeking student was not sufficient to compensate
them for the amount of student debt taken on to attend the program.[186] At the
same time, research also shows substantial variation in earnings gains from
title IV, HEA-eligible undergraduate certificate programs by field of
study,[187] with students graduating from cosmetology and personal services
programs in all sectors experiencing especially poor outcomes.[188]
CONSEQUENCES OF ATTENDING LOW FINANCIAL VALUE PROGRAMS
Attending a postsecondary education or training program where the typical
student takes on debt that exceeds their capacity to repay can cause substantial
harm to borrowers. For instance, high debt may cause students to delay certain
milestones; research shows that high levels of debt decreases students'
long-term probability of marriage.[189] Being overburdened by student payments
can also reduce the likelihood that borrowers will invest in their future.
Research shows that when students borrow more due to high tuition, they are less
likely to obtain a graduate degree [190] and less likely to take out a mortgage
to purchase a home after leaving college.[191]
Unmanageable debt can also have adverse financial consequences for borrowers,
including defaulting on their student loans. For those who do not complete a
degree, more student debt may raise the probability of bankruptcy.[192]
Borrowers who default on their loans face potentially serious repercussions.
Many aspects of borrowers' lives may be affected, including their ability to
sign up for utilities, obtain insurance, or rent an apartment.[193] The
Department reports loans more than 90 days delinquent or in default to the major
national credit bureaus, and being in default has been shown to be correlated
with a 50-to-90-point drop in borrowers' credit scores.[194] A defaulted loan
can remain on borrowers' credit reports for up to seven years and lead to higher
costs that make insurance, housing, and other services and financial products
less affordable and, in some cases, harm borrowers' ability to get a job.[195]
Borrowers who default lose access to some repayment options and flexibilities.
At the same time, their balances become due immediately, and their accounts
become subject to involuntary collections such as wage garnishment and
redirection of income tax refunds toward the outstanding loan.[196]
Research shows that borrowers who attend for-profit colleges have higher student
loan default rates than students with similar characteristics who attend public
institutions.[197] Furthermore, most of the rise in student loan default rates
from 2000 to 2011 can be traced to increases in enrollment in for-profit
institutions and, to a lesser extent, two-year public institutions.[198]
Low loan repayment also has consequences for taxpayers. Calculating the precise
magnitude of these costs will require decades of realized repayment Start
Printed Page 32406 periods for millions of borrowers. However, Table 1.10 shows
estimates of the share of disbursed loans that will not be repaid based on
simulated debt and earnings trajectories at each program in the 2022 PPD under
the proposed income-driven repayment plan announced in January 2023.[199] These
estimates incorporate the subsidy coming from the features of the repayment plan
itself (capped payments, forgiveness), not accounting for default or
delinquency. Starting with the median earnings and debt at each program, the
Department simulated typical repayment trajectories for each program with data
available for both measures.
Using U.S. Census Bureau (Census) microdata on earnings and family formation for
a nationally representative sample of individuals, the Department projected the
likely repayment experience of borrowers at each program assuming all were
enrolled in the Proposed Revised Pay as You Earn (REPAYE) repayment plan (which
can be found at 88 FR 1894).[200] Starting from the median earnings level of
each program, the projections incorporate the estimated earnings growth over the
life course through age sixty for individuals starting from the same earnings
level in a given State. The projections also include likely spousal earnings,
student debt, and family size of each borrower (also derived from the Census
data), which makes it possible to calculate the total amount repaid by borrowers
under each plan when paying in full each month (even if that means making a
payment of $0). The simulation incorporates different demographic and income
groups probabilistically due to important non-linearities in plan structure.
Table 1.10 shows that, among all programs, students that attend those that fall
below the proposed debt-to-earnings standard are consistently projected to pay
back less on their loans, in present value terms, than they took out.[201] This
is true regardless of whether a program is in the public, private nonprofit, or
proprietary sector. The projected repayment ratio is even lower for programs
that only fail the EP measure because at very low earnings levels, students are
expected to make zero-dollar payments over extended periods of time.
Expand Table
Table 1.10—Predicted Ratio of Dollars Repaid to Dollars Borrowed by Control and
Passage Status
Predicted repayment ratio under proposed REPAYEPublic:No D/E or EP
data0.53Pass0.72Fail D/E (regardless of EP)0.29Fail EP only0.13Private,
Nonprofit:No D/E or EP data0.69Pass0.96Fail D/E (regardless of EP)0.38Fail EP
only0.19Proprietary:No D/E or EP data0.41Pass0.79Fail D/E (regardless of
EP)0.26Fail EP only0.07Total:No D/E or EP data0.57Pass0.77Fail D/E (regardless
of EP)0.30Fail EP only0.12
Our analysis, provided in more detail in “Analysis of the Regulations,” shows
that for many GE programs, the typical graduate earns less than the typical
worker with only a high school diploma or has debt payments that are higher than
is considered manageable given typical earnings. As we show below, high rates of
student loan default are especially common among GE programs that are projected
to fail either the D/E rates or the earnings premium metric. Furthermore, low
earnings can cause financial trouble in aspects of a graduate's financial life
beyond those related to loan repayment. In 2019, US individuals between 25 and
34 who had any type of postsecondary credential reported much higher rates of
material hardship if their annual income was below the high school earnings
threshold, with those below the threshold reporting being food insecure and
behind on bills at more than double the rate of those with earnings above the
threshold.[202]
In light of the low earnings, high debt, and student loan repayment difficulties
for students in some GE programs, the Department has identified a risk that
students may be spending their time and money and taking on Federal debt to
attend programs that do not provide sufficient value to justify these costs.
While even very good programs will have some students who struggle to Start
Printed Page 32407 obtain employment or repay their student loans, the proposed
metrics identify programs where the majority of students experience adverse
financial outcomes upon completion.
Although enrollment in for-profit and sub-baccalaureate programs has declined
following the Great Recession, past patterns suggest that—absent regulatory
action—future economic downturns could reverse this trend. For-profit
institutions are more responsive than public and nonprofit institutions to
changes in economic conditions [203] and during the COVID–19 pandemic, it was
the only sector to see increases in student enrollment.[204] Additionally,
research shows that reductions in State and local funding for public higher
education institutions tend to shift college students into the for-profit
sector.[205] During economic downturns, this response is especially relevant
since State and local funding is procyclical, falling during recessions even as
student demand is increasing.[206]
For-profit institutions that participate in title IV, HEA programs are also more
reliant on Federal student aid than public and nonprofit institutions. In recent
years, around 70 percent of revenue received by for-profit institutions came
from Pell Grants and Federal student loans.[207] For-profit institutions also
have substantially higher tuition than public institutions offering similar
degrees. In recent years, average for-profit tuition and fees charged by
two-year for-profit institutions was over 4 times the average tuition and fees
charged by community colleges.[208] Research suggests that Federal student aid
supports for-profit expansions and higher prices.[209] Indeed, one study finds
that for-profit programs in institutions that participate in title IV, HEA
programs charge tuition that is around 80 percent higher than tuition charged by
programs in the same field and with similar outcomes in nonparticipating
for-profit institutions.[210]
For-profit institutions disproportionately enroll students with barriers to
postsecondary access: low-income, non-white, and older students, as well as
students who are veterans, single parents, or have a General Equivalency
Degree.[211] In the 1990s, sanctions related to high cohort default rates led a
large number of for-profit institutions to close, significantly reducing
enrollment in this sector.[212] Yet, these actions did not reduce access to
higher education. Instead, a large share of students who would have attended a
sanctioned for-profit institution instead enrolled in local open access public
institutions and, as a result, took on less student debt and were less likely to
default.[213] Similar conclusions were reached in recent studies of students
that experienced program closures.[214] Better evidence is now available on the
enrollment outcomes of students that would otherwise attend sanctioned or closed
schools than when the 2014 Prior Rule was considered.
2. SUMMARY OF KEY PROVISIONS
Expand Table
ProvisionRegulatory sectionDescription of proposed
provisionDefinitions§ 668.2Add definitions related to part 668, subparts Q and
S, as well as other parts of the proposed regulations.Financial Value
Transparency and Gainful EmploymentFinancial value transparency scope and
purpose§ 668.401Provide the scope and purpose of newly established financial
value transparency regulations under subpart Q.Financial value transparency
framework§ 668.402Provide a framework under which the Secretary would assess the
debt and earnings outcomes for students at both GE programs and eligible non-GE
programs, using a debt-to-earnings metric and an earnings premium
metric.Calculating D/E rates§ 668.403Establish a methodology to calculate annual
and discretionary D/E rates, including parameters to determine annual loan
payments, annual earnings, loan debt and assessed charges, as well as to provide
exclusions and specify when D/E rates would not be calculated.Calculating
earnings premium measure§ 668.404Establish a methodology to calculate a
program's earnings premium measure, including parameters to determine median
annual earnings, as well as to provide exclusions and specify when the earnings
premium measure would not be calculated.Process for obtaining data and
calculating D/E rates and earnings premium measure§ 668.405Establish a process
by which the Secretary would obtain administrative and earnings data to issue
D/E rates and the earnings premium measure.Determination of the D/E rates and
earnings premium measure§ 668.406Require the Secretary to notify institutions of
their financial value transparency metrics and outcomes.Start Printed Page
32408Student disclosure acknowledgments§ 668.407Require current and prospective
students to acknowledge having seen the information on the disclosure website
maintained by the Secretary if an eligible non-GE program has failed the D/E
rates measure, to specify the content and delivery of such acknowledgments, and
to require that students must provide the acknowledgment before the institution
may disburse any title IV, HEA funds.Reporting requirements§ 668.408Establish
institutional reporting requirements for students who enroll in, complete, or
withdraw from a GE program or eligible non-GE program and to define the
timeframe for institutions to report this
information.Severability§ 668.409Establish severability protections ensuring
that if any provision from part 668 is held invalid, the remaining provisions
would continue to apply.Scope and purpose§ 668.601Provide the scope and purpose
of the GE regulations under subpart S.GE criteria§ 668.602Establish criteria for
the Secretary to determine whether a GE program prepares students for gainful
employment in a recognized occupation.Ineligible GE programs§ 668.603Define the
conditions under which a failing GE program would lose title IV, HEA
eligibility, provide the opportunity for an institution to appeal a loss of
eligibility only on the basis of a miscalculated D/E rate or earnings premium,
and establish a period of ineligibility for failing GE programs that lose
eligibility or voluntarily discontinue eligibility.Certification requirements
for GE programs§ 668.604Require institutions to provide the Department with
transitional certifications, as well as to certify when seeking recertification
or the approval of a new or modified GE program, that each eligible GE program
offered by the institution is included in the institution's recognized
accreditation or, if the institution is a public postsecondary vocational
institution, the program is approved by a recognized State agency.Warnings and
acknowledgments§ 668.605Require warnings to current and prospective students if
a GE program is at risk of losing title IV, HEA eligibility, to specify the
content and delivery parameters of such notifications, and to require that
students must acknowledge to having seen the warning before the institution may
disburse any title IV, HEA funds.Severability§ 668.606Establish severability
protections ensuring that if any provision under part 668 is held invalid, the
remaining provisions would continue to apply.Date, extent, duration, and
consequence of eligibility§ 600.10(c)(1)(v)Require an institution seeking to
establish the eligibility of a GE program to add the program to its
application.Updating application information§ 600.21(a)(11)Require an
institution to notify the Secretary within 10 days of any update to information
included in the GE program's certification.License/certification
disclosure§ 668.43(a)(5)Require all programs that are designed to meet
educational requirements for a specific professional license or certification
for employment in an occupation list all States where the institution is aware
the program does and does not meet such requirements.Institutional and
programmatic information§ 668.43(d)Establish a website for the posting and
distribution of key information and disclosures pertaining to the institution's
educational programs; require institutions to provide information about how to
access that website to a prospective student before the student enrolls,
registers, or makes a financial commitment to the institution; and require
institutions provide information about how to access that website to a current
student before the start date of the first payment period associated with each
consecutive award year in which the student enrolls.Initial and final
decisions§ 668.91(d)(3)(vi)Require that a hearing official must terminate the
eligibility of a GE program that fails to meet the GE metrics, unless the
hearing official concludes that the Secretary erred in the calculation.Financial
ResponsibilityCentralizing requirements related to change of
ownership§ 668.15Remove and reserve section; move all requirements related to
financial responsibility and change of ownership to § 668.176.Timing of audit
and financial statement submission§ 668.23(a)(4)Require audit and financial
statement submission within the earlier of 30 days after the date of the report
or six months after the end of an institution's fiscal year.Updating audit
reference and clarifying fiscal years of submissions§ 668.23(d)(1)Replace the
reference to A–133 audits to 2 CFR part 200, subpart F. Require audits cover
most up-to-date fiscal year and match periods covered by submissions to the
IRS.Disclosing amounts spent on recruiting activities, advertising, and other
pre-enrollment expenditures§ 668.23(d)(5)Require institution to disclose in a
footnote to its financial statement audit the dollar amounts it has spent in the
preceding fiscal year on recruiting activities, advertising, and other
pre-enrollment expenditures.Increased information from foreign
entities§ 668.23(d)(2)Require institutions with at least 50 percent ownership by
a foreign entity to report additional information.General financial
responsibility standards§ 668.171(b)Identify the standards generally used to
establish that an institution is financially responsible.Mandatory triggering
eventsIdentify events that would automatically result in the Department either
recalculating a financial responsibility composite score or requiring financial
protection from an institution.Discretionary triggering
events§ 668.171(d)Identify events that the Secretary could consider in
determining whether an institution is not able to meet its financial or
administrative obligations and therefore must obtain financial
protection.Recalculating an institution's composite score§ 668.171(e)Identify
how the Department would recalculate an institution's composite score when
certain mandatory triggers occur.Reporting requirements§ 668.171(f)Identify the
various triggering events that require the institution to notify the Department
that the triggering event has occurred.Financial responsibility factors for
public institutions§ 668.171(g)Establishes financial responsibility standards
for public institutions when backed by the full faith and credit of the
appropriate government entity.Audit opinions and
disclosures§ 668.171(h)Establishes that the Department does not consider an
institution to be financially responsible if the audited financial statements
contain and opinion that is adverse, qualified or disclaimed unless the
Department determines it does not have significant bearing on the institution's
financial condition.Past performance§ 668.174Establishes the actions the
Department may take based on an individual's or entity's past performance and
the related impact on financial responsibility.Alternative standards and
requirements§ 668.175Establishes the alternative standards for financial
responsibility when the standards in § 668.171(b) are not met or the Department
acts based on the triggers in § 668.171(c)(d).Start Printed Page 32409Financial
responsibility for changes in ownership§ 668.176Establish the standards and
requirements for determining if an institution undergoing a change in ownership
is financially responsible.Administrative CapabilityRequire clear dissemination
of financial aid information§ 668.16(h)Expand existing requirements on
sufficient financial aid counseling to include clear and accurate financial aid
communications to students.Additional past performance
requirements§ 668.16(k)Require that institutions not have a principal,
affiliate, or anyone who exercises or previously exercised substantial control,
who has been convicted of, or who has pled nolo contendere or guilty to, certain
crimes or been found to have committed fraud. This also covers similar
individuals at other institutions if the institution was found to have engaged
in misconduct or faced liabilities in excess of 5 percent of its annual title
IV, HEA program funds.Negative actions§ 668.16(n)Provide that an institution is
not administratively capable if it has been subject to a significant negative
action subject to findings by a State or Federal agency, a court, or accrediting
agency, where the basis of the action is repeated or unresolved, and the
institution has not lost eligibility to participate in another Federal
educational assistance program because of it.Procedures for determining validity
of high school diplomas§ 668.16(p)Require institutions to have adequate
procedures for determining the validity of a high school diploma.Career
services§ 668.16(q)Require the institution to provide adequate career
services.Accessible clinical externship opportunities§ 668.16(r)Require the
institution to provide students with accessible clinical or externship
opportunities within 45 days of successful completion of coursework.Timely fund
disbursements§ 668.16(s)Require the institution to disburse funds to students in
a timely manner.Significant enrollment in failing GE programs§ 668.16(t)Provide
that an institution is not administratively capable if half of its title IV, HEA
revenue and half of its student enrollment comes from programs that are failing
the GE requirements in part 668, subpart S.Misrepresentations§ 668.16(u)Provide
that an institution is not administratively capable if it has been found to
engage in misrepresentations or aggressive recruitment.Certification
ProceduresRemoving automatic certification approval§ 668.13(b)(3)Eliminate
provision that requires Department approval to participate in the title IV, HEA
programs if the Department has not acted on an application within 12
months.Provisional certification triggers§ 668.13(c)(1)Expand the list of
circumstances that may lead to provisional certification.Recertification
timeframe for provisionally certified institutions§ 668.13(c)(2)Require
provisionally certified institutions with major consumer protection issues to
recertify within a maximum timeframe of two years.Supplementary performance
measures§ 668.13(e)Establish supplementary performance measures the Secretary
may consider in determining whether to certify or condition the participation of
an institution.Signature requirements for Program Participation Agreements
(PPAs)§ 668.14(a)(3)Require direct or indirect owners of proprietary or private
nonprofit institutions to sign the PPA.Increasing information sharing on an
institution's eligibility for or participation in title IV, HEA
programs§ 668.14(b)(17)Expand the list of entities that have the authority to
share information pertaining to an institution's eligibility for or
participation in title IV, HEA programs or any information on fraud, abuse, or
other violations to include Federal agencies and State attorneys
general.Prohibit the contract or employment of any individual, agency, or
organization that was at an institution in any year in which the institution
incurred a loss of Federal funds in excess of 5 percent of the institution's
annual title IV, HEA program funds§ 668.14(b)(18)(i) and (ii)Add to the list of
situations in which an institution may not knowingly contract with or employ any
individual, agency, or organization that has been, or whose officers or
employees have been, 10-percent-or-higher equity owners, directors, officers,
principals, executives, or contractors at an institution in any year in which
the institution incurred a loss of Federal funds in excess of 5 percent of the
institution's annual title IV, HEA program funds.Limiting excessive hours of GE
programs§ 668.14(b)(26)(ii)Limit the number of hours in a GE program to the
greater of the required minimum number of clock hours, credit hours, or the
equivalent required for training in the recognized occupation for which the
program prepares the student.Licensure/certification requirements and consumer
protection§ 668.14(b)(32)Require all programs that prepare students for
occupations requiring programmatic accreditation or State licensure to meet
those requirements and comply with all applicable State consumer protection laws
related to misrepresentation, closure, and recruitment.Prohibition on transcript
withholding for institutional errors or misconduct and returns under the Return
of Title IV Funds requirements§ 668.14(b)(33)Prevents institutions from
withholding transcripts or taking any other negative action against a student
related to a balance owed by the student that resulted from an institution's
administrative error, fraud, or misconduct, or returns of funds under the Return
of Title IV Funds requirements.Adding conditions that may apply to provisionally
certified institutions§ 668.14(e)Establish a non-exhaustive list of conditions
that the Secretary may apply to provisionally certified institutions.Adding
conditions that may apply to for-profit institutions that undergo a change in
ownership to convert to a nonprofit institution§ 668.14(f)Establish conditions
that may apply to institutions that undergo a change in ownership to convert
from a for-profit institution to a nonprofit institution.Adding conditions that
may apply to an initially certified nonprofit institution, or an institution
that has undergone a change of ownership and seeks to convert to nonprofit
status§ 668.14(g)Establish conditions that may apply to an initially certified
nonprofit institution, or an institution that has undergone a change of
ownership and seeks to convert to nonprofit status.Ability To BenefitAmend
student eligibility requirements§ 668.32Differentiate between the title IV, HEA
aid eligibility of non-high school graduates who enrolled in an eligible program
prior to July 1, 2012, and those who enrolled after July 1, 2012.Amend the State
process ATB alternative§ 668.156Amend the State process ATB alternative
regulations to separate the State process into an initial period and subsequent
period. Require institutions to submit an application that includes specified
components. Set the success rate needed for approval of the subsequent period at
85 percent and allow an institution up to three years to achieve compliance.
Prohibit participating institutions terminated by the State from participating
in the State process for five years. Require reporting on the demographics of
students enrolling through the State process. Allow the Secretary to lower the
success rate to 75 percent in specified circumstances.Start Printed Page
32410Add eligible career pathway program documentation
requirements§ 668.157Clarify the documentation requirement for eligible career
pathway programs.
3. ANALYSIS OF THE FINANCIAL VALUE TRANSPARENCY AND GE REGULATIONS
This section presents a detailed analysis of the likely consequences of the
Financial Value Transparency and GE provisions of the proposed regulations.
METHODOLOGY
DATA USED IN THIS RIA
This section describes the data referenced in this regulatory impact analysis
and the NPRM. To generate information on the performance of different
postsecondary programs offered in different higher education sectors, the
Department relied on data on the program enrollment, demographic
characteristics, borrowing levels, post-completion earnings, and borrower
outcomes of students who received title IV, HEA aid for their studies. The
Department produced program performance information, using measures based on the
typical debt levels and post-enrollment earnings of program completers, from
non-public records contained in the administrative systems the Department uses
to administer the title IV, HEA programs along with earnings data produced by
the U.S. Treasury. This performance information was supplemented with
information from publicly available sources including the Integrated
Postsecondary Education Data System (IPEDS), Postsecondary Education
Participants System (PEPS), and the College Scorecard. The data used for the
State earnings thresholds come from the Census Bureau's 2019 American Community
Survey, while statistics about the price level used to adjust for inflation come
from the Bureau of Labor Statistics' Consumer Price Index. This section
describes the data used to produce this program performance information and
notes several differences from the measures used for this purpose and the
proposed D/E rates and earning premium measures set forth in the rule, as well
as differences from the data disseminated during Negotiated Rulemaking. The data
described below are referred to as the “2022 Program Performance Data (2022
PPD),” where 2022 refers to the year the programs were indicated as active.
These data are being released with the NPRM.[215]
The proposed rule relies on non-public measures of the cumulative borrowing and
post-completion earnings of federally aided title IV, HEA students, including
both grant and loan recipients. The Department has information on all title IV,
HEA aid grant and loan recipients at all institutions participating in the title
IV, HEA programs, including the identity of the specific programs in which
students are enrolled and whether students complete the program. This
information is stored in the National Student Loan Data System (NSLDS),
maintained by the Department's Office of Federal Student Aid (FSA).
Using this enrollment and completion information, in conjunction with non-public
student loan information also stored in NSLDS, and earnings information obtained
from Treasury, the Department calculated annual and discretionary
debt-to-earnings (D/E) ratios, or rates, for all title IV, HEA programs. The
Department also calculated the median earnings of high school graduates aged 25
to 34 in the labor force in the State where the program is located using public
data, which is referred to as the Earnings Threshold (ET). This ET is compared
to a program's graduates' annual earnings to determine the Earnings Premium
(EP), the extent to which a programs' graduates earn more than the typical high
school graduate in the same State. The methodology that was used to calculate
both D/E rates, the ET, and the EP is described in further detail below. In
addition to the D/E rates and earnings data, we also calculated informational
outcomes measures, including program-level cohort default rates, to evaluate the
likely consequences of the proposed rule.
In our analysis, we define a program by a unique combination consisting of the
first six digits of its institution's Office of Postsecondary Education
Identification (“OPEID”) number, also referred to as the six-digit OPEID, the
program's 2010 Classification of Instructional Programs (CIP) code, and the
program's credential level. The terms OPEID number, CIP code, and credential
level are defined below. Throughout, we distinguish “GE Programs” from those
that are not subject to the GE provisions of the proposed rule, referred to as
“non-GE Programs.” The 2022 PPD includes information for 155,582 programs that
account for more than 19 million title IV, HEA enrollments annually in award
years 2016 and 2017. This includes 2,931,000 enrollments in 32,058 GE Programs
(certificate programs at all institution types, and degree programs at
proprietary institutions) and 16,337,000 enrollments in 123,524 non-GE Programs
(degree programs at public and private not-for-profit institutions).
We calculated the performance measures in the 2022 PPD for all programs based on
the debt and earnings of the cohort of students who both received title IV, HEA
program funds, including Federal student loans and Pell Grants, and completed
programs during an applicable two-year cohort period. Consistent with the
proposed rule, students who do not complete their program are not included in
the calculation of the metrics. The annual loan payment component of the
debt-to-earnings formulas for the 2022 PPD D/E rates was calculated for each
program using student loan information from NSLDS for students who completed
their program in award years 2016 or 2017 ( i.e., between July 1, 2015, and June
30, 2017—we refer to this group as the 16/17 completer cohort). The earnings
components of the rates were calculated for each program using information
obtained from Treasury for students who completed between July 1, 2014, and June
30, 2016 (the 15/16 completer cohort), whose earnings were measured in calendar
years 2018 and 2019.
Programs were excluded from the 2022 PPD if they are operated by an institution
that was not currently active in the Department's PEPS system as of March 25,
2022, if the program did not have a valid credential type, or if the program did
not have title IV, HEA Start Printed Page 32411 completers in both the 15/16 and
16/17 completer cohorts.
Consistent with the proposed regulations, the Department computed D/E and EP
metrics in the 2022 PPD only for those programs with 30 or more students who
completed the program during the applicable two-year cohort period—that is,
those programs that met the minimum cohort size requirements. A detailed
analysis of the likely coverage rate under the proposed rule and of the number
and characteristics of programs that met the minimum size in the 2022 PPD is
included in “Analysis of Data Coverage” below.
We determined, under the provisions in the proposed regulations for the D/E
rates and EP measures, whether each program would “Pass D/E,” “Fail D/E,” “Pass
EP,” and “Fail EP” based on their 2022 PPD results, or “No data” if they did not
meet the cohort size requirement.[216] These program-specific outcomes are then
aggregated to determine the fraction of programs that pass or fail either metric
or have insufficient data, as well as the enrollment in such programs.
• Pass D/E: Programs with an annual D/E earnings rate less than or equal to 8
percent OR a discretionary D/E earnings rate less than or equal to 20 percent.
• Fail D/E: Programs with an annual D/E earnings rate over 8 percent AND a
discretionary D/E earnings rate over 20 percent.
• Pass EP: Programs with 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.
• Fail EP: Programs with median annual earnings less than or equal to the median
earnings among high school graduates aged 25 to 34 in the labor force in the
State in which the program is located.
• No data: Programs that had fewer than 30 students in the two-year completer
cohorts and so earnings and debt levels could not be determined.
Under the proposed regulations, a GE program would become ineligible for title
IV, HEA program funds if it fails the D/E rates measure for two out of three
consecutive years or fails the EP measure for two out of three consecutive
years. GE programs would be required to provide warnings in any year in which
the program could lose eligibility based on the next D/E rates or earnings
premium measure calculated by the Department. Students at such programs would be
required to acknowledge having seen the warning and information about debt and
earnings before receiving title IV aid. Eligible non-GE programs not meeting the
D/E standards would need to have students acknowledge viewing this information
before receiving aid.
The Department analyzed the estimated impact of the proposed regulations on GE
and non-GE programs using the following data elements defined below:
• Enrollment: Number of students receiving title IV, HEA program funds for
enrollment in a program. To estimate enrollment, we used the count of students
receiving title IV, HEA program funds, averaged over award years 2016 and 2017.
Since students may be enrolled in multiple programs during an award year,
aggregate enrollment across programs will be greater than the unduplicated
number of students.
• OPEID: Identification number issued by the Department that identifies each
postsecondary educational institution (institution) that participates in the
Federal student financial assistance programs authorized under title IV of the
HEA.
• CIP code: Identification code from the Department's National Center for
Education Statistics' (NCES) Classification of Instructional Programs, which is
a taxonomy of instructional program classifications and descriptions that
identifies instructional program specialties within educational institutions.
The proposed rule would define programs using six-digit CIP codes, but due to
data limitations, the statistics used in this NPRM and RIA are measured using
four-digit codes to identify programs.[217] We used the 2010 CIP code instead of
the 2020 codes to align with the completer cohorts used in this analysis.
• Control: The control designation for a program's institution—public, private
non-profit, private for-profit (proprietary), foreign non-profit, and foreign
for-profit—using PEPS control data as of March 25, 2022.
• Credential level: A program's credential level—undergraduate certificate,
associate degree, bachelor's degree, post-baccalaureate certificate, master's
degree, doctoral degree, first professional degree, or post-graduate
certificate.
• Institution predominant degree: The type designation for a program's
institution which is based on the predominant degree the institution awarded in
IPEDS and reported in the College Scorecard: less than 2 years, 2 years, and 4
years or more.
• State: Programs are assigned to a U.S. State, DC, or territory based on the
State associated with the main institution.
The information contained in the 2022 PDD and used in the analysis necessarily
differs from that used to evaluate programs under the proposed rule in a few
ways due to certain information not being currently collected in the same form
as it would under the proposed rule. These include:
* 4-digit CIP code is used to define programs in the 2022 PPD, rather than
6-digit CIP code. Program earnings are not currently collected at the 6-digit
CIP code level, but would be under the proposed rule. Furthermore, the 2022
PPD uses 2010 CIP codes to align with the completer cohorts used in the
analysis, but programs would be defined using the 2020 CIP codes under the
proposed rule;
* Unlike the proposed rule, the total loan debt associated with each student is
not capped at an amount equivalent to the program's tuition, fees, books, and
supplies in the 2022 PPD, nor does debt include institutional and other
private debt. Doing so requires additional institutional reporting of
relevant data items not currently available to the Department. In the 2014
Prior Rule, using information reported by institutions, the tuition and fees
cap was applied to approximately 15 percent of student records for the
2008–2009 2012 D/E rates cohort, though this does not indicate the share of
programs whose median debt would be altered by the cap.
Start Printed Page 32412
• D/E rates using earnings levels measured in calendar years 2018 and 2019 would
ideally use debt levels measured for completers in 2015 and 2016. Since program
level enrollment data are more accurate for completers starting in 2016, we use
completers in 2016 and 2017 to measure debt. We measure median debt levels and
assume completers in the 2015 and 2016 cohorts would have had total borrowing
that was the same in real terms ( i.e., we use the CPI to adjust their borrowing
levels to estimate what the earlier cohort would have borrowed in nominal
terms). This use of one cohort to measure earnings outcomes and another to
measure debt necessarily reduces the estimated coverage in the 2022 PPD to a
lower level than will be experienced in practice, as we describe in more detail
below. Finally, the methodology used to assign borrowing to particular programs
in instances where a borrower may be enrolled in multiple programs is different
in the 2022 PPD than the methodology that would be used in the proposed rule
(which is the same as that used in the 2014 Prior Rule);
* Medical and dental professional programs are not evaluated because earnings
six years after completion are not available. The earnings and debt levels of
these programs are set to missing and not included in the tabulations
presented here;
* 150 percent of the Federal Poverty Guideline is used to define the ET for
institutions in U.S. Territories (other than Puerto Rico, which uses Puerto
Rico-specific ET) and foreign institutions in the 2022 PPD, rather than a
national ET;
* The proposed rule would use a national ET if more than half of a program's
students are out-of-state, but the 2022 PPD use an ET determined by the State
an institution is located;
* Programs at institutions that have merged with other institutions since 2017
are excluded, but these programs' enrollment would naturally be incorporated
into the merged institution if the proposed rule goes into effect.
* Under the proposed rule, if the two-year completer cohort has too few
students to publish debt and earnings outcomes, but the four-year completer
cohort has a sufficient number of students, then debt and earnings outcomes
would be calculated for the four-year completer cohort. This was not possible
for the 2022 PPD, so some programs with no data in our analysis would have
data to evaluate performance under the proposed rule.
The 2022 PPD also differ from those published in the Negotiated Rulemaking data
file in several ways. The universe of programs in the previously published
Negotiated Rulemaking data file were based, in part, on the College Scorecard
universe which included programs as they are reported to IPEDS, but not
necessarily to NSLDS. IPEDS is a survey, so institutions may report programs
(degrees granted by credential level and CIP code) differently in IPEDS than is
reflected in NSLDS. To reflect the impact of the proposed rule more accurately,
the universe of the 2022 PPD is based instead on NSLDS records because it
captures programs as reflected in the data systems used to administer title IV,
HEA aid. Nonetheless, the 2022 PPD accounts for the same loan volume reflected
in the Negotiated Rulemaking data file. In addition, the Negotiated Rulemaking
data file included programs that were based on a previous version of College
Scorecard prior to corrections made to resolve incorrect institution-reported
information in underlying data sources.
METHODOLOGY FOR D/E RATES CALCULATIONS
The D/E rates measure is comprised of two debt-to-earnings ratios, or rates. The
first, the annual earnings rate, is based on annual earnings, and the second,
the discretionary earnings rate, is based on discretionary earnings. These two
components together define a relationship between the maximum typical amount of
debt program graduates should borrow based on the programs' graduates' typical
earnings. Both conceptually and functionally the two metrics operate together,
and so should be thought of as one “debt to earnings (D/E)” metric. The formulas
for the two D/E rates are:
Annual Earnings Rate = (Annual Loan Payment)/(Annual Earnings)
Discretionary Earnings Rate = (Annual Loan Payment)/(Discretionary Earnings)
A program's annual loan payment, the numerator in both rates, is the median
annual loan payment of the 2016–2017 completer cohort. This loan payment is
calculated based on the program's cohort median total loan debt at program
completion, including non-borrowers, subject to assumptions on the amortization
period and interest rate. Cohorts' median total loan debt at program completion
were computed as follows.
* Each student's total loan debt includes both FFEL and Direct Loans. Loan debt
does not include PLUS Loans made to parents, Direct Unsubsidized Loans that
were converted from TEACH Grants, private loans, or institutional loans that
the student received for enrollment in the program.
* In cases where a student completed multiple programs at the same institution,
all loan debt is attributed to the highest credentialed program that the
student completed, and the student is not included in the calculation of D/E
rates for the lower credentialed programs that the student completed.
* The calculations exclude students whose loans were in military deferment, or
who were enrolled at an institution of higher education for any amount of
time in the earnings calendar year, or whose loans were discharged because of
disability or death.
The median annual loan payment for each program was derived from the median
total loan debt by assuming an amortization period and annual interest rate
based on the credential level of the program. The amortization periods used
were:
* 10 years for undergraduate certificate, associate degree, post-baccalaureate
certificate programs, and graduate certificate programs;
* 15 years for bachelor's and master's degree programs;
* 20 years for doctoral and first professional degree programs.
The amortization periods account for the typical outcome that borrowers who
enroll in higher-credentialed programs ( e.g., bachelor's and graduate degree
programs) are likely to have more loan debt than borrowers who enroll in
lower-credentialed programs and, as a result, are more likely to take longer to
repay their loans. These amortization rates mirror those used in the 2014 Prior
Rule, which were based on Department analysis of loan balances and the
differential use of repayment plan periods by credential level at that
time.[218] The interest rates used were:
* 4.27 percent for undergraduate programs;
* 5.82 percent for graduate programs.
For both undergraduate and graduate programs, the rate used is the average
interest rate on Federal Direct Unsubsidized loans over the three years prior to
the end of the applicable cohort period, in this case, the average rate for
loans disbursed between the beginning of July 2013 and the end of June 2016.
The denominators for the D/E rates are two different measures of student
earnings. Annual earnings are the median total earnings in the calendar year
three years after completion, obtained from the U.S. Treasury. Earnings were
measured in calendar years 2018 and 2019 for completers in award years 2015–2016
and 2016–2017, respectively, and were converted to Start Printed Page 32413 2019
dollars using the CPI–U. Earnings are defined as the sum of wages and deferred
compensation for all W–2 forms plus self-employment earnings from Schedule
SE.[219] Graduates who were enrolled in any postsecondary program during
calendar year 2018 (2015–2016 completers) or 2019 (2016–2017 completers) are
excluded from the calculation of earnings and the count of students.
Discretionary earnings are equal to annual earnings, calculated as above, minus
150 percent of the Federal Poverty Guidelines for a single person, which for
2019 is earnings in excess of $18,735.
Professional programs in Medicine (MD) and Dentistry (DDS) would have earnings
measured over a longer time horizon to accommodate lengthy post-graduate
internship training, where earnings are likely much lower three years after
graduation than they would be even a few years further removed from
completion.[220] Since longer horizon earning data are not currently available,
earnings for these programs were set to missing and treated as if they lacked
sufficient number of completers to be measured.
METHODOLOGY FOR EP RATE CALCULATION
The EP measures the extent to which a program's graduates earn more than the
typical high school graduate in the same State. The Department first calculated
the ET, which is the median earnings of high school graduates in the labor force
in each State where the program is located. The ET is adjusted for differences
in high school earnings across States and over time so it naturally accounts for
variations across these dimensions to reflect what workers would be expected to
earn in the absence of postsecondary participation. The ET is computed as the
median annual earnings among respondents aged 25–34 in the American Community
Survey who have a high school diploma or GED, but no postsecondary education,
and who are in the labor force when they are interviewed, indicated by working
or looking for and being available to work. The ET is lower than that proposed
during Negotiated Rulemaking, which would compute median annual earnings among
respondents aged 25–34 in the American Community Survey who have a high school
diploma or GED, but no postsecondary education, and who reported working ( i.e.,
having positive earnings) in the year prior to being surveyed. Table 3.1 below
shows the ET for each State (along with the District of Columbia and Puerto
Rico) in 2019. The ET ranges from $31,294 (North Dakota) to $20,859
(Mississippi). The threshold for institutions in U.S. territories (other than
Puerto Rico) and outside the United States is $18,735. We provide evidence in
support of the chosen threshold below. Estimates of the impact of the proposed
regulations using these alternative thresholds are presented in Section 9
“Regulatory Alternatives Considered.”
Expand Table
Table 3.1—Earnings Thresholds by State, 2019
Earnings threshold, 2019State of
Institution:Alabama22,602Alaska27,489Arizona25,453Arkansas24,000California26,073Colorado29,000Connecticut26,634Delaware26,471District
of
Columbia21,582Florida24,000Georgia24,435Hawaii30,000Idaho26,073Illinois25,030Indiana26,073Iowa28,507Kansas25,899Kentucky24,397Louisiana24,290Maine26,073Maryland26,978Massachusetts29,830Michigan23,438Minnesota29,136Mississippi20,859Missouri25,000Montana25,453Nebraska27,000Nevada27,387New
Hampshire30,215New Jersey26,222New Mexico24,503New York25,453North
Carolina23,300North
Dakota31,294Ohio24,000Oklahoma25,569Oregon25,030Pennsylvania25,569Rhode
Island26,634South Carolina23,438South
Dakota28,000Tennessee23,438Texas25,899Utah28,507Vermont26,200Virginia25,569Washington29,525West
Virginia23,438Wisconsin27,699Wyoming30,544Puerto Rico9,570Foreign Institutions
Territories18,735
The EP is computed as the difference between Annual Earnings and the ET:
Earnings Premium = (Annual Earnings)−(Earnings Threshold)
where the Annual Earnings is computed as above, and the ET is assigned for the
State in which the program is located. For foreign institutions and institutions
located in U.S. territories, 150 percent of the Federal Poverty Guideline for
the given year is used as the ET because comparable information about high
school graduate earnings is not available.
The Department conducted several analyses to support the decision of the
particular ET chosen. The discussion here focuses on undergraduate certificate
programs, which our analysis below suggests is the sector where program
performance results are most sensitive to the choice of ET.
First, based on student age information available from students' Free
Application for Federal Student Aid (FAFSA) data, we estimate that the typical
undergraduate program graduate three years after completion, when their earnings
are measured, would be 30 years old. The average age of students three years
after completion for undergraduate certificate programs is 31 years, while for
Associate's programs it is 30, Bachelor's 29, Master's 33, Doctoral 38, and
Professional programs 32. There are very few Post-BA and Graduate Certificate
programs (162 in total) and their average ages at earnings measurement 35 and
34, respectively.[221]
Start Printed Page 32414
Figure 3.1 shows the average estimated age for for-profit certificate holders 3
years after completion, when earnings would be measured, for the 10 most common
undergraduate certificate programs (and an aggregate `other' category). All
credentials have an average age that falls within or above the range of ages
used to construct the earnings threshold. In cases where the average age falls
above this range, our earnings threshold is lower than it would be if we
adjusted the age band use to match the programs' completers ages.
Second, the ET proposed is typically less than the average pre-program income of
program entrants, as measured in their FAFSA. Figure 3.2 shows average
pre-program individual income for students at these same types of certificate
programs, including any dependent and independent students that had previously
been working.[222] The figure also plots the ET and the average post-program
median earnings for programs under consideration. The program-average share of
students used to compute pre-program income is also reported in
parentheses.[223] Pre-program income falls above or quite close to the ET for
most types of certificate programs. Furthermore, the types of certificate
programs which we show below have very high failure rates—Cosmetology and
Somatic Bodywork (massage), for example—are unusual in having very low
post-program earnings compared to other programs that have similar pre-program
income.
We view this as suggestive evidence that the ET chosen provides a reasonable,
but conservative, guide to the minimum earnings that program graduates should be
expected to obtain.[224]
Start Printed Page 32415
ANALYSIS OF DATA COVERAGE
This section begins with a presentation of the Department's estimate of the
share of enrollment and programs that would meet the n-size requirement and be
evaluated under the proposed rule. We assembled data on the number of completers
in the two-year cohort period (AYs 2016–2017) and total title IV enrollment for
programs defined at the six-digit OPEID, credential level, and six-digit CIP
code from NSLDS. This is the level of aggregation that would be used in the
proposed rule. Total Title IV enrollment at this same level of disaggregation
was also collected. Deceased students and students enrolled during the earnings
measurement rule would be excluded from the earnings sample under the proposed
rule; however, the Department has not yet applied such information on the number
of such completers to the counts described above. We therefore impute the number
of completers in the earning sample by multiplying the total completer count in
our data by 82 percent, which is the median ratio of non-enrolled earning count
to total completer count derived from programs defined at a four-digit CIP code
level.
Table 3.2 below reports the share of Title IV, HEA enrollment and programs that
would have metrics computed under an n-size of 30 and using six-digit CIP codes
to define programs. We estimate that 75 percent of GE enrollment and 15 percent
of GE programs would have sufficient n-size to have metrics computed with a
two-year cohort. An additional 8 percent of enrollment and 11 percent of
programs have an n-size of between 15 and 29 and would thus be likely have
metrics computed using a four-year completer cohort. The comparable rates for
eligible non-GE programs are 69 percent of enrollment and 19 percent of programs
with a n-size of 30 and using two-year cohort metrics, with the use of four-year
cohort rates likely increasing these coverage rates of enrollment and programs
by 13 and 15 percent, respectively.
The table also reports similar estimates aggregating programs to a four-digit
CIP code level. Coverage does not diminish dramatically (3–5 percentage points)
when moving from four-digit CIP codes, as presented in the 2022 PPD, to
six-digit CIP codes to define programs.
We note that the high coverage of Title IV enrollment relative to Title IV
programs reflects the fact that there are many very small programs with only a
few students enrolled each year. For example, based on our estimates, more than
half of all programs (defined at six-digit CIP code) have fewer than five
students completing per year and about twenty percent have fewer than five
students enrolled each year. The Department believes that the coverage of
students based on enrollment is sufficiently high to generate substantial net
benefits and government budget savings from the policy, as described in “Net
Budget Impacts” and “Accounting Statement” below. We believe that the extent to
which enrollment is covered by the proposed rule is the appropriate measure on
which to focus coverage analysis on because the benefits, costs, and transfers
associated with the policy almost all scale with the number of students
(enrollment or completions) rather than the number of programs. Start Printed
Page 32416
Expand Table
Table 3.2—Share of Enrollment and Programs Meeting Sample Size Restrictions, by
CIP Code Level
EnrollmentProgramsCIP4CIP6CIP4CIP6GE Programs:n-size = 150.860.830.290.26n-size
= 300.790.750.180.15Non-GE Programs:n-size = 150.850.820.390.34n-size =
300.740.690.230.19Notes: Average school-certified enrollment in AY1617 is used
as the measure of enrollment, but the 2022 PPD analyzed in the RIA uses total
(certified and non-certified) enrollment, so coverage rates will differ.
Non-enrolled earnings count for AY1617 completers is not available at a
six-digit CIP level (for any n-size) or at a four-digit CIP level (for n-size =
15). Therefore, non-enrolled earnings counts are imputed based on the median
ratio of non-enrolled earnings count to total completer counts at the four-digit
CIP level where available. This median ratio is multiplied by the actual
completer count for AY1617 at the four- and six-digit CIP level for all programs
to determine the estimated n-size.
The rest of this section describes coverage rates for programs as they appear in
the 2022 PPD to give context for the numbers presented in the RIA. Again, the
analyses above are the better guide to the coverage of metrics we expect to
publish under the rule. The coverage in the 2022 PPD is lower than that reported
in Table 3.2, due to differences in data used and because the 2022 PPD does not
apply the four-year cohort period “look back” provisions and instead only uses
two-year cohorts.[225]
Tables 3.3a and 3.3b report the share of non-GE and GE enrollment and programs
with valid D/E rates and EP rates in the 2022 PPD, by control and credential
level. For Non-GE programs, metrics could be calculated for 62.0 percent of
enrollment who attended 18.0 percent of programs. Coverage is typically highest
for public bachelor's degree programs and professional programs at private
non-profit institutions. Doctoral programs in either sector are the least likely
to have sufficient size to compute performance metrics. Programs at foreign
institutions are very unlikely to have a sufficient number of completers.
Overall, 65.4 percent of title IV, HEA enrollment is in GE programs that have a
sufficient number of completers to allow the Department to construct both valid
D/E and EP rates in the 2022 PPD. This represents 12.8 percent of GE programs.
Note that a small number of programs have an EP metric computed but a D/E metric
is not available because there are fewer than 30 completers in the two-year debt
cohort. Coverage is typically higher in the proprietary sector—we are able to
compute D/E or EP metrics for programs accounting for about 87.0 percent of
enrollment in proprietary undergraduate certificate programs. Comparable rates
are 61.5 percent and 21.4 percent of enrollment in the non-profit and public
undergraduate certificate sectors, respectively.
Expand Table
Table 3.3 a —Percent of Programs and Enrollment in Programs With Valid D/E and
EP Information by Control and Credential Level (Non-GE Programs)
Data availability categoryHas both D/E and EPHas EP onlyDoes not have EP or
D/EProgramsEnrolleesProgramsEnrolleesProgramsEnrolleesPublic:Associate's11.655.80.30.388.143.9Bachelor's39.374.30.50.260.225.5Master's15.557.40.80.983.841.7Doctoral3.021.70.30.796.777.6Professional37.755.50.70.661.643.9Private,
Nonprofit:Associate's12.661.90.40.187.038.0Bachelor's13.450.60.30.486.349.1Master's19.767.10.90.979.332.0Doctoral7.650.80.31.992.147.4Professional43.374.81.90.854.824.4Foreign
Private:Associate's100.0100.0Bachelor's0.11.299.998.8Master's0.34.60.10.499.695.0Doctoral100.0100.0Professional3.420.71.13.995.575.4Total:Total18.062.00.40.481.637.7
Start Printed Page 32417
Expand Table
Table 3.3 b —Percent of Programs and Enrollment in Programs With Valid D/E and
EP Information by Control and Credential Level (GE Programs)
Data availability categoryHas both D/E and EPHas EP onlyDoes not have EP or
D/EProgramsEnrolleesProgramsEnrolleesProgramsEnrolleesPublic:UG
Certificates4.821.40.30.494.978.2Post-BA Certs0.97.00.10.299.092.7Grad
Certs2.721.70.21.397.177.0Private, Nonprofit:UG
Certificates12.461.50.50.187.138.4Post-BA Certs0.73.81.02.598.393.8Grad
Certs3.925.60.41.195.873.4Proprietary:UG
Certificates50.887.01.40.447.812.7Associate's34.984.42.30.762.915.0Bachelor's38.591.61.30.660.37.8Post-BA
Certs8.762.291.337.8Master's41.493.22.10.756.46.1Doctoral35.074.01.73.963.322.2Professional31.065.13.421.265.513.7Grad
Certs16.166.84.81.179.032.2Total:Total12.865.40.60.786.634.0
EXPLANATION OF TERMS
While most analysis will be simple cross-tabulations by two or more variables,
we use linear regression analysis (also referred to as “ordinary least squares”)
to answer some questions about the relationship between variables holding other
factors constant. Regression analysis is a statistical method that can be used
to measure relationships between variables. For instance, in the demographic
analysis, the demographic variables we analyze are referred to as “independent”
variables because they represent the potential inputs or determinants of
outcomes or may be proxies for other factors that influence those outcomes. The
annual debt to earnings (D/E) rate and earnings premium (EP) are referred to as
“dependent” variables because they are the variables for which the relationship
with the independent variables is examined. The output of a regression analysis
contains several relevant points of information. The “coefficient,” also known
as the point estimate, for each independent variable is the average amount that
a dependent variable is estimated to change with a one-unit change in the
associated independent variable, holding all other independent variables
included in the model constant. The standard error of a coefficient is a measure
of the precision of the estimate. The ratio of the coefficient and standard
error, called a “t-statistic” is commonly used to determine whether the
relationship between the independent and dependent variables is “statistically
significant” at conventional levels.[226] If an estimated coefficient is
imprecise ( i.e., it has a large standard error relative to the coefficient), it
may not be a reliable measure of the underlying relationship. Higher values of
the t-statistic indicate a coefficient is more precisely estimated. The
“R-squared” is the fraction of the variance of the dependent variable that is
statistically explained by the independent variables.
RESULTS OF THE FINANCIAL VALUE TRANSPARENCY MEASURES FOR PROGRAMS NOT COVERED BY
GAINFUL EMPLOYMENT
In this subsection we examine the results of the transparency provisions of the
proposed regulations for the 123,524 non-GE Programs. The analysis is focused on
results for a single set of financial-value measures—approximating rates that
would have been released in 2022 (with some differences, described above).
Though programs with fewer than 30 completers in the cohort are not subject to
the D/E and EP tests and would not have these metrics published, we retain these
programs in our analysis and list them in the tables as “No Data” to provide a
more complete view of the distribution of enrollment and programs across the D/E
and EP metrics.
Table 3.4 and 3.5 reports the results for non-GE programs by control and
credential level. Non-GE programs with failing D/E metrics are required to have
students acknowledge having seen the program outcome information before aid is
disbursed. Students at non-GE programs that do not pass the earnings premium
metric are not subject to the student acknowledgement requirement, however, for
informational purposes, we report rates of passing this metric for non-GE
programs as well. We expect performance on the EP metric contained on the
ED-administered program disclosure website to be of interest to students even if
it is not part of the acknowledgement requirement. This analysis shows that:
* 870 public and 760 non-profit degree programs (representing 1.2 and 1.6
percent of programs and 4.6 and 7.8 percent of enrollment, respectively)
would fail at least one of the D/E or EP metrics.
* At the undergraduate level, failure of the EP metric is most common at public
Associate degree programs, whereas failure of the D/E metric is relatively
more common among Bachelor's degree programs, particularly at non-profit
institutions.
* Failure for graduate programs is almost exclusively due to the failure of the
D/E metric and is most prominent for doctoral and professional programs at
private, non-profit institutions.
• In total, 127,900 students (1.1 percent) at public institutions and 273,700
students (6.8 percent) at non-profit institutions are in programs with failing
D/E metrics and would be required to provide acknowledgment prior to having aid
disbursed. Start Printed Page 32418
Expand Table
Table 3.4—Number and Percent of Title IV Enrollment in Non-GE by Result,
Control, and Credential Level
Percent of enrollmentNumber of enrollmentsNo dataPassFail D/E onlyFail both D/E
and EPFail EP onlyNo dataPassFail D/E onlyFail both D/E and EPFail EP
onlyPublic:Associate's44.148.10.40.27.32,424,7002,642,10019,9009,800400,400Bachelor's25.772.51.10.20.61,491,8004,202,80063,00010,30032,800Master's42.655.81.50.00.0324,300424,60011,3003000Doctoral78.319.12.60.00.0113,60027,8003,80000Professional44.548.07.50.00.056,70061,1009,60000Total35.859.70.90.23.54,411,1007,358,400107,60020,300433,200Private,
Nonprofit:Associate's38.137.27.715.31.7101,80099,30020,70040,7004,500Bachelor's49.446.31.81.11.31,310,0001,228,50047,90030,10034,700Master's32.859.47.40.30.1261,400472,90058,6002,400800Doctoral49.231.019.60.10.070,30044,30028,0002000Professional25.240.134.60.00.232,80052,30045,1000200Total44.547.65.01.81.01,776,3001,897,400200,30073,40040,200Foreign
Private:Associate's100.00.00.00.00.01000000Bachelor's98.80.00.01.20.05,400001000Master's95.42.81.80.00.08,60030020000Doctoral100.00.00.00.00.02,8000000Professional79.30.020.70.00.01,200030000Total95.71.32.60.40.018,1003005001000Total:Associate's43.847.60.70.97.02,526,5002,741,40040,50050,500404,800Bachelor's33.264.21.30.50.82,807,2005,431,300111,00040,40067,500Master's38.057.34.50.20.1594,300897,80070,1002,700800Doctoral64.224.810.90.10.0186,70072,10031,8002000Professional35.043.721.20.00.190,700113,40055,0000200Total38.056.71.90.62.96,205,5009,256,100308,40093,800473,400Note:
Enrollment counts rounded to the nearest 100.
Expand Table
Table 3.5—Number and Percent of Non-GE Programs by Result, Control, and
Credential Level
Result in 2019No D/E or EP dataPassFail D/E onlyFail both D/E and EPFail EP
onlyPercentNPercentNPercentNPercentNPercentNPublic:Associate's88.524,1619.92,6940.1240.1191.5414Bachelor's60.814,80137.89,2020.71640.2480.5123Master's84.612,33715.02,1910.3500.030.01Doctoral97.05,5532.81620.290.000.00Professional63.436033.51903.2180.000.00Total78.957,21219.914,4390.42650.1700.7538Private,
Nonprofit:Associate's87.72,0369.12121.2281.5340.511Bachelor's86.725,78412.43,6890.41250.3750.379Master's80.58,34217.11,7712.22270.2170.05Doctoral92.42,6385.31502.2640.120.00Professional57.628425.212416.6820.000.63Total85.439,08413.05,9461.15260.31280.298Foreign
Private:Associate's100.0180.000.000.000.00Bachelor's99.91,2270.000.000.110.00Master's99.73,0670.140.130.000.01Doctoral100.07930.000.000.000.00Professional97.11010.002.930.000.00Total99.85,2060.140.160.010.01Total:Associate's88.426,2159.82,9060.2520.2531.4425Bachelor's75.641,81223.312,8910.52890.21240.4202Master's84.723,74614.23,9661.02800.1200.07Doctoral95.98,9843.33120.8730.020.00Professional63.974527.03148.81030.000.33Total82.2101,50216.520,3890.67970.21990.5637
Tables 3.6 and 3.7 report results by credential level and 2-digit CIP code for
non-GE programs. This analysis shows that:
• Rates of not passing at least one of the metrics are particularly high for
professional programs in law (CIP 22, Start Printed Page 32419 19.6 percent of
law programs representing 29.2 percent of enrollment in law programs), theology
(CIP 39, 6.6 percent, 25.4 percent) and health (CIP 51, 9.7 percent, 18.6
percent). Recall that for graduate degrees, failure is almost exclusively due to
the D/E metric, which would trigger the acknowledgement requirement.
Expand Table
Table 3.6—Number and Percent of Non-GE Title IV Enrollment in Programs Failing
Either D/E or EP Metric, by CIP2
Credential levelAssociate'sBachelor'sMaster'sDoctoralProfessionalTotal1:
Agriculture Related Sciences0.81.20.00.00.01.03: Natural Resources And
Conservation0.01.31.80.00.01.24: Architecture And Related
Services0.00.02.70.00.00.75: Area Group Studies0.00.60.00.00.00.59:
Communication3.52.12.00.00.02.310: Communications Tech8.12.90.05.911: Computer
Sciences1.50.10.00.00.00.612: Personal And Culinary Services9.50.00.08.313:
Education16.62.71.84.30.04.414: Engineering0.00.00.00.00.00.015: Engineering
Tech0.30.00.00.00.216: Foreign Languages1.02.10.00.00.01.819: Family Consumer
Sciences11.28.03.80.00.09.222: Legal Professions7.89.83.629.629.220.423: English
Language1.15.73.90.00.04.824: Liberal Arts14.02.80.60.00.010.825: Library
Science0.00.00.00.00.00.026: Biological Biomedical Sciences4.92.66.31.40.03.127:
Mathematics And Statistics0.00.00.00.00.00.028: Military Science0.00.00.029:
Military Tech0.00.00.00.030: Multi/Interdisciplinary
Studies1.31.21.60.00.01.331: Parks Rec4.81.80.60.00.02.232: Basic
Skills0.00.00.00.033: Citizenship Activities0.00.00.034: Health-Related
Knowledge And Skills0.00.00.00.00.00.035: Interpersonal And Social
Skills0.00.00.036: Leisure And Recreational Activities0.00.00.00.00.037:
Personal Awareness And Self-Improvement0.00.038: Philosophy And Religious
Studies40.51.30.00.00.04.239: Theology And Religious
Vocations9.421.57.70.025.414.840: Physical Sciences0.00.30.00.00.00.241: Science
Technologies/Technicians4.20.00.00.03.742: Psychology10.86.431.525.313.610.543:
Homeland Security3.72.67.60.00.03.444: Public Admin Social
Services23.45.16.90.00.09.045: Social Sciences4.90.93.20.00.01.646: Construction
Trades0.00.00.00.00.047: Mechanic Repair Tech0.40.00.448: Precision
Production0.00.00.00.049: Transportation And Materials Moving0.00.00.00.00.050:
Visual And Performing Arts6.412.721.61.90.011.651: Health Professions And
Related Programs6.21.75.820.118.65.852: Business5.30.70.80.00.02.053: High
School/Secondary Diplomas0.00.00.00.054: History0.00.812.20.00.01.660: Residency
Programs0.00.00.00.0Total8.62.64.711.021.35.4
Expand Table
Table 3.7—Number and Percent of Non-GE Programs Failing Either D/E or EP Metric,
by CIP2
Credential levelAssociate'sBachelor'sMaster'sDoctoralProfessionalTotal1:
Agriculture Related Sciences0.10.70.00.00.00.33: Natural Resources And
Conservation0.00.40.30.00.00.34: Architecture And Related
Services0.00.00.80.00.00.35: Area Group Studies0.00.30.00.00.00.29:
Communication0.81.30.60.00.01.110: Communications Tech2.22.40.02.111: Computer
Sciences0.40.10.00.00.00.212: Personal And Culinary Services3.90.00.03.613:
Education3.50.80.70.10.01.014: Engineering0.00.00.00.00.00.015: Engineering
Tech0.10.00.00.00.00.116: Foreign Languages0.30.60.00.00.00.419: Family Consumer
Sciences3.52.91.20.00.02.722: Legal Professions1.01.40.414.319.65.023: English
Language0.41.91.00.00.01.424: Liberal Arts15.32.10.40.00.08.125: Library
Science0.00.00.00.00.00.026: Biological Biomedical
Sciences0.81.40.60.10.00.9Start Printed Page 3242027: Mathematics And
Statistics0.00.00.00.00.00.028: Military Science0.00.00.029: Military
Tech0.00.00.00.030: Multi/Interdisciplinary Studies1.10.70.40.00.00.631: Parks
Rec0.81.30.30.00.01.032: Basic Skills0.00.00.00.033: Citizenship
Activities0.00.00.034: Health-Related Knowledge And Skills0.00.00.00.00.00.035:
Interpersonal And Social Skills0.00.00.036: Leisure And Recreational
Activities0.00.00.00.00.037: Personal Awareness And Self-Improvement0.00.038:
Philosophy And Religious Studies2.10.20.00.00.00.239: Theology And Religious
Vocations2.02.52.60.06.62.440: Physical Sciences0.00.00.00.00.00.041: Science
Technologies/Technicians0.60.00.00.00.442: Psychology3.12.95.43.14.23.743:
Homeland Security0.82.21.30.00.01.344: Public Admin Social
Services6.31.52.20.00.02.545: Social Sciences0.50.50.20.00.00.446: Construction
Trades0.00.00.00.00.047: Mechanic Repair Tech0.20.00.248: Precision
Production0.00.00.00.049: Transportation And Materials Moving0.00.00.00.00.050:
Visual And Performing Arts1.44.44.90.40.03.751: Health Professions And Related
Programs1.51.02.64.59.72.252: Business1.40.30.20.00.00.653: High
School/Secondary Diplomas0.00.00.00.054: History0.00.30.50.00.00.360: Residency
Programs0.00.00.00.00.0Total1.81.11.10.89.11.3
RESULTS OF GE ACCOUNTABILITY FOR PROGRAMS SUBJECT TO THE GAINFUL EMPLOYMENT RULE
This analysis is based on the 2022 PPD described in the “Data Used in this RIA”
above. In this subsection, we examine the combined results of the GE
accountability components of the proposed regulations for the 32,058 GE
Programs. The analysis is primarily focused on GE metric results for a single
year, though continued eligibility depends on performance in multiple years. The
likelihood of repeated failure is discussed briefly below and is incorporated
into the budget impact and cost-benefit analyses. Though programs with fewer
than 30 completers in the cohort are not subject to the D/E and EP tests, we
retain these programs in our analysis to provide a more complete view of program
passage than if they were excluded.
PROGRAM-LEVEL RESULTS
Table 3.8 and 3.9 reports D/E and EP results by control and credential level for
GE programs. This analysis shows that:
* 65.3 percent of enrollment is in the 4,100 GE programs for which rates can be
calculated.
* 41.3 percent of enrollment is in 2,300 programs (7.1 percent of all GE
programs) that meet the size threshold and would pass both the D/E measure
and EP metrics.
* 24 percent of enrollment is in 1,800 programs (5.5 percent of all GE
programs) that would fail at least one of the two metrics.
* Failure rates are significantly lower for public certificate programs (4.3
percent of enrollment is in failing programs) than for proprietary (50
percent of enrollment is in failing programs) or non-profit (43.6 percent of
enrollment is in failing programs) certificate programs, though the latter
represents a small share of overall enrollment. Certificate programs that
fail typically fail the EP metric, rather than the D/E metric.
* Across all proprietary certificate and degree programs, 33.6 percent of
enrollment is in programs that fail one of the two metrics, representing 22.1
percent of programs. Degree programs that fail typically fail the D/E metric,
with only associate degree programs having a noticeable number of programs
that fail the EP metric.
Expand Table
Table 3.8—Number and Percent of Title IV Enrollment in GE Programs by Result,
Control, and Credential Level
PercentNumberNo dataPassFail D/E onlyFail both D/E and EPFail EP onlyNo
dataPassFail D/E onlyFail both D/E and EPFail EP onlyPublic:UG
Certificates78.517.20.00.34.0682,300149,3002003,00034,700Post-BA
Certs93.07.00.00.00.011,800900000Grad
Certs78.321.30.40.00.032,8008,90020000Total78.717.20.00.33.8726,900159,2003003,00034,700Private,
Nonprofit:UG Certificates38.518.00.04.938.730,00014,00003,80030,100Post-BA
Certs96.23.80.00.00.07,600300000Grad
Certs74.422.13.50.00.026,6007,9001,30000Start Printed Page
32421Total52.818.31.03.124.864,20022,2001,3003,80030,100Proprietary:UG
Certificates12.737.30.28.541.370,000205,0001,10046,500227,300Associate's15.546.219.314.44.550,600151,10063,20047,20014,700Bachelor's8.467.222.32.00.156,800454,000150,60013,700600Post-BA
Certs37.862.20.00.00.0300500000Master's6.875.217.00.90.016,400180,50040,8002,2000Doctoral26.058.815.10.00.014,10031,8008,20000Professional34.914.550.70.00.04,2001,8006,10000Grad
Certs32.628.937.90.00.73,5003,1004,1000100Total11.555.014.75.913.0215,9001,027,800274,200109,600242,700Foreign
Private:UG Certificates100.00.00.00.00.01000000Post-BA
Certs100.00.00.00.00.000000Grad
Certs15.80.00.084.20.0200001,3000Total20.40.00.079.60.0300001,3000Foreign
For-Profit:Master's100.00.00.00.00.02000000Doctoral80.519.50.00.00.01,600400000Professional79.70.020.30.00.09,20002,40000Total80.02.817.20.00.011,0004002,40000Total:UG
Certificates52.224.60.13.619.5782,400368,4001,30053,300292,100Associate's15.546.219.314.44.550,600151,10063,20047,20014,700Bachelor's8.467.222.32.00.156,800454,000150,60013,700600Post-BA
Certs92.17.90.00.00.019,7001,700000Master's6.975.217.00.90.016,600180,50040,8002,2000Doctoral27.957.514.60.00.015,60032,2008,20000Professional56.87.435.80.00.013,4001,8008,50000Grad
Certs70.322.26.11.40.163,10019,9005,5001,300100Total34.741.39.54.010.51,018,3001,209,600278,100117,600307,500Note:
Enrollment counts rounded to the nearest 100.
Expand Table
Table 3.9—Number of GE Programs by Result, Control, and Credential Level
NumberPercentNo D/E or EP dataPassFail D/E onlyFail both D/E and EPFail EP
onlyNo D/E or EP dataPassFail D/E onlyFail both D/E and EPFail EP onlyPublic:UG
Certificates18,0517291618495.23.80.00.01.0Post-BA
Certs865700099.20.80.00.00.0Grad
Certs1,8875020097.32.60.10.00.0Total20,8037863618495.53.60.00.00.8Private,
Nonprofit:UG Certificates1,21894086787.86.80.00.64.8Post-BA
Certs625400099.40.60.00.00.0Grad
Certs1,3444490096.23.10.60.00.0Total3,187142986793.44.20.30.22.0Proprietary:UG
Certificates1,596548415491649.617.00.14.828.5Associate's1,13533998796966.019.75.74.64.0Bachelor's6012598021262.426.98.32.20.2Post-BA
Certs48400092.37.70.00.00.0Master's282148399059.031.08.21.90.0Doctoral8030120065.624.69.80.00.0Professional23540071.915.612.50.00.0Grad
Certs1051460382.010.94.70.02.3Total3,8701,34724326399057.620.13.63.914.7Foreign
Private:UG Certificates280000100.00.00.00.00.0Post-BA
Certs270000100.00.00.00.00.0Grad
Certs76001098.70.00.01.30.0Total131001099.20.00.00.80.0Foreign For-Profit:UG
Certificates10000100.00.00.00.00.0Master's60000100.00.00.00.00.0Doctoral3100075.025.00.00.00.0Professional5020071.40.028.60.00.0Total15120083.35.611.10.00.0Total:UG
Certificates20,8941,37151681,16788.55.80.00.74.9Start Printed Page
32422Associate's1,13533998796966.019.75.74.64.0Bachelor's6012598021262.426.98.32.20.2Post-BA
Certs1,5651500099.10.90.00.00.0Master's288148399059.530.68.11.90.0Doctoral8331120065.924.69.50.00.0Professional28560071.812.815.40.00.0Grad
Certs3,412108171396.43.00.50.00.1Total28,0062,2762572781,24187.47.10.80.93.9
Tables 3.10 and 3.11 reports the results by credential level and 2-digit CIP
code. This analysis shows:
* Highest rate of failure is in Personal and Culinary Services (CIP2 12), where
76 percent of enrollment, representing 38 percent of undergraduate
certificate programs in that field, have failing metrics. This is primarily
due to failing the EP metric.
* In Health Professions and Related Programs (CIP2 51), where allied health,
medical assisting, and medical administration are the primary specific
fields, 26.2 percent of enrollment is in an undergraduate certificate program
that fails at least one of the two metrics, representing 8.6 percent of
programs.
Start Printed Page 32423
PROGRAM INELIGIBILITY
For GE programs, Title IV ineligibility is triggered by two years of failing the
same metric within a three-year period. Years of not meeting the n-size
requirement are not counted towards those three years. The top panel of Table
3.12 shows the share of GE enrollment and programs in each result category in a
second year as a function of the result in the first year, along with the rate
of becoming ineligible. Failure rates are quite persistent, with failure in one
year being highly predictive of failure in the next year, and thus ineligibility
for title IV, HEA funds. Among programs that fail only the D/E metric in the
first year, 58.4 percent of enrollment is in programs that also fail D/E in year
2 and would be ineligible for Title IV aid the following year. The comparable
rates for programs that fail EP only or both D/E and EP in the first year are
91.2 and 88.8 percent, respectively. The share of programs (rather than
enrollment in such programs) that become ineligible conditional on first year
results is similar, as shown in the bottom panel of Table 3.12. These rates
understate the share of programs that would ultimately become ineligible when a
third year is considered.
Start Printed Page 32424
INSTITUTION-LEVEL AANALYSIS OF GE PROGRAM ACCOUNTABILITY PROVISIONS
Many institutions have few programs that are subject to the accountability
provisions of GE, either because they are nonproprietary institutions with
relatively few certificate programs or because their programs tend to be too
small in size to have published median debt or earnings measures. Characterizing
the share of GE programs that have reported debt and earnings metrics that fail
in particular postsecondary sectors can therefore give a distorted sense for the
effect the rule might have on institutions in that sector. For example, a
college (or group of colleges) might offer a single GE program that fails the
rule and so appear to have 100 percent of its GE programs fail the rule. But if
that program is a very small share of the institution's overall enrollment (or
its title IV, HEA enrollment) then even if every student in that program were to
stop enrolling in the institution—an unlikely scenario as discussed below—the
effect on the institution(s) would be much less than would be implied by the 100
percent failure rate among its GE programs. To provide better context for
evaluating the potential effect of the GE rule on institutions or sets of
institutions, we describe the share of all title IV supported
enrollment—including enrollment in both GE and non-GE programs—that is in a GE
program and that fails a GE metric and, therefore, is at risk of losing title
IV, HEA eligibility.[227] Again, this should not be viewed as an estimate of
potential enrollment (or revenue) loss to the institution—in many cases the most
likely impact of a program failing the GE metrics or losing eligibility is that
students enroll in higher performing programs in the same institution.
Table 3.13 reports the distribution of institutions by share of enrollment that
is in a failing GE program, by control and institution type. It shows that 93
percent of public institutions and 97 percent of non-profit institutions have no
enrollment in GE programs that fail the GE metric. This rate is much lower—42
percent—for proprietary institutions, where all types of credential programs are
covered by GE accountability and failure rates tend to be higher.
Expand Table
Table 3.13—Distribution of Institutions by Share of Enrollment That Fails GE
Accountability, by Control and Institution Type (All Institutions)
Share of institutional enrollment in failing GE
programsTotal0%0–5%5–10%10–20%20–40%40–99%100%Public:Less-Than
2-Year56147023132623512-Year69164935312104-Year or
Above560557210000Total1,8121,6766017272561Private, Nonprofit:Less-Than
2-Year1139210131152-Year1101012022214-Year or Above1,3501,3321041111Start
Printed Page 32425Total1,5731,52513446147Proprietary:Less-Than
2-Year1,2744996824382084912-Year11967164142434-Year or
Above1016203710163Total1,4946287173562248497Total:Less-Than
2-Year1,9481,061302151642244972-Year9208173897182744-Year or
Above2,0111,951128811174Total4,8793,82980386693268505
Very few public community or technical colleges (CCs) have considerable
enrollment in programs that would fail GE. Only 40 (6 percent) of the 690
predominant 2-year public colleges have any of their enrollment in certificate
programs that would fail, and only 30 (5 percent) of the 560 predominantly less
than 2-year technical colleges have more than 20% of enrollment that does. The
share of enrollment in failing GE programs for HBCUs, TCCUs, and other
minority-serving institutions is even smaller, as shown in Table 3.14. At HBCUs,
only one college out of 100 has more than 5 percent of enrollment in failing
programs; across all HBCUs, only 5 programs at 4 schools fail. TCCUs have no
failing programs, only 5 (1 percent) of Hispanic-serving institutions have more
than 10 percent of enrollment in failing programs.[228] We conducted a similar
analysis excluding institutions that do not have any GE programs. The patterns
are similar.
Expand Table
Table 3.14—Distribution of Institutions by Share of Enrollment That Fails GE
Accountability, by Special Mission Type
Share of institutional enrollment in failing GE
programsTotal0%0–5%5–10%10–20%20–40%40–99% N of
InstitutionsHBCU1009631000TCCU353500000HSI446417222122All Other Non-FP
MSI15814433440Total739692286562
As noted above, these estimates cannot assess the impact of the GE provisions on
total enrollment at these institutions. Especially at institutions with diverse
program offerings, many students in failing programs can be expected to transfer
to other non-failing programs within the institution (as opposed to exiting the
institution). Moreover, many institutions are likely to admit additional
enrollment into their programs from failing programs at other (especially
for-profit) institutions. We quantify the magnitude of this enrollment shift and
revisit the implications for overall institution-level enrollment effects in a
later section.
REGULATION TARGETS LOW-PERFORMING GE PROGRAMS
The Department conducted an analysis on which specific GE programs fail the
metrics. The analysis concludes that the metrics target programs where students
earn little, borrow more, and default at higher rates on their student loans
than similar programs providing the same credential.
Table 3.15 reports the average program-level cohort default rate for GE
programs, separately by result, control, and credential level. Programs are
weighted by their average title IV, HEA enrollment in AY 2016 and 2017 to better
characterize the outcomes experienced by students. The overall 3-year program
default rate is 12.9 percent but is higher for certificate programs and for
programs offered by proprietary schools. The average default rate is higher for
programs that fail the EP threshold than for programs that fail the D/E metric,
despite debt being lower for the former. This is because even low levels of debt
are difficult to repay when earnings are very low. Programs that pass the
metrics, either with data or without, have lower default rates than those that
fail. Start Printed Page 32426
Expand Table
Table 3.15—Average Program Cohort Default Rate by Result, Overall and by
Control, and Credential Level (Enrollment-Weighted)
No dataPassFail D/E onlyFail both D/E and EPFail EP onlyTotalPublic:UG
Certificates16.617.511.120.419.916.9Post-BA Certs2.32.42.3Grad
Certs2.62.20.02.5Total15.816.56.220.419.916.1Private, Nonprofit:UG
Certificates9.79.616.414.412.0Post-BA Certs2.91.22.8Grad
Certs2.71.90.32.4Total6.06.70.316.414.48.7Proprietary:UG
Certificates14.814.016.914.914.114.2Associate's14.413.017.819.816.415.3Bachelor's13.811.614.414.80.012.4Post-BA
Certs26.413.216.9Master's3.93.95.34.54.1Doctoral4.14.54.64.4Professional1.00.00.70.7Grad
Certs1.44.25.53.9Total12.310.613.116.814.212.0Foreign Private:UG
Certificates0.00.0Post-BA Certs12.512.5Grad Certs5.20.00.2Total3.60.00.2Foreign
For-Profit:Master's0.00.0Doctoral0.55.31.4Professional1.31.31.3Total1.15.31.31.3Total:UG
Certificates16.215.116.115.314.715.5Associate's14.413.017.819.816.415.3Bachelor's13.811.614.414.80.012.4Post-BA
Certs2.95.43.2Master's3.93.95.34.54.1Doctoral3.74.54.64.3Professional1.20.00.81.0Grad
Certs2.62.44.20.02.6Total14.111.312.916.714.712.9
To better understand the specific types of programs that underpin the aggregate
patterns described above, Table 3.16 lists the 20 most common types of programs
(the combination of field and credential level) by enrollment count in the 2022
PPD. The programs with the highest enrollments are undergraduate certificate
programs in cosmetology, allied health, liberal arts, and practical nursing,
along with bachelor's programs in business and nursing. These 20 most common
types of programs represent more than half of all enrollments in GE programs.
Table 3.17 provides the average program annual loan payment (weighted by the
number of students completing a program), the average program earnings (weighted
by the number of students completing a program), the average annual D/E rate,
and the average cohort default rate (weighted by the number of students
completing a program). This shows quite a bit of variability in debt, loan
service, earnings, and default across different types of programs.
Expand Table
Table 3.16—GE Programs With the Most Students, by CIP and Credential Level
Number of programsPercent of all programsNumber of studentsPercent of students
at all programsField of Study (Ordered by All-Sector
Enrollment):1204—Cosmetology Personal Grooming—UG
Certificates1,2674.0191,6006.55202—Business
Administration—Bachelor's720.2149,0005.15108—Allied Health (Medical
Assisting)—UG Certificates8952.9147,1005.02401—Liberal Arts—UG
Certificates3451.1140,9004.85139—Practical Nursing—UG
Certificates1,0323.3130,9004.55107—Health Medical Administrative Services—UG
Certificates9102.983,5002.85138—Registered Nursing, Nursing Administration,
Nursing Research Clinical Nursing—Bachelor's560.275,6002.64706—Vehicle
Maintenance Repair—UG Certificates7222.375,1002.64301—Criminal Justice
Corrections—Bachelor's470.255,5001.95202—Business
Administration—Master's460.155,4001.94805—Precision Metal Working—UG
Certificates7612.449,0001.75109—Allied Health (Diagnostic Treatment)—UG
Certificates7252.347,0001.65108—Allied Health (Medical
Assisting)—Associate's1420.543,8001.55107—Health Medical Administrative
Services—Bachelor's460.142,1001.45202—Business
Administration—Associate's890.339,6001.45107—Health Medical Administrative
Services—Associate's1280.438,7001.3Start Printed Page 324275138—Registered
Nursing, Nursing Administration, Nursing Research Clinical
Nursing—Master's200.137,8001.35138—Registered Nursing, Nursing Administration,
Nursing Research Clinical Nursing—Associate's920.336,3001.25202—Business
Administration—UG Certificates5731.834,3001.25106—Dental Support—UG
Certificates4321.433,1001.1All Other Programs22,92073.21,424,90048.6
Expand Table
Table 3.17—Annual Loan Payment, Earnings, D/E Rate, Cohort Default Rate by
Program Type (Enrollment-Weighted)
Annual loan paymentMedian 2018– 19 earnings (in 2019 $) of 3 yrs after
graduationAverage annual DTE rateCohort default rateField of Study (Ordered by
All-Sector Enrollment):1204—Cosmetology Personal Grooming—UG
Certificates1,00416,8226.413.75202—Business
Administration—Bachelor's2,71147,9565.814.15108—Allied Health (Medical
Assisting)—UG Certificates94724,0004.216.62401—Liberal Arts—UG
Certificates9929,8940.316.45139—Practical Nursing—UG
Certificates1,07539,2733.510.25107—Health Medical Administrative Services—UG
Certificates1,10723,2315.515.05138—Registered Nursing, Nursing Administration,
Nursing Research Clinical Nursing—Bachelor's1,94872,4492.83.84706—Vehicle
Maintenance Repair—UG Certificates1,41036,2604.119.54301—Criminal Justice
Corrections—Bachelor's2,72037,5377.617.15202—Business
Administration—Master's3,72558,2046.64.14805—Precision Metal Working—UG
Certificates64234,4562.126.65109—Allied Health (Diagnostic Treatment)—UG
Certificates56441,5112.111.75108—Allied Health (Medical
Assisting)—Associate's2,27530,2267.612.25107—Health Medical Administrative
Services—Bachelor's3,29237,0289.210.95202—Business
Administration—Associate's2,53232,4278.321.75107—Health Medical Administrative
Services—Associate's2,72126,60010.414.05138—Registered Nursing, Nursing
Administration, Nursing Research Clinical
Nursing—Master's3,85296,7984.02.65138—Registered Nursing, Nursing
Administration, Nursing Research Clinical
Nursing—Associate's2,53554,3524.76.95202—Business Administration—UG
Certificates70535,8161.620.15106—Dental Support—UG
Certificates1,02424,5024.414.0All Other Programs3,10542,2738.012.1
Table 3.18 lists the most frequent types of failing GE programs (by enrollment
in failing programs). Failing programs are disproportionately in a small number
of types of programs. Twenty-two percent of enrollment is in UG Certificate
Cosmetology programs alone, reflecting both high enrollment and high failure
rates. Another 23 percent are in UG Certificate programs in Health/Medical
administration and assisting, dental support, and massage, reflecting large
enrollment and moderate failure rates. These 20 categories account for 71
percent of all enrollments in programs that fail at least one GE metric. Table
3.19 provides the average program annual loan payment, the average program
earnings, and the average default rate (all weighted by title IV, HEA
enrollment) for the most frequent types (by field and credential) of GE programs
that fail at least one GE metric (by enrollment count), separately for failing
and passing programs. Within each type of program, failing programs have much
higher loan payments, lower earnings, and higher default rates than programs
that pass the GE metrics. This demonstrates that higher-performing GE programs
exist even within the same field and credential level as programs that fail GE.
Expand Table
Table 3.18—Failing GE Programs With the Most Students, by GE Result, CIP and
Credential Level
Number of failing programsPercent of failing programsNumber of studentsPercent
of students at failing programs1204—Cosmetology Personal Grooming—UG
Certificates63936.2154,10021.95108—Allied Health (Medical Assisting)—UG
Certificates1558.870,30010.05107—Health Medical Administrative Services—UG
Certificates1025.832,4004.65107—Health Medical Administrative
Services—Associate's372.128,8004.15107—Health Medical Administrative
Services—Bachelor's50.326,4003.73017—Behavioral
Sciences—Bachelor's20.120,1002.95202—Business
Administration—Associate's231.319,0002.75108—Allied Health (Medical
Assisting)—Associate's382.217,6002.51312—Teacher Education Professional
Development, Specific Levels Methods—Bachelor's20.117,5002.55115—Mental Social
Health Services Allied Professions—Master's50.315,4002.25106—Dental Support—UG
Certificates603.413,4001.95135—Somatic Bodywork—UG
Certificates955.413,4001.9Start Printed Page 324284301—Criminal Justice
Corrections—Bachelor's70.413,1001.94400—Human Services,
General—Bachelor's20.112,1001.74301—Criminal Justice
Corrections—Associate's160.911,7001.74201—Psychology—Bachelor's40.210,2001.51205—Culinary
Arts—UG Certificates211.25,8000.82301—English Language Literature, General—UG
Certificates80.55,6000.85139—Practical Nursing—UG
Certificates271.55,5000.85204—Business Operations—UG
Certificates331.95,4000.8All Other
Programs48527.5205,50029.2Total1,766100.00703,300100.0Note: Student counts
rounded to the nearest 100.
STUDENT DEMOGRAPHIC ANALYSIS
METHODOLOGY FOR STUDENT DEMOGRAPHIC ANALYSIS
The Department conducted analyses of the 2022 PPD to assess the role of student
demographics as a factor in program performance. Our analysis demonstrates that
GE programs that fail the metrics have particularly bad outcomes that are not
explained by student demographics alone. We examined the demographic composition
of program enrollment, comparing the composition of programs that pass, fail, or
did not have data. We also conducted regression analysis, which permits us to
hold constant several factors at once. This analysis focuses on GE programs
since non-GE programs are not at risk of becoming ineligible for title IV, HEA
aid.[229]
For the race and ethnicity variables, we used the proportion of individuals in
each race and ethnicity category among all completers of each certificate or
degree reported in the IPEDS 2016 and 2017 Completions Surveys.[230] Race and
ethnicity is not available for only title IV, HEA recipients, so we rely on
information for all (including non-title IV, HEA student) completers instead
from IPEDS. We construct four race/ethnicity variables:
* Percent Black
* Percent Hispanic
* Percent Asian
* Percent non-White, which also includes individuals with more than one race.
Note that this is not mutually exclusive with the other three race/ethnicity
categories.
We aggregated the number of completions in each race/ethnicity category reported
for each program in IPEDS to the corresponding GE program definition of
six-digit OPEID, CIP code, and credential level. While D/E and EP rates measure
only the outcomes of students who completed a program and received title IV, HEA
program funds, IPEDS completions data include both title IV, HEA graduates and
non-title IV, HEA graduates. Race and ethnicity data is not available separately
for title IV, HEA completers. We believe the IPEDS data provides a reasonable
approximation of the proportion, by race and ethnicity, of title IV, HEA
graduates completing GE programs. We determined percent of each race and
ethnicity category for 25,278 of the 32,058 programs. Many smaller programs
could not be matched primarily because, as stated above, IPEDS and NSLDS use
different program categorization systems, and the two sources at times are not
sufficiently consistent to match data at the GE program-level. Nonetheless, we
do not believe this will substantially affect our results since programs that do
not match are less likely to meet the n-size criteria and thus would be likely
excluded from our analysis of program performance.
Percent Pell for this analysis is the percentage of title IV, HEA completers
during award years 15, 16, and 17 who received a Pell Grant at any time in their
academic career. Because Pell status is being used as a proxy for socioeconomic
background, we counted students if they had received a Pell Grant at any time in
Start Printed Page 32429 their academic career, even if they did not receive it
for enrollment in the program. For instance, students that received Pell at
their initial undergraduate institution but not at another institution they
attended later would be considered a Pell Grant recipient at both institutions.
Several other background variables were collected from students' Free
Application for Federal Student Aid (FAFSA) form. For all students receiving
title IV, HEA aid in award years 15, 16, and 17, the Department matched their
enrollment records to their latest FAFSA filed associated with their first award
year in the program in which they were enrolled. First-generation status,
described below, is taken from students earliest received FAFSA. From these, the
Department constructed the following:
* Percent of students that are male.
* Percent of students that are first-generation, defined as those who indicated
on the FAFSA not having a parent that had attended college. Children whose
parents completed college are more likely to attend and complete college.
* Average family income in 2019 dollars. For dependent students, this includes
parental income and the students' own income. For independent students, it
includes the student's own income and spousal income.
* Average expected family contribution. We consider EFC as an indicator of
socioeconomic status because EFC is calculated based on household income,
other resources, and family size.
* Average age at time of FAFSA filing.
* Percent of students aged 24 or older at time of FAFSA filing.
* Share of students that are independent. Independent status is determined by a
number of factors, including age, marital status, having dependents, and
veteran status.
* Median student income prior to program enrollment among students whose income
is greater than or equal to three-quarters of a year of earnings at Federal
minimum wage. We only compute this variable for programs where at least 30
students meet this requirement, this variable should be viewed as a rough
indicator of students' financial position prior to program entry. The average
percentage of enrollees covered by this variable is 57.6 across all programs.
Based on these variables, we determined the composition of over 23,907 of the
32,058 programs in our data, though some demographic variables have more
non-missing observations. Unless otherwise stated, our demographic analysis
treats programs (rather than students) as the unit of analysis. The analysis,
therefore, does not weight programs (and their student characteristics) by
enrollment.
Table 3.20 provides program-level descriptive statistics for these demographic
variables in the GE program dataset. The typical (median) program has 6 percent
completers that are Black, 6 percent Hispanic, 0 percent Asian (program mean is
3 percent), and 38 percent non-White. At the median program, sixty-one percent
are independent, half are over the age 24, and 31 percent are male. Half are
first-generation college students and 77 percent have ever received a Pell
Grant. Average family income at time of first FAFSA filing is $38,000 and the
typical student who is attached to the labor force earns $29,900 before
enrolling in the program.
Expand Table
Table 3.20—Descriptive Statistics of the Demographic Variables
ProgramsMedianAverageStd. deviationShare T4 Completers First
Gen24,199504934Share T4 Completers Ever Pell24,199776736Share T4 Completers
Out-of-State24,19901630Share of T4 Completers Male24,199314241Share of T4
Completers Age 24+24,199505137Share T4 Completers Independent24,199615836Share
All Completions Non-White25,278384330Share All Completions Black25,27861420Share
All Completions Hispanic25,27861523Share All Completions Asian25,278039Age at
Time of FAFSA23,90726288FAFSA Family Income23,90738,13747,72645,433Median
Student Pre-Inc17,59929,90838,58532,806
STUDENT DEMOGRAPHICS DESCRIPTIVE ANALYSIS
Table 3.21 reports average demographic characteristics of GE programs separately
by GE result. Programs that fail at least one GE metric have a higher share of
students that are female, higher share of students that are Black or Hispanic,
lower student and family income, and higher share of students that have ever
received the Pell Grant. Average student age and dependency status is similar
for passing and failing programs.
Expand Table
Table 3.21—Demographic Shares by Result
AllPassingFail (any)Fails D/EFails EPShare TIV Completers First
Gen4948615562Share TIV Completers Ever Pell6766817483Share TIV Completers
Out-of-State1615203915Share of TIV Completers Male4244222820Share of TIV
Completers Age 24+5151495745Share TIV Completers Independent5858596656Share All
Completions Non-White4341585857Share All Completions Black1413212520Start
Printed Page 32430Share All Completions Hispanic1515251826Share All Completions
Asian33324Age at Time of FAFSA2828272927FAFSA Family
Income47,70048,70035,10041,00033,300Median Student
Pre-Inc38,60039,60029,10034,20027,200Note: Income values rounded to the nearest
100.
STUDENT DEMOGRAPHICS REGRESSION ANALYSIS
One limitation of the descriptive tabulations presented above is that it is
difficult to determine which factors, whether they be demographics or program
characteristics, explain the higher failure rate of programs serving certain
groups of students. To further examine the relationship between student
demographics and program results under the proposed regulations, we analyzed the
degree to which specific demographic characteristics might be associated with a
program's annual D/E rate and EP, while holding other characteristics constant.
For this analysis, the Department estimated the parameters of linear regression
models (OLS) with annual debt-to-earnings or the earnings premium as the
dependent (outcome) variables and indicators of student, program, and
institutional characteristics as independent variables.[231] The independent
demographic variables included in the regression analysis are: share of students
in different race and ethnicity categories; share of students ever receiving
Pell Grants; share of students that are male; share of students that are
first-generation college students; share of students that are independent; and
average family income from student's FAFSA. Program and institutional
characteristics include credential level and control (public, private
non-profit, and proprietary). In some specifications we include institution
fixed effects and omit control. When used with program-level data, institutional
fixed effects control for any factors that differ between institutions but are
common among programs in the same institution, such as institutional leadership,
pricing strategy, and state or local factors.
Table 3.22 reports estimates from the D/E rate regressions described above, with
each column representing a different regression model that includes different
sets of independent variables. Comparing the R-squared across different columns
demonstrates the degree to which different factors explain variation in the
outcome. The first three columns quantify the extent to which variation in D/E
rates are accounted for by program and institutional characteristics. The
institutional control alone (column 1) explains 15 percent of the variation in
D/E and adding credential level increases the R-squared to 23 percent (column
2). D/E rates are 3.7 to 3.9 percentage points higher for private non-profit and
for-profit institutions than public institutions (the omitted baseline category)
after controlling for credential level. This likely reflects the much higher
tuition prices charged by private institutions, which results in higher debt
service. Graduate credential levels also have much higher debt-to-earnings
ratios than undergraduate credentials, reflecting the typically higher tuition
costs associated with graduate programs.
Almost all programs are in institutions with multiple GE programs, so column 3
includes institution fixed effects in place of indicators for control.[232]
Credential level and institution together account for 69 percent of the
variation in D/E rates across programs. To illustrate how much more of the
variation in outcomes is accounted for by student characteristics, column 4 adds
the demographic characteristics on top of the model with credential level and
institution effects. Doing so only slightly increases the model's ability to
account for variation in D/E, lifting the R-squared to 71 percent. This
specification effectively compares programs with more Pell students to those
with fewer Pell students within the same institution and same credential level,
while also controlling for the other independent variables listed. Demographic
characteristics, therefore, appear to explain little of the variation in D/E
rates across programs beyond what can be predicted by institutional
characteristics and program credential level. Evidently, institution- and
program-level factors, which could include such things as institutional
performance and decisions about institutional pricing along with other factors,
are much more important.[233] The final two columns report similar models, but
weighting by average title IV, HEA enrollment, and the results are qualitatively
similar.
Expand Table
Table 3.22—Regression Analysis of the Demographic Variables, GE Programs,
Outcome: D/E
123456Private, Nonprofit4.367 (0.898)3.939 (0.947)Proprietary4.797 (0.109)3.685
(0.102)Credential Level:UG Certificates−2.162 (0.205)−2.446 (0.585)−3.973
(0.602)−1.096 (0.636)−5.005 (0.586)Associate's0.065 (0.250)0.298 (0.433)−0.617
(0.413)1.344 (0.629)−0.926 (0.418)Master's2.850 (0.747)1.541 (0.575)1.252
(0.469)0.991 (0.704)1.593 (0.563)Start Printed Page 32431Doctoral4.883
(0.795)3.811 (1.054)5.599 (1.008)3.803 (1.397)7.716 (1.189)Professional12.510
(3.678)5.828 (0.998)5.616 (1.365)6.711 (0.837)8.627 (1.540)Grad Certs0.558
(0.697)1.408 (1.702)0.831 (1.639)4.573 (2.536)4.517 (2.376)% Black0.015
(0.009)0.032 (0.016)% Hispanic−0.013 (0.011)−0.030 (0.017)% Asian−0.056
(0.028)−0.159 (0.043)% Male−0.015 (0.002)−0.029 (0.004)% Ever Pell0.002
(0.011)0.044 (0.016)% First Generation−0.001 (0.010)−0.021 (0.016)%
Independent−0.005 (0.006)−0.005 (0.008)FAFSA Family Income ($1,000)−0.055
(0.013)−0.088 (0.014)Intercept1.260 (0.064)3.290 (0.216)6.328 (0.456)10.787
(1.594)6.223 (0.413)12.187 (1.968)R-squared0.150.230.690.710.610.71Notes:
Specifications 3 to 6 include fixed effects for each six-digit OPEID number.
Bachelor's degree and public are the omitted categories for credential type and
control, respectively. Columns 5 and 6 weight programs by average title IV
enrollment in AY16 and AY17.
Table 3.23 reports estimates from identical regression models, but instead using
EP as the outcome. Again, each column represents a different regression model
that includes different sets of independent variables. Program and institutional
characteristics still matter greatly to earnings outcomes. Institutional effects
and credential level together explain 77 percent of the variation in
program-level earnings outcomes (column 3). Adding demographic variables
explains an additional 7 percent of the variation in program-level earnings
(column 4). Note that the estimated regression coefficients will likely
overstate the effect of the baseline characteristics on outcomes if these
characteristics are correlated with differences in program quality not captured
by the crude institution and program characteristics included in the regression.
Expand Table
Table 3.23—Regression Analysis of the Demographic Variables, GE Programs,
Outcome: EP ($1,000s)
123456Private, Nonprofit7.355 (2.327)0.215 (1.647)Proprietary−4.613
(0.607)−10.717 (0.486)Credential Level:UG Certificates−18.505 (0.821)−17.197
(1.611)−7.579 (1.376)−20.851 (2.298)−0.728 (1.902)Associate's−6.844
(0.985)−8.616 (1.283)−3.605 (1.093)−11.086 (1.938)−0.341 (1.242)Master's11.188
(1.613)11.085 (2.031)7.169 (1.764)11.323 (3.453)8.738 (2.830)Doctoral32.005
(2.892)32.988 (4.440)20.813 (3.932)28.303 (6.102)10.521
(4.338)Professional41.519 (12.275)58.782 (13.667)44.858 (11.362)66.297
(9.928)43.511 (11.765)Grad Certs23.979 (3.219)13.521 (4.118)11.646 (3.529)7.767
(6.321)8.836 (6.407)% Black−0.114 (0.047)−0.198 (0.058)% Hispanic−0.084
(0.038)−0.002 (0.061)% Asian0.492 (0.110)1.390 (0.266)% Male0.099 (0.007)0.096
(0.016)% Ever Pell−0.153 (0.045)−0.084 (0.064)% First Generation−0.053
(0.029)0.001 (0.047)% Independent0.143 (0.017)0.193 (0.031)FAFSA Family Income
($1,000)0.170 (0.055)0.443 (0.072)Intercept11.267 (0.514)27.732 (0.918)19.839
(1.311)9.842 (7.404)21.911 (1.645)−20.679
(9.331)R-squared0.030.420.770.840.710.87Notes: Specifications 3 to 6 include
fixed effects for each six-digit OPEID number. Bachelor's degree and public are
the omitted categories for credential type and control, respectively. Columns 5
and 6 weight programs by average title IV enrollment in AY16 and AY17.
Conclusions about the extent to which different factors explain variation in
program outcomes can be sensitive to the order in which factors are entered into
regressions. However, a variance decomposition analysis (that is insensitive to
ordering) demonstrates that program and institutional factors explain the
majority of the variance in both the D/E and EP metrics across programs when
student characteristics are also included.
Figure 3.3 provides another view, demonstrating that many successful programs
exist and enroll similar shares of low-income students. It shows the
distribution of raw EPs for undergraduate certificate programs (the y-axis is in
$1,000s) grouped by the average FAFSA family income of the program. Programs are
placed in 20 equally sized groups from lowest to highest FAFSA family
income.[234] Each dot represents an individual program. The EP of the median
program in each income group, indicated by the large black square, is clearly
increasing, reflecting the greater earnings opportunities for students that come
from higher income families. However, there is tremendous variation around this
median. Even among programs with students that come from the lowest income
families, there are clearly programs whose students go on to have earnings
success after program completion. This graph demonstrates that demographics are
not destiny when it comes to program performance.
Start Printed Page 32432
GENDER DIFFERENCES
The analysis above showed that programs failing the EP threshold have a higher
share of female students. In Table 3.24, descriptively we show that there are
many programs that have similar gender composition but have much higher rates of
passage than programs in cosmetology and massage, where failure rates are
comparatively higher. Other programs, such as practical nursing and dental
support, are similar in terms of their gender and racial balance but have much
higher passage rates.
Expand Table
Table 3.24—Gender and Racial Composition of Undergraduate Certificate Programs
Share of programs failingShare of all completers who are . . .Women (any
race)Black womenHispanic womenAsian womenOther womenWhite womenTeacher
Education0.0680.2260.1650.0250.0940.4390.950Human
Development0.0220.2160.2840.0390.0630.3660.968Health Medical
Admin0.3880.2090.1710.0290.0860.4420.938Medical
Assisting0.4780.1710.2920.0300.0670.3170.876Laboratory
Science0.1780.1630.1380.0300.0790.4340.843Practical
Nursing0.0420.1540.1340.0330.0670.4980.886Cosmetology0.8030.1500.1910.0510.0590.4510.902Dental
Support0.4050.1460.3000.0250.0640.3840.920Business
Operations0.2610.1420.1660.0200.0570.3950.781Business
Administration0.0010.1280.0900.0180.0580.3080.601Culinary
Arts0.3220.1230.1480.0190.0600.2490.598Somatic
Bodywork0.6170.1020.1270.0290.0790.4180.754Accounting0.0710.0960.1410.0600.0670.3610.725Criminal
Justice0.0410.0720.0790.0040.0270.1510.333Liberal
Arts0.0380.0490.2050.0430.0550.2620.613Allied Health,
Diagnostic0.0260.0460.0890.0160.0340.3090.494IT Admin
Mgmt0.0460.0440.0210.0090.0290.0810.183Ground
Transportation0.0070.0410.0070.0030.0070.0340.092Computer Info
Svcs0.0740.0300.0780.0120.0170.1130.250Precision Metal
Working0.0410.0090.0070.0010.0050.0360.058HVAC0.0260.0080.0030.0000.0010.0120.025Fire
Protection0.0000.0070.0190.0010.0050.0580.091Power
Transmission0.0160.0070.0060.0000.0030.0190.035Vehicle
Maintenance0.0490.0060.0110.0010.0060.0270.052Environment Ctrl
Tech0.0110.0060.0070.0010.0050.0180.036
Start Printed Page 32433
CONCLUSIONS OF STUDENT DEMOGRAPHIC ANALYSIS
On several dimensions, programs that have higher enrollment of underserved
students have worse outcomes—lower completion, higher default, and lower
post-college earnings levels—due to a myriad of challenges these students face,
including fewer financial resources and structural discrimination in the labor
market.[235] And yet, there is evidence that some institutions aggressively
recruited vulnerable students—-at times with deceptive marketing and fraudulent
data—into programs without sufficient institutional support and instructional
investment, placing students at risk for having high debt burdens and low
earnings.[236] Nonetheless, our analysis demonstrates that GE programs that fail
the metrics have particularly bad outcomes that are not explained by student
demographics alone. Furthermore, alternative programs with similar student
characteristics but where students have better outcomes exist and serve as good
options for students that would otherwise attend low-performing programs. We
quantify the extent of these alternative options more directly in the next
section. The proposed GE rule aims to protect students from low-value programs
and steer them to programs that would be greater engines of upward economic
mobility.
ALTERNATIVE OPTIONS EXIST FOR STUDENTS TO ENROLL IN HIGH-VALUE PROGRAMS
MEASURING STUDENTS' ALTERNATIVE OPTIONS
One concern with limiting title IV, HEA eligibility for low-performing GE
programs is that such measures could reduce postsecondary opportunities for some
students. The Department conducted an analysis to estimate the short-term
alternative options that are available to students that might, in the absence of
these regulations, enroll in failing programs.
Students deterred from attending a specific program because of a loss of title
IV, HEA aid eligibility at that program have several alternatives. For programs
that are part of a multi-program institution, many may choose to still enroll at
the institution, but attend a different program in a related subject that did
not lose access to title IV, HEA and, therefore, likely offers better outcomes
for students in terms of student debt, earnings, or both. Some would stay in
their local area but attend a similar program at a different nearby institution.
Others would venture to a related subject at a different nearby institution.
Still others would attend an institution further away, but perhaps in the same
State or online.[237] In order to identify geographical regions where the
easiest potential transfer options exist, we used the 3-digit ZIP code (ZIP3) in
which each institution is located. Three-digit zip codes designate the
processing and distribution center of the United States Postal Service that
serves a given geographic area. For each combination of ZIP3, CIP code, and
credential level, we determined the number of programs available and the number
of programs that would pass both the D/E and EP rates measures. Since programs
that pass due to insufficient n-size to compute D/E and EP rates represent real
options for students at failing programs, we include these programs in our
calculations. Importantly, we also include all non-GE programs at public and
private non-profit institutions.[238] Our characterization of programs by the
number of alternative options available is also used in the simulations of
enrollment shifts that underly the Budget Impact and Cost, Benefit, and Transfer
estimates, which we describe later.
Table 3.25 reports the distribution of the number of transfer options available
to the students that would otherwise attend GE programs that fail at least one
of the two metrics. We present estimates for four different ways of
conceptualizing and measuring these transfer options. We assume students have
more flexibility over the specific field and institution attended than
credential level, so all four measures assume students remain in the same
credential level. While not captured in this analysis, it is possible that some
students would pursue a credential at a higher level in the same field, thereby
further increasing their available options. Half of students in failing GE
programs (in 42 percent of failing programs) have at least one alternative
non-failing program of the same credential level at the same institution, but in
a related field (as indicated by being in the same 2-digit CIP code). Nearly a
quarter have more than one additional option. Two-thirds of students (at 61
percent of the failing programs) have a transfer option passing the GE measures
within the same geographic area (ZIP3), credential level, and narrow field
(4-digit CIP code). More than 90 percent of students have at least one transfer
option within the same geographic area and credential level when the field is
broadened to include programs in the same 2-digit CIP code. Finally, all
students have at least one program in the same State, credential level, and
2-digit CIP code. While this last measure includes options that may not be
viable for currently enrolled students—requiring moving across the State or
attending virtually—it does suggest that at least some options are available for
all students, both current and potential students, that would otherwise attend
failing GE programs. Start Printed Page 32434
Expand Table
Table 3.25—Share of Programs and Enrollment in Failing GE Programs, by Number of
Alternative Options
Same institution, cred level, CIP2Same Zip3, cred level, CIP4Same Zip3, cred
level, CIP2Same state, cred level, CIP2A. Programs Transfer options:1 or
more0.420.610.881.005 or more0.040.050.510.96B. Enrollment Transfer options:1 or
more0.500.660.911.005 or more0.040.050.530.96
Table 3.26 repeats this analysis for non-GE programs with at least one failing
GE metric. Students considering non-GE programs with D/E or EP metrics that do
not meet Department standards may choose to enroll elsewhere. More than half of
students at failing non-GE programs have a non-failing program in the same
4-digit CIP code, credential level, and geographic area that they could choose
to enroll in. This share approaches three-quarters if the field is broadened to
include programs in the same two-digit CIP code. Therefore, while the set of
alternatives is not as numerous for non-GE programs as for GE programs, the
number of alternatives is still quite high. Furthermore, since non-GE programs
are not at risk of losing eligibility for title IV aid, the slightly lower
number of alternatives to failing non-GE programs is less concerning.
Expand Table
Table 3.26—Share of Programs and Enrollment in Failing Non-GE Programs, by
Number of Alternative Options
Same institution, cred level, CIP2Same Zip3, cred level, CIP4Same Zip3, cred
level, CIP2Same state, cred level, CIP2A. Programs Transfer options:1 or
more0.540.500.810.995 or more0.110.070.410.94B. Enrollment Transfer options:1 or
more0.380.510.721.005 or more0.080.060.310.93
This analysis likely understates the transfer options available to students for
three reasons. First, as stated above, it does not consider programs of a
different credential level. For example, students who would have pursued a
certificate program might opt for an associate degree program that shows higher
earnings. Second, it does not consider the growth of online/distance programs
now available in most fields of study, from both traditional schools and
primarily on-line institutions.
Third, we do not consider non-title IV, HEA institutions. Undergraduate
certificate programs in cosmetology represent the largest group of programs
without nearby passing options in the same four-digit CIP code, in large part
because many of these programs do not pass the GE metrics. Nonetheless, recent
data from California and Texas suggest that many students successfully pass
licensure exams after completing non-title IV, HEA programs in cosmetology.[239]
Non-title IV, HEA cosmetology schools operate in almost all counties in
Texas.[240] In Florida, non-title IV, HEA cosmetology schools have similar
licensure pass rates but much lower tuition.[241]
POTENTIAL ALTERNATIVE PROGRAMS HAVE BETTER OUTCOMES THAN FAILING PROGRAMS
A key motivation for more accountability via this proposed rule is to steer
students to higher value programs. As mentioned previously, research has shown
that when an institution closed due to failing an accountability measure,
students were diverted to schools with better outcomes.[242] The Department
conducted an analysis of the possible earnings impact of students shifting from
programs that fail one of the GE metrics to similar programs that do not fail.
For each failing program, we computed the average program-level median earnings
of non-failing programs included in the failing program's transfer options,
which we refer to as “Alternative Program Earnings.” Earnings were weighted by
average title IV, HEA enrollment in award years 2016 and 2017. Alternative
options were determined in the same way as described above. In computing
Alternative Program Earnings, priority was first given to passing programs in
the same institution, credential level, and two-digit CIP code if such programs
exist and have valid earnings. This assigned Alternative Program Earnings for 20
percent of failing programs. Next priority was given to programs in the same
ZIP3, credential level, and four-digit CIP code, which assigned Alternative
Program Earnings for 8 percent of programs. Next was programs in the same ZIP3,
credential level, and two-digit CIP code, which assigned Alternative Program
Earnings for 14 Start Printed Page 32435 percent of programs. We did not use the
earnings of programs outside the ZIP3 to assign Alternative Program Earnings
given the wage differences across regions. It was not possible to compute the
earnings of alternative options for the remaining 59 percent of programs
primarily because their options have insufficient number of completers to report
median earnings (47 percent) or because they did not have alternative options in
the same ZIP3 (12 percent). For these programs, we set the Alternative Program
Earnings equal to the median earnings of high school graduates in the State (the
same value used to determine the ET). The percent increase in earnings
associated with moving from a failing program to a passing program was computed
as the difference between a program's Alternative Program Earnings and its own
median earnings, divided by its own median earnings. We set this earnings gain
measure to 100 percent in the small number of cases where the median program
earnings are zero or the ratio is greater than 100 percent.
Table 3.27 reports the estimated percent difference in earnings between
alternative program options and failing programs, separately by two-digit CIP
and credential level. Across all subjects, the difference in earnings at passing
undergraduate certificate programs and failing programs is about 50 percent.
This is unsurprising, given that the EP metric explicitly identifies programs
with low earnings, which in practice are primarily certificate programs.
Encouragingly, many passing programs exist in the same subject, level, and
market that result in much higher earnings than programs that fail. Failing
associate degree programs also have similar non-failing programs with much
higher earnings. Earnings differences are still sizable and positive, though not
quite as large for higher credentials. Passing GE bachelor's programs have 31
percent higher earnings than bachelor's programs that fail the GE metrics.
Table 3.28 reports similar estimates for non-GE programs. The earnings
difference between failing and passing non-GE programs is more modest than for
GE programs, but still significant: 21 percent across all credential levels,
ranging from close to zero for Doctoral programs to 30 percent for Bachelor's
programs.
We use a similar process to compute the percent change in average program-level
median debt between failing GE or non-GE programs and alternative programs.[243]
Tables 3.29 and 3.30 report the percent change in debt between alternative
program options and failing programs, separately by two-digit CIP and credential
level. Across all subjects and credential levels, debt is 22 percent lower at
alternative programs than at failing GE programs. Large differences in debt are
seen at all degree levels (other than professional), with modest differences for
undergraduate certificate programs. At non-GE programs, there is no aggregate
debt difference between failing programs and their alternatives, though this
masks heterogeneity across credential levels. For graduate degree programs,
relative to failing programs, alternative programs have lower debt levels
ranging from 24 percent (Professional programs) to 35 percent (Doctoral
programs). Failing associate degree programs have debt that is 12 percent higher
than in passing programs.
While these differences don't necessarily provide a completely accurate estimate
of the actual earnings gain or debt reduction that students would experience by
shifting programs, they suggest alternative options exist that provide better
financial outcomes than programs that fail the proposed D/E and EP metrics.
Expand Table
Table 3.27—Percent Earnings Difference Between Transfer Options and Failing GE
Programs, by CIP and Credential Level
Credential levelTotalUG cert.Assoc.Bach.Master'sDoctoralProfess.Grad
certscip211.001.003−0.18−0.1890.180.240.240.20100.420.26−0.02−0.380.07110.550.240.79−0.620.47120.540.11−0.181.000.53130.480.380.130.460.18−0.040.2214−0.01−0.37−0.20150.16−0.100.1316−0.03−0.03190.690.290.13−0.27−0.550.12220.33−0.03−0.030.22−0.60−0.00230.570.000.38−0.090.45240.060.0625−0.03−0.0326−0.32−0.32300.24−0.03−0.340.01310.51−0.000.09320.320.32390.40−0.03−0.200.04420.060.21−0.39−0.34−0.06430.250.190.240.42−0.560.21440.100.430.150.12−0.500.31450.23−0.240.06460.450.45470.700.140.61Start
Printed Page
32436480.250.25490.760.76500.460.220.270.460.30510.500.810.760.87−0.07−0.060.000.60520.510.310.610.220.340.200.3854−0.13−0.13Total0.510.480.310.49−0.34−0.03−0.140.43
Expand Table
Table 3.28—Percent Earnings Difference Between Transfer Options and Failing
Non-GE Programs, by CIP and Credential Level
Credential
levelTotalAssoc.Bach.Master'sDoctoralProfess.cip210.310.120.1630.38−0.240.304−0.31−0.3150.020.0290.120.31−0.020.27100.14−0.010.11110.321.000.37120.250.25130.220.320.20−0.120.23150.830.83160.030.430.40190.180.40−0.420.2722−0.02−0.09−0.26−0.59−0.08−0.14230.380.23−0.180.20240.150.10−0.540.14260.130.390.12−0.700.31300.120.11−0.170.10310.100.22−0.220.1838−0.05−0.10−0.07390.550.49−0.020.200.38400.580.58410.080.08420.310.04−0.10−0.34−0.69−0.01430.200.02−0.120.09440.21−0.040.110.12450.090.47−0.120.23470.380.38500.230.400.31−0.290.37510.650.770.570.260.110.48520.140.530.420.23540.06−0.19−0.09Total0.220.300.15−0.000.030.21
Expand Table
Table 3.29—Percent Debt Difference Between Transfer Options and Failing GE
Programs, by CIP and Credential Level
Credential levelTotalUG cert.Assoc.Bach.Master'sDoctoralProfess.Grad
certscip210.000.003−0.65−0.6590.06−0.26−0.01−0.04100.150.63−0.32−0.15110.06−0.36−0.23−0.79−0.1912−0.23−0.490.130.00−0.2413−0.27−0.89−0.31−0.36−0.18−0.20−0.39Start
Printed Page
32437140.01−0.58−0.3015−0.13−0.69−0.1916−0.52−0.5219−0.05−0.26−0.24−0.30−0.23221.00−0.60−0.26−0.40−0.47230.00−0.82−0.330.00−0.18240.000.002526−0.25−0.2530−0.91−0.54−0.5831−0.83−0.75−0.80320.000.00390.590.5942−0.49−0.21−0.76−0.77−0.4243−0.57−0.70−0.42−0.10−0.5344−0.74−0.09−0.28−0.38−0.2345−0.11−0.11460.160.16470.10−0.240.0548−0.21−0.21490.320.32500.21−0.60−0.34−0.23−0.31510.02−0.14−0.37−0.48−0.640.60−0.58−0.0952−0.14−0.42−0.33−0.17−0.17−0.27−0.3554−0.22−0.22Total−0.09−0.37−0.36−0.35−0.600.48−0.43−0.22
Expand Table
Table 3.30—Percent Debt Difference Between Transfer Options and Failing Non-GE
Programs, by CIP and Credential Level
Credential
levelTotalAssoc.Bach.Master'sDoctoralProfess.cip21−0.37−0.14−0.1930.02−0.53−0.064−0.35−0.355−0.12−0.1290.64−0.17−0.37−0.09100.01−0.11−0.0111−0.29−0.42−0.30120.080.08130.24−0.14−0.32−0.030.04150.220.2216−0.270.190.15190.070.21−0.390.1422−0.55−0.28−0.16−0.27−0.29230.19−0.04−0.33−0.04240.19−0.100.16260.780.13−0.290.1830−0.15−0.100.00−0.12310.80−0.220.1238−0.26−0.2639−0.67−0.03−0.290.00−0.10401.001.0041420.33−0.11−0.32−0.46−0.1643−0.22−0.23−0.35−0.2444−0.26−0.30−0.40−0.3245−0.08−0.19−0.53−0.18470.210.21500.25−0.02−0.28−0.01510.020.02−0.10−0.38−0.22−0.1052−0.15−0.26−0.12−0.17540.39−0.790.10Start
Printed Page 32438Total0.12−0.07−0.27−0.35−0.240.00
TRANSFER CAUSES NET ENROLLMENT INCREASE IN SOME SECTORS
The aggregate change in enrollment overall, by sector, and by institution would
likely be less than that implied by the program- and institution-level results
presented in the “Results of GE Accountability” section above because those do
not consider that many students would likely transfer to passing programs or
even remain enrolled at failing programs in response to a program losing title
IV eligibility. The Department simulated the likely destinations of students
enrolled in failing GE programs. Based on the research literature and described
more fully in “Student Response Assumptions” subsection in Section 5 below, we
use assumptions about the share of students that transfer to another program,
remain enrolled in the original program, or drop out entirely if a program loses
title IV, HEA eligibility. These student mobility assumptions differ according
to the number of alternative options that exist and are the same assumptions
used in the Net Budget Impact section.
Using these assumptions, for every failing GE program, we estimate the title IV,
HEA enrollment from that program that would remain, dropout, or transfer to
another program. Our notion of “transfers” includes both current students and
future students who attend an alternative program instead of one that fails the
GE metrics. The number of transfers is then reallocated to specific other
non-failing GE and non-GE programs in the same institution (OPEID6), credential
level, and 2-digit CIP code. If multiple such programs exist, transfer
enrollment is allocated based on the share of initial title IV, HEA enrollment
in these programs. If no alternative options exist using this approach, the
transfer enrollment is allocated to non-failing GE and non-GE programs in the
same geographic area (ZIP3), credential level, and 4-digit CIP code. Again,
initial title IV, HEA enrollment shares are used to allocate transfer enrollment
if multiple such alternative programs exist. These two approaches reallocate
approximately 80 percent of the transfer enrollments we would expect from
failing GE programs. Finally, new title IV, HEA enrollment is computed for each
program that sums existing enrollment (or retained enrollment, in the case of
failing GE programs) and the allocated transfer enrollment.
Table 3.30 summarizes these simulation results, separately by type of
institution.[244] Without accounting for transfers or students remaining in
failing GE programs, aggregate title IV, HEA enrollment drops by 699,700 (3.6
percent), with at least some enrollment declines in all sectors. This will
greatly overstate the actual enrollment decline associated with the proposed
regulation because it assumes that students leave postsecondary education in
response to their program failing a GE metric. The final column simulates
enrollment after accounting for transfers within institution (to similar
programs) and to similar programs at other geographically-proximate
institutions, along with permitting some modest enrollment retention at failing
programs. In this scenario, aggregate enrollment declines by only 228,000 (1.2
percent) due to the proposed rule.[245] Importantly, some sectors experience an
enrollment increase as students transfer from failing to passing programs. For
instance, public 2-year community colleges are simulated to experience a
27,000-student enrollment increase once transfers are accounted for rather than
a 30,000-student decrease when they are not. Historically Black Colleges and
Universities (HBCUs) are simulated to gain 1,200 students rather than lose 700.
Expand Table
Table 3.31—Projected Enrollment With and Without Transfers, by Sector
Number of inst.Initial enrollmentNo transfers or retention+ within
institution-CIP2 transfers+ within ZIP3–CIP4 transfersSector of
institution:Public, 4-year +7008,186,9008,179,7008,184,9008,209,000Non-profit,
4-year +1,4004,002,4003,994,5003,998,9004,005,500For-profit, 4-year
+2001,298,800950,9001,150,6001,158,900Public,
2-year9005,025,2004,995,6005,013,3005,052,000Non-profit,
2-year10097,20074,30088,10089,100For-profit,
2-year300290,900205,000251,800259,500Public,
2-year20042,60041,30042,10046,200Non-profit,
2-year5011,6006,2008,3008,500For-profit,
2-year1,000278,40086,900149,400177,500Total4,90019,234,10018,534,50018,887,30019,006,000Note:
Values rounded to the nearest 100.
Start Printed Page 32439
4. DISCUSSION OF COSTS, BENEFITS, AND TRANSFERS
DESCRIPTION OF BASELINE
In absence of the proposed regulations, many students enroll in
low-financial-value programs where they either end up not being able to secure a
job that leads to higher earnings, take on unmanageable debt, or both. Many of
these students default on their loans, with negative consequences for their
credit and financial security and at substantial costs to the taxpayers. Many
students with insufficient earnings to repay their debts would be eligible to
have their payments reduced and eventually have their loans forgiven through
income-driven repayment (IDR). This shields low-income borrowers from the
consequences of unaffordable debts but shifts the financial burden onto
taxpayers.
TRANSPARENCY AND GAINFUL EMPLOYMENT
We have considered the primary costs, benefits, and transfers of both the
transparency and accountability proposed regulations for the following groups or
entities that would be affected by the final regulations:
* Students
* Institutions
* State and local governments
* The Federal government
We first discuss the anticipated benefits of the proposed regulations, including
improved market information. We then assess the expected costs and transfers for
students, institutions, the Federal government, and State and local governments.
Table 4.1 below summarizes the major benefits, costs, and transfers and whether
they are quantified in our analysis or not.
Expand Table
Table 4.1—Summary of Costs, Benefits, and Transfers for Financial Value
Transparency and Gainful Employment Proposed Regulations
StudentsInstitutionsState and local governmentsFederal
governmentBenefitsQuantifiedEarnings gain from shift to higher value
programsState tax revenue from higher earningsFederal tax revenue from higher
earnings.Not quantifiedLower rates of default, higher rates of family business
formation, higher retirement savings, saving of opportunity cost for
non-enrolleesIncreased enrollment and revenue associated with new enrollments
from improved information about value; improvements in program
qualityCostsQuantifiedTime for acknowledgmentDisclosure reporting; time for
acknowledgmentAdditional spending at institutions that absorb students from
failing programsImplementation of data collection and information website.Not
quantifiedTime, logistics, credit loss associated with program
transferInvestments to improve program quality; decreased enrollment and revenue
associated with fewer new enrollments from improved information about
valueTransfersQuantifiedAid money from failing programs to govt for
non-enrollments; aid money from failing to better-value programs for
transfersAid money from failing programs to govt for non-enrollments.Not
quantifiedIncreased loan payments associated with less IDR forgivenessAid money
from failing programs to State govt for non-enrollmentsAid money from failing
programs to State govt for non-enrollmentsIncreased loan payments associated
with less IDR forgiveness and fewer defaults.
BENEFITS
We expect the primary benefits of both the accountability and transparency
components of the proposed regulation to derive from a shift of students from
low-value to high-value programs or, in some cases, a shift away from low-value
postsecondary programs to non-enrollment. This shift would be due to improved
and standardized market information about GE and non-GE programs. This would
increase the transparency of student outcomes for better decision making by
current students, prospective students, and their families; the public,
taxpayers, and the Government; and institutions. Furthermore, the accountability
component would improve program quality by directly eliminating the ability of
low-value programs to participate in the title IV, HEA programs. Finally, both
the transparency and accountability provisions of the rule should lead to a more
competitive postsecondary market that encourages improvement, thereby, improving
the outcomes and/or reducing the cost of existing programs that continue to
enroll students.
BENEFITS TO STUDENTS
Under the proposed regulation, students, prospective students, and their
families would have extensive, comparable, and reliable information about the
outcomes of students who enroll in GE and non-GE programs such as cost, debt,
earnings, completion, and repayment outcomes. This information would assist them
in choosing institutions and programs where they believe they are most likely to
complete their education and achieve the earnings they desire, while having debt
that is manageable. This information would result in more informed decisions
based on reliable information about a program's outcomes.
Students would potentially benefit from this information via higher earnings,
lower costs and less debt, and better program quality. This can happen through
three channels. First, students benefit by transferring to passing programs.
Second, efforts to improve programs would lead to better labor market outcomes,
such as improved job prospects and higher earnings, by offering better student
services, working with employers to ensure graduates have needed skills,
improving academic quality, and helping students with Start Printed Page 32440
career planning. This may happen as institutions improve programs to avoid
failing the D/E or EP measures or simply from programs competing more for
students based on quality, with the proposed rule providing greater transparency
about program quality. As a result of these enrollment shifts, students who
graduate with manageable debts and adequate earnings would be more likely to pay
back their loans, marry, buy a home, and invest in their futures.[246] Finally,
some students that chose not to enroll in low-value programs will save
opportunity costs by not investing their time in programs that do not lead to
good outcomes. While these other factors are certainly important to student
wellbeing, our analysis focuses on the improvement in earnings associated with a
shift from low-value programs to higher value programs.
BENEFITS TO INSTITUTIONS
Institutions offering high-performing programs to students are likely to see
growing enrollment and revenue and to benefit from additional market information
that permits institutions to demonstrate the value of their programs without
excessive spending on marketing and recruitment. Additionally, institutions that
work to improve the quality of their programs could see increased revenues from
improved retention and completion and therefore, additional tuition revenue.
We believe disclosures would increase enrollment and revenues in well-performing
programs. Improved information from disclosures would increase market demand for
programs that produce good outcomes. While the increases or decreases in
revenues for institutions are benefits or costs from the institutional
perspective, they are transfers from a social perspective. However, any
additional demand for education due to overall program quality improvement would
be considered a social benefit.
The improved information that would be available as a result of the proposed
regulations would also benefit institutions' planning and improvement efforts.
Information about student outcomes would help institutions determine whether it
would be prudent to expand, improve quality, reduce costs, or eliminate various
programs. Institutions may also use this information to offer new programs in
fields where students are experiencing positive outcomes, including higher
earnings and steady employment. Additionally, institutions would be able to
identify and learn from programs that produce exceptional results for students.
BENEFITS TO STATE AND LOCAL GOVERNMENTS
State and local governments would benefit from additional tax revenue associated
with higher student earnings and students' increased ability to spend money in
the economy. They would also benefit from reduced costs because, as institutions
improve the quality of their programs, their graduates would likely have
improved job prospects and higher earnings, meaning that governments would
likely be able to spend less on unemployment benefits and other social safety
net programs. State and local governments would also experience improved
oversight of their investments in postsecondary education. Additionally, State
and local postsecondary education funding could be allocated more efficiently to
higher-performing programs. State and local governments would also experience a
better return on investment on their dollars spent on financial aid programs as
postsecondary program quality improves.
BENEFITS TO FEDERAL GOVERNMENT
The Federal government would benefit from additional tax revenue associated with
higher student earnings and students' increased ability to spend money in the
economy. Another primary benefit of the proposed regulations would be improved
oversight and administration of the title IV, HEA programs, particularly the new
data reported by institutions. Additionally, Federal taxpayer funds would be
allocated more efficiently to higher-performing programs, where students are
more likely to graduate with manageable amounts of debt and gain stable
employment in a well-paying field, increasing the positive benefits of Federal
investment in title IV, HEA programs.
The taxpayers and the Government would also benefit from improved information
about GE programs. As the funders and stewards of the title IV, HEA programs,
these parties have an interest in knowing whether title IV, HEA program funds
are benefiting students. The information provided in the disclosures would allow
for more effective monitoring of the Federal investment in GE programs.
COSTS
COSTS TO STUDENTS
Students may incur some costs as a result of the proposed regulations. One cost
is that all title IV, HEA students attending eligible non-GE programs that fail
the D/E metric would be required to acknowledge having seen information about
program outcomes before title IV aid is disbursed. Students attending GE
programs with at least one failing metric would additionally be required to
acknowledge a warning that the program could lose title IV, HEA eligibility. The
acknowledgement is the main student cost we quantify in our analysis. We expect
that over the long-term, all students would have increased access to programs
that lead to successful outcomes. In the short term, students in failing
programs would incur search and logistical costs associated with finding and
enrolling in an alternative program, whether that be a GE or non-GE program.
Further, at least some students may be temporarily left without transfer
options. We expect that many of these students would re-enter postsecondary
education later, but we understand that some students may not continue. We do
not quantify these costs associated with searching for and transferring to new
postsecondary programs.
COSTS TO INSTITUTIONS
Under the proposed regulations, institutions would incur costs as they make
changes needed to comply, including costs associated with the reporting,
disclosure, and acknowledgment requirements. These costs could include: (1)
Training of staff for additional duties, (2) potential hiring of new employees,
(3) purchase of new, or modifications to existing, software or equipment, and
(4) procurement of external services.
As described in the Preamble, much of the necessary information required from GE
programs would already have been reported to the Department under the 2014 Prior
Rule, and as such we believe the added burden of this reporting relative to
existing requirements would be reasonable. Furthermore, 88 percent of public and
47 percent of private non-profit institutions operated at least one GE Start
Printed Page 32441 program and thus have experience with similar data reporting
for the subset of their students enrolled in certificate programs under the 2014
Prior Rule. Moreover, many institutions report more detailed information on the
components of cost of attendance and other sources of financial aid in the
Federal National Postsecondary Student Aid Survey (NPSAS) administered by the
National Center for Education Statistics. Finally, for the first year after the
effective date of the proposed rule, the Department proposes flexibility for
institutions to avoid reporting data on students who completed programs in the
past, and instead to use data on more recent completer cohorts to estimate
median debt levels. In part, this is intended to ease the administrative burden
of providing this data for programs that were not covered by the 2014 Prior Rule
reporting requirements, especially for the small number of institutions that may
not previously have had any programs subject to these requirements.
Our initial estimate of the time cost of these reporting requirements for
institutions is 5.1 million hours initially and then 1.5 million hours annually
after the first year. The Department recognizes that institutions may have
different approaches and processes for record-keeping and administering
financial aid, so the burden of the GE and financial transparency reporting
could vary by institution. Many institutions may have systems that can be
queried or existing reports that can be adapted to meet these reporting
requirements. On the other hand, some institutions may still have data entry
processes that are very manual in nature and generating the information for
their programs could involve many more hours and resources. Institutions may
fall in between these poles and be able to automate the reporting of some
variables but need more effort for others. The total reporting burden will be
distributed across institutions depending on the setup of their systems and
processes. We believe that, while the reporting relates to program or
student-level information, the reporting process is likely to be handled at the
institutional level.
Table 4.2 presents the Department's estimates of the hours associated with the
reporting requirements. The reporting process will involve staff members or
contractors with different skills and levels of responsibility. We have
estimated this using Bureau of Labor statistics median hourly wage for Education
Administrators, Post-Secondary of $46.59.[247]
Expand Table
Table 4.2—Estimated Hours and Wage Rate for Reporting Requirements
ProcessHoursHours basisReview systems and existing reports for adaptability for
this reporting10Per institution.Develop reporting query/result
template:Program-level reporting15Per institution.Student-level reporting30Per
institution.Run test reports:Program-level reporting0.25Per
institution.Student-level reporting0.5Per institution.Review/validate test
report results:Program-level reporting10Per institution.Student-level
reporting20Per institution.Run reports:Program-level reporting0.25Per
program.Student-level reporting0.5Per program.Review/validate report
results:Program-level reporting2Per program.Student-level reporting5Per
program.Certify and submit reporting10Per institution.
The ability to set up reports or processes that can be rerun in future years,
along with the fact that the first reporting cycle includes information from
several prior years, means that the expected burden should decrease
significantly after the first reporting cycle. We estimate that the hours
associated with reviewing systems, developing or updating queries, and reviewing
and validating the test queries or reports will be reduced by 35 percent after
the first year. After initial reporting is completed, the institution will need
to confirm there are no program changes in CIP code, credential level,
preparation for licensure, accreditation, or other items on an ongoing basis. We
expect that process would be less burdensome than initially establishing the
reporting. Table 4.3 presents estimates of reporting burden for the initial year
and subsequent years under proposed § 668.408.
Expand Table
Table 4.3.1—Estimated Reporting Burden for the Initial Reporting Cycle
Control and levelInstitution countProgram countHoursAmountPrivate
2-year15353031,0801,448,006Proprietary 2-year1,3533,775246,57511,487,918Public
2-year1,10636,5221,238,08257,682,217Start Printed Page 32442Private
4-year1,44948,7971,651,44976,940,997Proprietary
4-year2043,054114,2075,320,904Public
4-year74257,7691,861,88686,745,245Total5,007150,4475,143,277239,625,287
Expand Table
Table 4.3.2—Estimated Reporting Burden for Subsequent Reporting Cycles
Control and levelInstitution countProgram countHoursAmountPrivate
2-year15353014,206661,834Proprietary 2-year1,3533,775118,5545,523,443Public
2-year1,10636,522356,04216,587,973Private
4-year1,44948,797473,81122,074,843Proprietary
4-year2043,05437,1331,730,003Public
4-year74257,769496,68223,140,403Total5,007150,4471,496,42669,718,499
The Department welcomes comments on the assumptions related to the reporting
burden of the proposed regulations. As described under Paperwork Reduction Act
of 1995, the final estimates of reporting costs will be cleared at a later date
through a separate information collection.
As described in the section titled “Paperwork Reduction Act of 1995,” the final
estimates of reporting costs will be cleared at a later date through a separate
information collection. Institutions' share of the annual costs associated with
disclosures, acknowledgement for non-GE programs, and warnings and
acknowledgement for GE programs are estimated to be $12 million, $0.05 million,
and $0.76 million, respectively. Note that most of the burden associated
acknowledgements will fall on students, not institutions. These costs are
discussed in more detail in the section titled “Paperwork Reduction Act of
1995.”
Institutions that make efforts to improve the outcomes of failing programs would
face additional costs. For example, institutions that reduce the tuition and
fees of programs would see decreased revenue. For students who are currently
enrolled in a program, the reduced price would be a transfer to them in the form
of a lower cost of attendance. In turn, some of this price reduction would be a
transfer to the government if the tuition was being paid for with title IV, HEA
funds. An institution could also choose to spend more on curriculum development
to, for example, link a program's content to the needs of in-demand and
well-paying jobs in the workforce, or allocate more funds toward other
functions. These other functions could include hiring better faculty; providing
training to existing faculty; offering tutoring or other support services to
assist struggling students; providing career counseling to help students find
jobs; acquiring more up-to-date equipment; or investing in other areas where
increased spending could yield improved performance. However, as mentioned in
the benefits section, institutions that improve program quality could see
increased tuition revenue with improved retention and completion.
The costs of program changes in response to the proposed regulations are
difficult to quantify generally as they would vary significantly by institution
and ultimately depend on institutional behavior. For example, institutions with
all passing programs could elect to commit only minimal resources toward
improving outcomes. On the other hand, they could instead make substantial
investments to expand passing programs and meet increased demand from
prospective students, which could result in an attendant increase in enrollment
costs. Institutions with failing programs could decide to devote significant
resources toward improving performance, depending on their capacity, or could
instead elect to discontinue one or more of the programs. However, as mentioned
previously, some of these costs might be offset by increased revenue from
improved program quality. Given these ambiguities, we do not quantify costs (or
benefits) associated with program quality improvements.
Finally, some poorly performing programs will experience a reduction in
enrollment that is not fully offset by gains to other institutions (which will
experience increased enrollment) or the Federal government (which will
experiences lower spending on Title IV, HEA aid). These losses should be
considered as costs for institutions.
COSTS TO STATES AND LOCAL GOVERNMENTS
State and local governments may experience increased costs as enrollment in
well-performing programs at public institutions increases as a result of some
students transferring from programs at failing programs, including those offered
by for-profit institutions.
The Department recognizes that a shift in students to public institutions could
result in higher State and local government costs, but the extent of this is
dependent on student transfer patterns, State and local government choices, and
the existing capacity of public programs. If States choose to expand the
enrollment capacity of passing programs at public institutions, it is not
necessarily the case that they would face marginal costs that are similar to
their average cost or that they would only choose to expand through traditional
brick-and-mortar institutions. The Department continues to find that many States
across the country are experimenting with innovative models that use different
methods of instruction and content delivery, including online offerings, that
allow students to complete courses faster and at lower cost. Furthermore,
enrollment shifts would likely be towards community colleges, where declining
enrollment has created excess capacity. An under-subscribed college may see
greater efficiency gains from increasing enrollment and avoid other Start
Printed Page 32443 costly situations such as unused classroom space or
unsustainably low enrollment. Forecasting the extent to which future growth
would occur in traditional settings versus online education or some other model
is outside the scope of this analysis. Nonetheless, we do include the additional
instructional cost associated with a shift from failing to passing programs in
our analysis, some of which will fall on state and local governments.
COSTS TO FEDERAL GOVERNMENT
The main costs to the Federal government involve setting up the infrastructure
to handle and process additional information reported by institutions, compute
rates and other information annually, and maintain a website to host the
disclosure information and acknowledgment process. Most of these activities
would be integrated into the Department's existing processes. We estimate that
the total implementation cost will be $30 million.
TRANSFERS
Enrollment shifts between programs, and potentially to non-enrollment, would
transfer resources between students, institutions, State and local governments,
and the Federal government. We model three main transfers. First, if some
students drop out of postsecondary education or remain in programs that lose
eligibility for title IV, HEA Federal student aid, there would be a transfer of
Federal student aid from those students to the Federal government. Second, as
students change programs based on program performance, disclosures, and title
IV, HEA eligibility, revenues and expenses associated with students would
transfer between postsecondary institutions. Finally, the additional earnings
associated with movement from low- to high-value programs would result in
greater loan repayment by borrowers. This is through both lower default rates
and a lower likelihood of loan forgiveness through existing IDR plans. This
represents a transfer from students to the Federal government. We do not
quantify the transfers between students and State governments associated with
changes in State-financed student aid, as such programs differ greatly across
States. Transfers between students and States could be net positive for States
if fewer students apply for, or need, State aid programs or they could be
negative if enrollment shifts to State programs results in greater use of State
aid.
FINANCIAL RESPONSIBILITY
The Department has a responsibility to ensure that the institutions
participating in the title IV, HEA programs have the financial resources to meet
the requirements of the HEA and its regulations. This includes ensuring that
their financial situation is unlikely to lead them to a sudden and unexpected
closure or to operate in ways that either lead to a significant deterioration in
the education and related services delivered or the need to engage in riskier
behavior, such as aggressive recruitment, to stay financially afloat.
The Department also has a responsibility to protect taxpayers from the costs
incurred by the Federal government due to the sudden closure of an institution.
Ensuring the Department has sufficient tools to identify and take steps to more
closely oversee institutions that are in a financially precarious position is
particularly important because students enrolled at the time an institution
closes, or who have left shortly before without completing their program, are
entitled to a discharge of their Federal student loan balances. If the
Department has failed to secure financial protection from the institution prior
to that point it is highly likely under existing regulations that taxpayers will
end up bearing the cost of those discharges in the form of a transfer from the
Department to those borrowers who have their loans cancelled.
Historically when institutions close there are little to no resources left at
the school, and to the extent there are, the Department must compete with other
creditors to secure some assets. In some cases, other entities that had
ownership stakes in the institution still had resources even when the
institution itself did not, but the Department lacked the ability to recover
funds from these other entities.
These proposed regulations provide greater tools for the Department to demand
financial protection when an institution exhibits signs of financial instability
and to obtain information that would make it easier to detect those problems
sooner than it currently does. It also clarifies the rules about financial
protection when institutions change owners, a situation that can be risky for
students and taxpayers, particularly if the purchasing entity lacks experience
or the necessary financial strength to effectively manage an acquired
institution.
The table below provides information on the Department's estimates of how
frequently the circumstances associated with the proposed mandatory and
discretionary triggers have occurred in the last several years.
Expand Table
Table 4.4—Mandatory Triggering Events
TriggerDescriptionImpactDebts or liability payments 668.171(c)(2)(i)(A)An
institution with a composite score of less than 1.5 with some exceptions is
required to pay a debt or incurs a liability from a settlement, final judgment,
or similar proceeding that results in a recalculated composite score of less
than 1.0For institutional fiscal years that ended between July 1, 2019, and June
30, 2020, there were 225 private nonprofit or proprietary schools with a
composite score of less than 1.5. Of these, 7 owe a liability to the Department,
though not all of these liabilities are significant enough to result in a
recalculated score of 1.0. We do not have data on non-Department liabilities
that might meet this trigger.Lawsuits 668.171(c)(2)(i)(B)Lawsuits against an
institution after July 1, 2024, by Federal or State authorities or a qui tam
pending for 120 days in which the Federal government has intervenedThe
Department is aware of approximately 50 institutions or ownership groups that
have been subject to Federal or State investigations, lawsuits, or settlements
since 2012. This includes criminal prosecutions of owners.Borrower defense
recoupment 668.171(c)(2)(i)(C)The Department has initiated a proceeding to
recoup the cost of approved borrower defense claims against an institutionThe
Department has initiated one proceeding against an institution to recoup the
proceeds of approved claims. Separately, the Department has approved borrower
defense claims at more than six other institutions or groups of institutions
where it has not sought recoupment.Change in ownership debts and liabilities
668.171(c)(2)(i)(D)An institution in the process of a change of ownership must
pay a debt or liability related to settlement, judgment, or similar matter at
any point through the second full fiscal year after the change in ownershipOver
the last 5 years there have been 188 institutions that underwent a change in
ownership. This number separately counts campuses that may be part of the same
chain or ownership group that are part of a single transaction. The Department
does not currently have data on how many of those had a debt or liability that
would meet this trigger.Start Printed Page 32444Withdrawal of owner's equity
668.171(c)(2)(ii)(A)A proprietary institution with a score less than 1.5 has a
withdrawal of owner's equity that results in a composite score of less than
1.0In the most recent available data, 161 proprietary institutions had a
composite score that is less than 1.5. The Department has not determined how
many of those may have had a withdrawal of owner's equity that would meet this
trigger.Significant share of Federal aid in failing GE programs
668.171(c)(2)(iii)An institution has at least 50 percent of its title IV, HEA
aid received for programs that fail GE thresholdsThere are approximately 740
institutions that would meet this trigger. These are almost entirely private
for-profit institutions that offer only a small number of programs total. These
data only include institutions operating in March 2022 that had completions
reported in 2015–16 and 2016–2017. Data are based upon 2018 and 2019 calendar
year earnings.Teach-out plans 668.171(c)(2)(iv)The institution is required to
submit a teach-out plan or agreementNot identified because the Department is not
currently always informed when an institution is required to submit a teach-out
plan or agreement.State actions 668.171(c)(2)(v)The institution is cited by a
State licensing or similar authority for failing to meet State requirements and
the institution receives notice that its licensure or authorization will be
terminated or withdrawn if it does not come into complianceNot identified
because the Department is not currently always informed when an institution is
subject to these requirements.Actions related to publicly listed entities
668.171(c)(2)(vi)These apply to any entity where at least 50 percent of an
institution's direct or indirect ownership is listed on a domestic or foreign
exchange. Actions include the SEC taking steps to suspend or revoke the entity's
registration or taking any other action. It also includes actions from
exchanges, including foreign ones, that say the entity is not in compliance with
the listing requirements or may be delisted. Finally, the entity failed to
submit a required annual or quarterly report by the required due dateDepartment
data systems currently identify 38 schools that are owned by 13 publicly traded
corporations. One of these may be affected by this trigger.90/10 failure
668.171(c)(2)(vii)A proprietary institution did not meet the requirement to
derive at least 10 percent of its revenue from sources other than Federal
educational assistanceOver the last 5 years an average of 12 schools failed the
90/10 test. Most recently, the Department reported that 21 proprietary
institutions had received 90 percent or more of their revenue from title IV, HEA
programs based upon financial statements for fiscal years ending between July 1,
2020, and June 30, 2021.Cohort default rate (CDR) failure 668.171(c)(2)(viii)An
institution's two most recent official CDRs are 30 percent or greaterTwenty
institutions with at least 30 borrowers in their cohorts had a CDR at or above
30 percent for the fiscal year (FY)2017 and FY2016 cohorts (the last rates not
impacted by the pause on repayment during the national emergency).Loss of
eligibility from other Federal educational assistance program
668.171(c)(2)(ix)The institution loses its ability to participate in another
Federal educational assistance programThe Department is aware of 5 institutions
participating in title IV, HEA programs that have lost access to the Department
of Defense's Tuition Assistance (TA) program since 2017. Three of those also
lost accreditation or access to title IV, HEA funds.Contributions followed by a
distribution 668.171(c)(2)(x)The institution's financial statements reflect a
contribution in the last quarter of its fiscal year followed by a distribution
within first two quarters of the next fiscal year and that results in a
recalculated composite score of 1.0Not currently identified because this
information is not currently centrally recorded in Department databases.Creditor
events 668.171(c)(2)(xi)An institution has a condition in its agreements with a
creditor that could result in a default or adverse condition due to an action by
the Department or a creditor terminates, withdraws, or limits a loan agreement
or other financing arrangementNot currently identified because institutions do
not currently report the information needed to assess this trigger to the
Department. Several major private for-profit colleges that failed had creditor
arrangements that would have met this trigger.Financial exigency
668.171(c)(2)(xii)The institution makes a formal declaration of financial
exigencyNot identified because institutions do not currently always report this
information to the Department.Receivership 668.171(c)(2)(xiii)The institution is
either required to or chooses to enter a receivershipThe Department is aware of
3 instances of institutions entering receiverships in the last few years. Each
of these institutions ultimately closed.
Expand Table
Table 4.5—Discretionary Triggering Events
TriggerDescriptionImpactAccreditor actions 668.171(d)(1)The institution is
placed on show cause, probation, or an equivalent statusSince 2018, we
identified just under 190 private institutions that were deemed as being
significantly out of compliance and placed on probation or show cause by their
accrediting agency, with the bulk of these stemming from one agency that
accredits cosmetology schools.Other creditor events and judgments
668.171(d)(2)The institution is subject to other creditor actions or conditions
that can result in a creditor requesting grated collateral, an increase in
interest rates or payments, or other sanctions, penalties, and fees, and such
event is not captured as a mandatory trigger. This trigger also captures
judgments that resulted in the awarding of monetary relief that is subject to
appeal or under appealNot identified because institutions do not currently
report this information to the Department.Fluctuations in title IV, HEA volume
668.171(d)(3)There is a significant change upward or downward in the title IV,
HEA volume at an institution between consecutive award years or over a period of
award yearsFrom the 2016–2017 through the 2021–2022 award years, approximately
155 institutions enrolled 1,000 or more title IV, HEA students and saw their
title IV, HEA volume change by more than 25 percent from one year to the next.
Of those, 33 saw a change of more than 50 percent. The Department would need to
determine which circumstances indicated enough risk to need additional financial
protection.Start Printed Page 32445High dropout rates 668.171(d)(4)An
institution has high annual dropout rates, as calculated by the
DepartmentAccording to College Scorecard data for the AY2014–15 cohort, there
were approximately 66 private institutions that had more than half their
students withdraw within two years of initial enrollment. Another 132 had
withdrawal rates between 40 and 50 percent. The Department would need to
determine which circumstances indicated enough risk to need additional financial
protection.Interim reporting 668.171(d)(5)An institution that is required to
provide additional reporting due to a lack of financial responsibility shows
negative cash flows, failure of other liquidation ratios, or other indicators in
a material change of the financial condition of a schoolNot currently identified
because Department staff currently do not look for this practice in their
reviews.Pending borrower defense claims 668.171(d)(6)The institution has pending
borrower defense claims and the Department has formed a group process to
consider at least some of themTo date there are 48 institutional names as
recorded in the National Student Loan Data System that have had more than 2,000
borrower defense claims filed against them. This number may include multiple
institutions associated with the same ownership group. There is no guarantee
that a larger number of claims will result in a group claim, but they indicate a
higher likelihood that there may be practices that result in a group
claim.Program discontinuation 668.171(d)(7)The institution discontinues a
program or programs that affect more than 25 percent of enrolled studentsNot
currently identified due to data limitations.Location closures 668.171(d)(8)The
institution closes more than 50 percent of its locations or locations that
enroll more than 25 percent of its studentsNot currently identified due to data
limitations.State citations 668.171(d)(9)The institution is cited by a State
agency for failing to meet a State requirement or requirementsNot identified
because institutions do not currently report this information consistently to
the Department.Loss of program eligibility 668.171(d)(10)One or more of the
programs at the institution loses eligibility to participate in another Federal
education assistance program due to an administrative actionThe Department does
not currently have comprehensive data on program eligibility loss for all other
Federal assistance programs. So, we looked at VA, which is one of the other
largest sources of Federal education assistance. Since 2018 the VA reported over
900 instances of an institution of higher education having its access to VA
benefits withdrawn. However, this number includes extensive duplication that
counts multiple locations of the same school, withdrawals due to issues captured
elsewhere like loss of accreditation or closure, and withdrawals that may not
have lasted an extended period. The result is that the actual number of affected
institutions would likely be significantly lower.Exchange disclosures
668.171(d)(11)An institution that is at least 50 percent owned by an entity that
is listed on a domestic or foreign stock exchange notes in a filing that it is
under investigation for possible violations of State, Federal or foreign
lawDepartment data systems currently identify 38 schools that are owned by 13
publicly traded corporations. There is one school that could potentially be
affected by this trigger.Actions by another Federal agency 668.171(d)(12)The
institution is cited and faces loss of education assistance funds from another
Federal agency if it does not comply with that agency's requirementsNot
identified because current reporting by institutions do not always capture these
events.
BENEFITS
The proposed improvements to the Financial Responsibility regulations would
provide significant benefits to the Federal government and to borrowers. They
also could benefit institutions that are in stronger financial shape by
dissuading struggling institutions from engaging in questionable behaviors to
gain a competitive advantage in increasing enrollment. Each of these benefits is
discussed below in greater detail.
The proposed Financial Responsibility regulations would provide benefits to the
Federal government because they would increase the frequency with which the
Department secures additional financial protection from institutions of higher
education. This would help the government, and in turn taxpayers, in several
ways. First, when an institution closes, a borrower who was enrolled at the time
of closure or within 180 days of closure and does not complete their program is
entitled to a discharge of their Federal student loans. If the proposed
regulations result in more instances where the Department has obtained a letter
of credit or other form of financial protection from an institution that closes,
then taxpayers would bear less of the costs from those discharges, which occur
in the form of a transfer from the Department to the borrower whose loans are
discharged. This is important because to date it is very uncommon for the
Department to have significant financial resources from an institution to offset
the costs from closed school discharges. According to FSA data, closures of
for-profit colleges that occurred between January 2, 2014, to June 30, 2021,
resulted in $550 million in closed school discharges. These are discharges for
borrowers who did not complete their program and were enrolled on the date of
closure or left the institution in the months prior to the closure. (This
excludes the additional $1.1 billion in closed school discharges related to ITT
Technical Institute that was announced in August 2021). Of that amount, the
Department recouped just over $10.4 million from institutions.[248]
Second, the ability to secure additional financial protection would help offset
the costs the government would otherwise face in the form of transfers
associated with approved borrower defense to repayment claims. Under the HEA,
borrowers may receive a discharge of their loans when their institutions engage
in certain acts or omissions. Under the Biden-Harris Administration, the
Department has approved $13 billion in discharges for 979,000 borrowers related
to borrower defense findings. This includes a combination of borrowers who
received a borrower defense discharge after review of an application they
submitted and others who received a discharge as part of a group based upon
borrower defense findings where the mechanism used to effectuate relief was the
Start Printed Page 32446 Department's settlement and compromise authority. To
date there has only been a single instance in which the Department recovered
funds to offset the costs of borrower defense discharges from the institution,
which was in the Minnesota School of Business and Globe University's bankruptcy
proceeding. In that situation, the Department received $7 million from a
bankruptcy settlement. While the Department cannot simply cash in a letter of
credit or take other financial protection solely upon approval of borrower
defense claims, having the funding upfront is still important. That is because,
to date, the Department has mostly approved borrower defense claims against
institutions that are no longer operating, including several situations where an
institution closed years prior. When that occurs, even if the Department sought
to recoup the cost of discharges, there are unlikely to be assets to draw upon.
Were there financial protection in place, the Department would have greater
confidence that a successful recoupment effort would result in funds being
available to offset the cost of discharges.
Third, the Federal government would also benefit from the deterrent effect of
additional financial responsibility triggers. Articulating more situations that
could lead to either mandatory financial protection or the possibility of a
financial protection request would dissuade institutions from taking steps that
could trigger those conditions. For example, the Department proposes a trigger
tied to situations where an institution has conditions in a financing agreement
with an external party that would result in an automatic default if the
Department takes an action against the institution. The Department is concerned
that such situations are used by institutions to try and discourage the
Department from exercising its proper oversight authority due to the financial
consequences for the school. It could also be used by the school to blame the
Department if the action later results in a closure even though its shuttering
is a result of poor management. Therefore, this proposed trigger should
discourage the inclusion of such provisions going forward. The same is true for
the inclusion of various actions taken by States, accrediting agencies, or the
SEC. Knowing that such situations could result in additional requests for
financial protection would provide an even greater reason for institutions to
avoid risky behavior that could run afoul of other actors.
These proposed triggers would also benefit students. For one, the deterrence
benefits mentioned above would help protect students from being taken advantage
of by predatory institutions. The Department has seen situations in the past
where institutions engaged in risky behavior to keep growing at a rapid rate to
satisfy investor expectations. This resulted in colleges becoming too big, too
fast to be able to deliver educational value. It also meant that institutions
risked becoming financially shaky if they experienced declines in enrollment.
While these proposed triggers would not fully discourage rapid growth, they
would discourage a growth-at-all-costs mindset, particularly if that growth is
encouraged through misrepresentations, aggressive recruitment, or other
practices that may run afoul of both the Department and other oversight
entities. With the proposed triggers in place, institutions that would otherwise
engage in such behaviors may instead opt to stay at a more appropriate and
sustainable size at which they are able to deliver financial value for students
and taxpayers. This outcome would also decrease the risk of closure, which can
be very disruptive for students, often delaying if not terminating their pursuit
of a postsecondary credential. For example, research by GAO found that 43
percent of borrowers never completed their program or transferred to another
school after a closure.[249] While 44 percent transferred to another school, 5
percent of all borrowers transferred to a college that later closed. GAO then
looked at the subset of borrowers who transferred long enough ago that they
could have been at the new school for six years, the amount of time typically
used to calculate graduation rates. GAO found that nearly 49 percent of these
students who transferred did not graduate in that time. These findings are
similar to those from SHEEO, which found that just 47 percent of students
reenrolled after a closure and only 37 percent of students who reenrolled earned
a postsecondary credential.[250]
The proposed regulations' deterrence effect would also benefit students by
encouraging institutions to improve the quality and value of their educational
offerings. For example, the proposed trigger for institutions with high dropout
rates would incentivize institutions to improve their graduation rates. Along
with the trigger for institutions failing the cohort default rate, this can
reduce the number of students who default on their loans, as students who do not
complete a degree are more likely to default on their loans.[251] Improved
completion rates also have broader societal benefits, such as increased tax
revenue because college graduates, on average, have lower unemployment rates,
are less likely to rely on public benefit programs, and contribute more in tax
revenue through higher earnings.[252]
Finally, the proposed regulations would also provide benefits for institutions
that are not affected by a new request for financial protection. Many of the
factors that can lead to a letter of credit would be associated with
institutions that have engaged in questionable, and sometimes predatory,
behavior, often in the hopes of maintaining or growing enrollment. For instance,
aggressive conduct during the recruitment process, including misrepresenting key
elements of a program to students, can generate lawsuits, State actions, and
borrower defense claims. To the extent these proposed triggers discourage such
behaviors, that would help institutions that act responsibly by allowing them to
better compete for potential students based on factors like quality and value
delivered and of the educational program.
COSTS
The proposed regulations could create costs for institutions in a few ways.
First, institutions could face costs to obtain a letter of credit or other form
of financial protection. Financial institutions typically charge some sort of
fee to provide a letter of credit. Or the institution may have to set aside
funds so the financial institution is willing to issue the letter of credit.
These fees or set aside amounts may be based upon the total amount of the letter
of credit and could potentially also reflect the bank's view of the level of
risk represented by the school. Institutions do not currently inform the
Department of how much they must spend to obtain a letter of credit, so the
Department does not have a way of ascertaining any potential added costs
resulting from fees or set aside amounts. The fees, however, would be borne by
the institution regardless of whether the letter of credit is collected on or
not, while funds set aside for the letter of credit would be returned to the
institution if it is not collected upon. Other types of financial protection,
such as providing funds directly or offsetting title IV, HEA aid Start Printed
Page 32447 received, would not come with such fees.
The second form of cost would be transfers to the Department that occur when it
collects on a letter of credit or keeps the funds from a cash escrow account,
title IV, HEA offset, or other forms of financial protection. In those
situations, the Department would use those funds to offset liabilities owed to
it. This would be a benefit to the Department and taxpayers.
The rate at which the Department collects on financial protection it receives
would likely change under these proposed regulations. The Department anticipates
that one effect of the proposed regulations would be an increase in the
instances in which it requests financial protection. That would result in a
larger total amount of financial protection available. However, it is possible
that the increase in financial protection would result in a lower rate at which
those amounts are collected on. This could be a result of the financial
protection providing a greater and earlier deterrence against behavior that
would have otherwise led to a closure. Additionally, the proposed regulations
could result in be more situations where the Department has financial protection
but an institution does not ultimately have unpaid liabilities. At the same
time, if the Department is more successful in securing financial protection from
institutions that do close, it may end up with a greater share of outstanding
liabilities covered by funds from an institution.
ADMINISTRATIVE CAPABILITY
BENEFITS
The proposed Administrative Capability regulations would provide several
benefits for students, the Department, and other institutions of higher
education. Each is discussed below in turn.
STUDENTS
For students, the proposed changes would particularly help them make more
informed choices about where to enroll, how much they might borrow, and ensure
that students who are seeking a job get the assistance they need to launch or
continue their careers. On the first point, the proposed changes in § 668.16(h)
expand an existing requirement related to sufficient financial aid counseling to
also include written information, such as what is contained when institutions
inform students about their financial aid packages. Having a clear sense of how
much an institution will cost is critical for students to properly judge the
financial transaction they are entering into when they enroll. For many students
and families, a postsecondary education is the second most expensive financial
decision they make after buying a home. However, the current process of
understanding the costs of a college education is far less consistent than that
of a buying a home. For the latter, there are required standard disclosures that
present critical information like the total price, interest rate, and the amount
of interest that will ultimately be paid. Having such common disclosures helps
to compare different mortgage offers.
By contrast, financial aid offers are extremely varied. A 2018 study by New
America that examined more than 11,000 financial aid offers from 515 schools
found 455 different terms used to describe an unsubsidized loan, including 24
that did not use the word “loan.” [253] More than a third of the financial aid
offers New America reviewed did not include any cost information. Additionally,
many colleges included Parent PLUS loans as “awards” with 67 unique terms, 12 of
which did not use the word “loan” in the description. Similarly, a 2022 report
by the GAO estimated that, based on their nationally representative sample of
colleges, 22 percent of colleges do not provide any information about college
costs in their financial aid offers, and of those that include cost information,
41 percent do not include a net price and 50 percent understate the net
price.[254] GAO estimated that 21 percent of colleges do not include key details
about how Parent PLUS loans differ from student loans. This kind of
inconsistency creates significant risk that students and families may be
presented with information that is both not directly comparable across
institutions but may be outright misleading. That hinders the ability to make an
informed financial choice and can result in students and families paying more
out-of-pocket or going into greater debt than they had planned.
While the proposed regulatory language would not mandate that all colleges adopt
the same offer, they would establish requirements around key information that
must be provided to students. Some of these details align with the existing
College Financing Plan, which is used by half of the institutions in at least
some form. The proposed regulations will thereby increase the likelihood that
students receive consistent information, including, in some cases, through the
expanded adoption of the College Financing Plan. Clear and reliable information
could further help students choose institutions and programs that might have
lower net prices, regardless of sticker price, which may result in students
enrolling in institutions and programs where they and their families are able to
pay less out of pocket or take on lower amounts of debt.
Students would also benefit from the proposed § 668.16(p), related to proper
procedures for evaluating high school diplomas. It is critical that students can
benefit from the postsecondary training they pursue. If they do not, then they
risk wasting time and money, as well as ending up with loan debt they would
struggle to repay because they are unable to secure employment in the field they
are studying. Students who have not obtained a valid high school diploma may be
at a particular risk of ending up in programs where they are unlikely to
succeed. The Department has seen in the past that institutions that had
significant numbers of students who enrolled from diploma mills or other schools
that did not provide a proper secondary education have had high rates of
withdrawal, non-completion, or student loan default. The added requirements in
proposed § 668.16(p) would better ensure that students pursuing postsecondary
education have received the secondary school education needed to benefit from
the programs they are pursuing.
The provision related to adequate career services in proposed § 668.16(q) and
the provision of externships in proposed § 668.16(r) would result in significant
benefits for students as they are completing their programs. While postsecondary
education and training provides a range of important benefits, students
repeatedly indicate that getting a job is either the most or among the most
important reasons for attending. For example, one survey asked students their
reasons for deciding to go to college and 91 percent said to improve their
employment opportunities, 90 percent said to make more money, and 89 percent
said to get a good job.[255] Another survey of 14- to 23-year-olds showed that
two-thirds said they wanted a degree to provide financial security.[256]
Similarly, many institutions construct their marketing around their connections
to employers, the careers Start Printed Page 32448 their students pursue, or
other job-related outcomes. But students will have a hard time achieving those
goals if the institution lacks sufficient career services to assist them in
finding a job. This is even more pronounced for students whose career pathways
require an externship or clinical experience, which is commonly a requirement to
obtain the necessary license to work in certain fields. Making it an explicit
requirement that institutions have sufficient career services and provide
necessary clinical or externship experiences would increase the ability of
students to find jobs in the fields for which they are being prepared.
The Department anticipates that the proposed provisions in § 668.16(s) would
ensure students receive their funds when they most need them. Refunds of
financial aid funds remaining after paying for tuition and fees gives students
critical resources to cover important costs like food, housing, books, and
transportation. Students that are unable to pay for these costs struggle to stay
enrolled and may instead need to either leave a program or increase the number
of hours they are working, which can hurt their odds of academic success.
Ensuring institutions disburse funds in a timely manner would help students get
their money when they need it.
Finally, the provisions in §§ 668.16(k)(2) and 668.16(t) through (u) would also
benefit students by protecting them from institutions that are engaging in poor
behavior, institutions that are at risk of losing access to title IV, HEA aid
for a significant share of their students because they do not deliver sufficient
value, and institutions that are employing individuals who have a problematic
history with the financial aid programs. All three of these elements can be a
sign of an elevated risk of closure or an institution's engagement in concerning
behaviors that could result in the approval of borrower defense claims or
actions under part 668, subpart G, either of which could place the institution
in challenging financial situations.
FEDERAL GOVERNMENT
The proposed Administrative Capability regulations would also provide benefits
for the Department. False institutional promises about the availability of
career services, externships or clinical placements, or the ability to get a job
can result in the Department granting a borrower defense discharge. For
instance, the Department has approved borrower defense claims at American Career
Institute for false statements about career services and at Corinthian Colleges
and ITT Technical Institute related to false promises about students' job
prospects. But the Department has not been able to recoup the costs of those
transfers to borrowers from the Department. Adding these requirements to the
Administrative Capability regulations would increase the ability of the
Department to identify circumstances earlier that might otherwise lead to
borrower defense discharges later. That should reduce the number of future
claims as institutions would know ahead of time that failing to offer these
services is not acceptable. It also could mean terminating the participation in
the title IV, HEA programs sooner for institutions that do not meet these
standards, reducing the exposure to future possible liabilities through borrower
defense.
The Department would also benefit from improved rules around verifying high
school diplomas. Borrowers who received student loans when they did not in fact
have a valid high school diploma may be eligible for a false certification
discharge. If that occurs, the Department has no guarantee that it would be able
to recover the cost of such a discharge, resulting in a transfer from the
government to the borrower. Similarly, grant aid that goes to students who lack
a valid high school diploma is a transfer of funds that should not otherwise be
allowed and is unlikely to be recovered. Finally, if students who lack a valid
high school diploma or its equivalent are not correctly identified, then the
Department may end up transferring Federal funds to students who are less likely
to succeed in their program and could end up in default or without a credential.
Such transfers would represent a reduction in the effectiveness of the Federal
financial aid programs.
Provisions around hiring individuals with past problems related to the title IV,
HEA programs would also benefit the Department. Someone with an existing track
record of misconduct, including the possibility that they have pled guilty to or
been convicted of a crime, represents a significant risk to taxpayers that those
individuals might engage in the same behavior again. Keeping these individuals
away from the Federal aid programs would decrease the likelihood that concerning
behavior will repeat. The Department is already concerned that today there can
be executives who run one institution poorly and then simply jump to another or
end up working at a third-party servicer. Without this proposed regulatory
change, it can be harder to prevent these individuals from continuing to
participate in the aid programs.
The Department would gain similar benefits from the provisions related to
institutions with significant enrollment in failing GE programs; institutions
subject to a significant negative action subject to findings by a State or
Federal agency, court, or accrediting agency; and institutions engaging in
misrepresentations. These are situations where a school may be at risk of
closure or facing significant borrower defense liabilities. Allowing these
institutions to continue to participate in Title IV, HEA programs could result
in transfers to borrowers in the form of closed school or borrower defense
discharges that are not reimbursed. These proposed provisions would allow for
more proactive action to address these concerning situations and behaviors.
Finally, the Department would benefit from students receiving accurate financial
aid information. Students whose program costs end up being far different from
what the institution initially presented may end up not completing a program
because the price tag ends up being unaffordable. That can make them less likely
to pay their student loans back and potentially leave them struggling in
default. This could also include situations where the cost is presented
accurately but the institution fails to properly distinguish grants from loans,
resulting in a student taking on more debt than they intended to and being
unable to repay their debt as a result.
COSTS
The costs of the proposed regulations would largely fall on institutions, as
well as some administrative costs for the Department. For institutions that fail
to provide clear financial aid information or lack sufficient career services
staff, they may face costs either updating their financial aid information (
e.g., redoing financial aid offers) or hiring additional staff to bolster career
services. The former costs would likely be a one-time, minimal expense, while
the latter would be ongoing. Institutions may also face some administrative
costs for creating procedures for verifying high school diplomas if they
currently lack sufficient processes. This proposed requirement would not entail
reviewing every individual high school diploma, so the costs would depend on how
many students the institution enrolls that have high school diplomas that may
merit additional investigation. Institutions currently enrolling large numbers
of students who should not otherwise be deemed to have eligible high school
diplomas under these Start Printed Page 32449 revised policies may also face
costs in the form of reduced transfers from the Federal government if these
individuals are not able to enroll under an ability-to-benefit pathway. Finally,
the costs to an institution associated with having a failing GE program are
similar to those discussed in that section of the regulatory impact analysis.
These changes would also impose some administrative costs on the Department. The
Department would need to incorporate procedures into its reviews of institutions
to identify the added criteria. That could result in costs for retraining staff
or added time to review certain institutions where these issues manifest.
Finally, institutions that face significant administrative capability problems
related to issues such as State, accreditor, or other Federal agency sanctions
or conducting misrepresentations could face costs in the form of reduced
transfers from the Department if those actions result in loss of access to title
IV, HEA financial assistance. Situations that do not reach that level may or may
not result in added costs, including transfers, if they affect receipt of title
IV, HEA aid, depending on the steps an institution needs to take to address the
concerns.
CERTIFICATION PROCEDURES
An institution must be certified to participate in the title IV, HEA financial
assistance programs. Doing so ensures the institution agrees to abide by the
requirements of these programs, helping to maintain integrity and accountability
around Federal dollars. Decisions about whether to certify an institution's
participation, how long to certify it for, and what types of conditions should
be placed on that certification are a critical element of managing oversight of
institutions, particularly the institutions that pose risks to students and
taxpayers. Shorter certification periods or provisional certification can allow
the Department greater flexibility to respond to an institution that may be
exhibiting some signs of concern. This is necessary to ensure that students and
taxpayer funds are well protected. Similarly, institutions that do not raise
concerns can be certified for longer and with no additional conditions, allowing
the Department to focus its resources where greater attention is most needed.
The proposed regulations are necessary to ensure that the Department can more
effectively manage its resources in overseeing institutions of higher education.
The proposed changes would remove requirements that risked giving institutions
longer approval periods when they merit closer scrutiny and would clarify the
options available when additional oversight is necessary. The net result would
be an oversight and monitoring approach that is more flexible and effective.
BENEFITS
The proposed regulations would provide several important benefits for the
Department that would result in better allocation of its administrative
resources. One of these is the proposed elimination of § 668.13(b)(3). This is a
recently added provision that requires the Department to issue a decision on a
certification within 12 months of the date its participation expires. While it
is important for the Department to move with deliberate speed in its oversight
work, the institutions that have extended periods with a pending certification
application are commonly in this situation due to unresolved issues that must be
dealt with first. For instance, an institution may have a pending certification
application because it may have an open program review or a Federal or State
investigation that could result in significant actions. Being forced to make a
decision on that application before the review process or an investigation is
completed could result in suboptimal outcomes for the Department, the school,
and students. For the institution, the Department may end up placing it on a
short certification that would result in an institution facing the burden of
redoing paperwork after only a few months. That would carry otherwise
unnecessary administrative costs and increase uncertainty for the institution
and its students.
The Department would similarly benefit from provisions in proposed
§ 668.13(c)(1) that provides additional circumstances in which an institution
would become provisionally certified. The proposed change in
§ 668.13(c)(1)(i)(F)—giving the Secretary the ability to place an institution on
provisional certification if there is a determination that an institution is at
risk of closure—would be a critical tool for better protecting students and
taxpayers when an institution appears to be on shaky footing. The same is true
for the proposed changes in § 668.13(c)(1)(ii) related to how certain conditions
can automatically result in provisional status. Institutional closures can occur
very quickly. An institution may face a sudden shock that puts them out of
business or the gradual accumulation of a series of smaller problems that
culminates in a sudden closure. The pace at which these events occur requires
the Department to be nimble in responding to issues and better able to add
additional requirements for an institution's participation outside of the normal
renewal process. Absent this proposed language, the Department would be in a
position where an obviously struggling institution might stay fully certified
for years longer, despite the risk it poses.
Such benefits are also related to the provisions in proposed § 668.14(e) that
lay out additional conditions that could be placed on an institution if it is in
a provisional status. This non-exhaustive list of requirements specifies ways
the Department can more easily protect students and taxpayers when concerns
arise. Some of these conditions would make it easier to manage the size of a
risky institution and would ensure that it does not keep growing when it may be
in dire straits. Such size management would be accomplished by imposing
conditions such as restricting the growth of an institution, preventing the
addition of new programs or locations, or limiting the ability of the
institution to serve as a teach-out partner for other schools or to enter into
agreements with other institutions to provide portions of an educational
program.
Other conditions in proposed § 668.14(e) would give the Department better
ability to ensure that it is receiving the information it needs to properly
monitor schools and that there are plans for adequately helping students. The
additional reporting requirements proposed in § 668.14(e)(7) would help the
Department more quickly receive information about issues so it could react in
real-time as concerns arise. The proposed requirements in § 668.14(e)(1),
meanwhile, would give the Department greater tools to ensure students are
protected when a college is at risk of closure. Too often of late, colleges have
closed without any meaningful agreement in place for where students could
continue their programs. According to SHEEO, of the more than 143,000 students
who experienced a closure over 16 years, 70 percent experienced an abrupt
closure without a teach-out plan or adequate notice.[257] Additionally, even for
those with a teach-out plan, some of the teach-out plans were at another branch
campus that later closed. The proposed changes would, therefore, increase the
number of meaningful teach-out plans or agreements in place prior to a closure.
To get a sense of the potential effect of these changes, Table 4.4 below breaks
down the certification status of all Start Printed Page 32450 institutions
participating in title IV, HEA programs. This provides some sense of which
institutions might currently be subject to additional conditions.
Expand Table
Table 4.6—Certification Status of Institutions Participating in the Title IV,
HEA Federal Student Aid Programs
Fully certifiedProvisionally certifiedMonth-to-month
certificationPublic1,7329532Private Nonprofit1,46119757Private
For-Profit1,12050278Foreign Public210Foreign Private Nonprofit3125960Foreign
Private For-Profit091Total4,627863228Source: Postsecondary Education
Participants Systems as of January 2023.Note: The month-to-month column is a
subset of schools that could be in either the fully certified or the
provisionally certified column.
Other provisions in proposed § 668.14 would provide benefits to the Department
by increasing the number of entities that could be financially liable for the
cost of monies owed to the Department that are unpaid when a college closes.
Electronic Announcement (EA) GENERAL 22–16 updated PPA signature requirements
for entities exercising substantial control over non-public institutions of
higher education.[258] While EA GENERAL 22–16 used a rebuttable presumption, we
propose language in § 668.14(a)(3) that would not only require a representative
of the institution to sign a PPA, but also an authorized representative of an
entity with direct or indirect ownership of a private institution. Historically,
the Department has often seen colleges decide to close when faced with
significant liabilities instead of paying them. The result is both that the
existing liability is not paid and the cost to taxpayers may further increase
due to closed school discharges due to students.
To get a sense of how often the Department successfully collects on assessed
liabilities, we looked at the amount of institutional liabilities established as
an account receivable and processed for repayment, collections, or referral to
Treasury following the exhaustion of any applicable appeals over the prior 10
years. This does not include liabilities that were settled or not established as
an account receivable and referred to the Department's Finance Office. Items in
the latter category could include liabilities related to closed school loan
discharges that the Department did not assess because there were no assets
remaining at the institution to collect from.
We then compared estimated liabilities to the amount of money collected from
institutions for liabilities owed over the same period. The amount collected in
a given year is not necessarily from a liability established in that year, as
institutions may make payments on payment plans, have liabilities held while
they are under appeal, or be in other similar circumstances.
Expand Table
Table 4.7—Liabilities Versus Collections From Institutions
[$ in millions]
Federal fiscal yearEstablished liabilitiesAmounts collected from
institutions201319.626.9201486.137.52015108.113.1201664.530.82017149.734.52018126.251.12019142.952.32020246.231.72021465.729.12022203.037.02013–20221,611.9344.2Source:
Department analysis of data from the Office of Finance and Operations including
reports from the Financial Management Support System.
At the same time, there may be many situations where the entities that own the
closed college still have resources that could be used to pay liabilities owed
to the Department. The provisions in proposed § 668.14(a)(3) would make it
clearer that the Department would seek signatures on program participation
agreements from those Start Printed Page 32451 types of entities, making them
financially liable for the costs to the Department. In addition to the financial
benefits in the form of the greater possibility of transfers from the school or
other entities to the Department, this provision would also provide deterrence
benefits. Entities considering whether to invest in or otherwise purchase an
institution would want to conduct greater levels of due diligence to ensure that
they are not supporting a place that might be riskier and, therefore, more
likely to generate liabilities the investors would have to repay. The effect
should mean that riskier institutions receive less outside investment and are
unable to grow unsustainably. In turn, outside investors may then be more
willing to consider institutions that generate lower returns due to more
sustainable business practices. This could include institutions that do not grow
as quickly because they want to ensure they are capable of serving all their
students well, or make other choices that place a greater priority on student
success.
The added provisions in proposed § 668.14(b)(32) through (34) would also provide
benefits to the Department, largely by ensuring that Federal student aid is
spent more efficiently, is paying for fewer wasted credits, and is not withheld
from students in a way that may harm completion. On the first point, proposed
§ 668.14(b)(32) would make it harder for institutions to offer programs that
lead to licensure or certification whose length far exceeds what is required to
obtain the approvals necessary to work in that field in a student's State. While
it is important that students get enough aid to finish their program, the
Department is concerned that overly long programs may end up generating
unnecessary transfers from the Department to the institution in the form of
financial aid funding courses that are not needed for the borrower to obtain a
position in the field for which they are being prepared. For instance, if a
State only requires 1,000 hours for a program but an institution sets its
program length at 1,500 hours, then the taxpayer would be supporting significant
additional courses that are not required by the state and are potentially
superfluous. These types of protections are also necessary for students and
families, as some of these additional transfers may come from them in tuition
dollars paid, often in the form of greater and unnecessary student loan debt,
increasing both the amount students have to pay back and representing
potentially a larger share of their annual income. Other parts of paragraph
(32), meanwhile, would ensure that colleges enrolling online students from
another State would not be able to avoid any relevant key State consumer
protection laws regarding closure, recruitment, or misrepresentation. This would
help the Federal government by ensuring States can continue to play meaningful
roles in the three areas that are most likely to be a source of liabilities in
the form of closed school or borrower defense discharges.
Proposed § 668.14(b)(33), meanwhile would reduce the number of credits paid for
with title IV, HEA funds that a student is unable to transfer to another
institution or use to verify education to potential employers due to a hold on
their transcript. The Department is concerned that credits funded with taxpayer
money that are on transcripts that an institution will not release due to
mistakes on its own part or returns of title IV, HEA funds through the Return of
Title IV Funds process represent an unacceptable loss of Federal money. Credits
that cannot be redeemed elsewhere toward a credential do not help a student
complete a program and increase the potential for the government to pay for the
same courses twice. Credits that cannot be verified do not help students obtain
employment. While this proposed change may not address broader issues of credit
transfer or transcript withholding, it would mitigate some of those problems and
at least benefit the government by preventing withholding and wasting of credits
due to administrative errors or required functions related to the title IV, HEA
programs.
Proposed § 668.14(b)(34) would provide benefits to the Department. Research
shows that additional financial aid can provide important supports to help
increase the likelihood that students graduate. For example, one study showed
that increasing the amount some students were allowed to borrow improved degree
completion, later-life earnings, and their ability to repay their loans.[259]
This proposed language would prevent situations in which an institution may
prevent a student from receiving all the title IV aid they are entitled to
without replacing it with other grant aid. This would diminish the risk that
students are left with gaps that could otherwise have been covered by title IV
aid, which would help them finish their programs.
STUDENTS
Many of the same benefits for the Department would also accrue to students. In
most cases, college closures are extremely disruptive for students. As found by
GAO and SHEEO, only 44 to 47 percent of students enroll elsewhere and even fewer
complete college.[260] SHEEO also found that over 100,000 students were affected
by sudden closures from July 2004 to June 2020.[261] Proposed § 668.13(e) would
benefit students in two ways. First, some potential conditions added to the
program participation agreement would protect students from enrolling in an
at-risk institution in the first place. Preventing a risky school from growing
or adding new programs would mean enrollment does not increase and, therefore,
fewer students attending a place that may close. Second, the requirements around
teach-out plans and agreements would increase the number of schools where there
is better planning on what will happen to students' educational journeys should
a college cease operating. That would help more students make informed decisions
about when to re-enroll versus walk away from their programs.
Students would also benefit from the proposed requirements in § 668.14(a)(3)
around making additional entities responsible for unpaid liabilities. This
proposed provision would make outside investors more cautious in engaging with
riskier institutions, making it harder for them to grow as quickly. This in turn
would reduce the number of students enrolling in risky institutions that might
not serve them well.
The proposed changes in § 668.14(b)(32) would provide benefits to students by
reducing the likelihood of them paying more for education and training programs
that artificially extend their program length beyond what is needed to earn the
licensure or certification for which they are being prepared. Programs that are
unnecessarily long may depress students' ability to complete, as it introduces
more opportunities for life to interfere with academics, and cost students time
out of the labor force where they could be earning money in the occupation for
which they are training. It can also result in students taking out more student
loans than otherwise needed, potentially increasing the risk of unaffordable
loan payments, followed by delinquency and default. Similarly, the provision
that an institution must abide by State laws Start Printed Page 32452 related to
closure, recruitment, and misrepresentation would ensure that students are
protected by key State consumer protection laws regardless of whether they
attend an institution that is physically located in their State.
Restrictions on the ability of institutions to withhold transcripts as proposed
in § 668.14(b)(33) would benefit students by helping them better leverage the
credits they earned in courses paid for by their title IV, HEA aid. Refusing to
release a transcript means that students cannot easily transfer their credits.
That can arrest progress toward completion elsewhere and result in credits paid
for by title IV, HEA dollars that never lead to a credential. A 2020 study by
Ithaka S+R estimated that 6.6 million students have credits they are unable to
access because their transcript is being withheld by an institution.[262] That
study and a 2021 study published by the same organization estimate that the
students most affected are likely adult learners, low-income students, and
racial and ethnic minority students.[263] This issue inhibits students with some
college, but no degree from completing their educational programs, as well as
prevents some students with degrees from pursuing further education or finding
employment if potential employers are unable to verify that they completed a
degree or if they are unable to obtain licensure for the occupation for which
they trained.
The proposal in § 668.14(b)(34), meanwhile, would provide benefits to students
by ensuring that they receive all the Federal aid they are entitled to. This
could result in an increase in transfers from the Department to students as they
receive aid that would otherwise have been withheld by the school. Research
shows that increased ability to borrow can increase completed credits and
improve grade point average, completion, post-college earnings, and loan
repayment for some students.[264]
COSTS
The proposed regulations would create some modest administrative costs for the
Department. These would consist of staffing costs to monitor the additional
conditions added to program participation agreements, as well as any increase in
changes to an institution's certification status. This cost would likely be
larger than the amount the Department spends on reviews of less risky
institutions. Beyond these administrative costs, the Department could see a
slight increase in costs in the title IV, HEA programs that come in the form of
greater transfers to students who would otherwise have received less financial
aid under the conditions prohibited in proposed § 668.14(b)(34). As discussed in
the benefits section, greater aid could help students finish their programs.
The Department is not anticipating that these proposals would have a significant
cost for students. While some of the proposals could affect the institution in
which a student chooses to enroll, the Department does not believe that these
provisions would likely have a significant effect on whether students enroll in
a postsecondary institution at all.
The proposed regulations would establish costs in various forms for
institutions. For some, the changes would create costs in the form of reduced
transfers from the Department. This would occur in situations such as growth
restrictions or preventing institutions from starting new programs or opening
new locations. It is not possible to clearly estimate these costs, as which
conditions are placed on institutions would be fact-specific and gauging their
effect would require judging how many students the institution would then have
otherwise enrolled.
Institutions that would be affected by the proposed requirements to limit
programs to the required length in their State (or that of a neighboring state
in certain limited circumstances) would also face administrative costs to
redesign programs. This could require determining what courses to eliminate or
how to otherwise make a program shorter. These changes could also reduce
transfers from the Department to the institution as aid is no longer provided
for the portion of the program that is eliminated.
Other costs to institutions would come in the form of administrative expenses.
Institutions that are placed on provisional status may need to submit additional
information for reporting purposes, which would require some staff time.
Similarly, an institution that becomes provisionally certified may have to
submit an application for recertification sooner than anticipated, which would
require additional staff time. The extent of these administrative costs would
vary depending on the specific demands for an institution and it is not possible
to model them.
ABILITY TO BENEFIT
The HEA requires students who are not high school graduates to fulfill an ATB
alternative and enroll in an eligible career pathway program to gain access to
title IV, HEA aid. The three ATB alternatives are passing an independently
administered ATB test, completing six credits or 225 clock hours of coursework,
or enrolling through a State process.[265] Colloquially known as ATB students,
these students are eligible for all title IV, HEA aid, including Federal Direct
loans. The ATB regulations have not been updated since 1994. In fact, the
current Code of Federal Regulations makes no mention of eligible career pathway
programs. Changes to the statute have been implemented through subregulatory
guidance laid out in Dear Colleague Letters (DCLs). DCL GEN 12–09, 15–09, and
16–09 explained the implementation procedures for the statutory text. Due to the
changes over the years, as described in the Background section of this proposed
rule, the Department seeks to update, clarify, and streamline the regulations
related to ATB.
BENEFITS
The proposed regulations would provide benefits to States by more clearly
establishing the necessary approval processes. This would help more States have
their applications approved and reduce the burden of seeking approval. This
would be particularly achieved by the proposal to separate the application into
an initial process and a subsequent process. Currently, States that apply are
required to submit a success rate calculation under current § 668.156(h) as a
part of the first application. Doing so is very difficult because the
calculation requires that a postsecondary institution is accepting students
through its State process for at least one year. This means that a postsecondary
institution needs to enroll students without the use of title IV aid for one
year to gather enough data to submit a success rate to the Department. Doing so
may be cost prohibitive for postsecondary institutions.
The proposed regulations would also benefit institutions by making it easier for
them to continue participating in a State process while they work to improve
their results. More specifically, reducing the success rate calculation
threshold from 95 percent to 85 percent, and the proposal for struggling
institutions to meet a 75 percent Start Printed Page 32453 threshold for a
limited number of years, would give institutions additional opportunities to
improve their outcomes before being terminated from a State process. This added
benefit would not come at the expense of costs to the student from taking out
title IV, HEA aid to attend an eligible career pathway program. This is because
the Department proposes to incorporate more guardrails and student protections
in the oversight of ATB programs, including documentation and approval by the
Department of the eligible career pathway program. That means the proposed
changes would not on the whole decrease regulatory oversight.
Institutions that are not struggling to maintain results would also benefit from
these proposed regulations. Under current regulations, the success rate
calculation includes all institutions combined. The result is that an
institution with strong outcomes could be combined with those that are doing
worse. Under this proposal, the Department would calculate the success rate for
each individual participating institution, therefore allowing other
participating institutions that are in compliance with the proposed regulations
to continue participation in the State process.
COSTS
The proposed regulatory changes would impose additional costs on the Department,
postsecondary institutions, and entities that apply for the State process.
The proposed regulations would break up the State process into an initial and
subsequent application that must be submitted to the Department after two years
of initial approval. This would increase costs to the State and participating
institutions. This new application process would be offset because the
participating institutions would no longer need to fund their own State process
without title IV, HEA program aid to gain enough data to submit a successful
application to the Department.
In the proposed initial application, the institution would have to calculate the
withdrawal rate for each participating institution, and the Department would
verify a sample of eligible career pathway programs offered by participating
institutions to verify compliance with the proposed definition under § 668.2.
This would increase costs to the State and participating institutions. The
increased administrative costs associated with the new outcome metric would be
minimal because a participating institution would already know how to calculate
the withdrawal rate as it is already required under Administrative Capability
regulations. These costs are also worthwhile because they allow for the added
benefit that the State could remove poorer performing institutions from its
application.
The increase in program eligibility costs associated with the eligible career
pathway verification process would be minimal because schools are already
required to meet to the definition of an eligible career pathway program under
the HEA.
The Department is also proposing to place additional reporting requirements on
States, including information on the demographics of students. This would
increase administrative burden costs to the State and participating
institutions. There is a lack of data about ability to benefit and eligible
career pathway programs, and the new reporting the Department would be able to
analyze the data and may be able to report trends publicly.
Proposed § 668.157 prescribes the minimum documentation requirements that all
eligible career pathway programs would have to meet in the event of an audit,
program review, or review and approval by the Department. Currently the
Department does not approve eligible career pathway programs, therefore, the
proposed regulation would increase costs to any postsecondary institutions that
provide an eligible career pathway program. For example, proposed
§ 668.157(a)(2) would require a government report demonstrate that the eligible
career pathway program aligns with the skill needs of industries in the State or
regional labor market. Therefore, if no such report exists the program would not
be title IV, HEA eligible. Further, under proposed § 668.157(b) the Department
would approve every eligible career pathway program for postsecondary
institutions that admit students under the six credit and ATB test options. We
believe that benefits of the new documentation standards outweigh their costs
because the proposed regulations would increase program integrity and oversight
and could stop title IV, HEA aid from subsidizing programs that do not meet the
statutory definition.
Institutions currently use their best faith to comply with the statute which
means there are likely many different interpretations of the HEA. These proposed
regulations would set clear expectations and standardize the rules.
Elsewhere in this section under the Paperwork Reduction Act of 1995, we identify
and explain burdens specifically associated with information collection
requirements.
5. METHODOLOGY FOR BUDGET IMPACT AND ESTIMATES OF COSTS, BENEFITS, AND TRANSFERS
In this section we describe the methodology used to estimate the budget impact
as well as the main costs, benefits, and transfers. Our modeling and impact only
include the Financial Value Transparency and GE parts of the proposed rule. We
do not include separate estimates for Financial Responsibility, Administrative
Capability, Certification Procedures, or ATB because we anticipate these to have
negligible impact on the budget in our primary scenario. We do, however, include
a sensitivity analysis for Financial Responsibility.
The main behaviors that drive the direction and magnitudes of the budget impacts
of the proposed rule and the quantified costs, benefits, and transfers are the
performance of programs and the enrollment and borrowing decisions of students.
The Department developed a model based on assumptions regarding enrollment,
program performance, student response to program performance, and average amount
of title IV, HEA funds per student to estimate the budget impact of these
proposed regulations. Additional assumptions about the earnings outcomes and
instructional spending associated with program enrollment and tax revenue from
additional earnings were used to quantify costs, benefits, and transfers. The
model (1) takes into account a program's past results under the D/E and EP rates
measure to predict future results, and (2) tracks a GE program's cumulative
results across multiple cycles of results to determine title IV, HEA
eligibility.
ASSUMPTIONS
We made assumptions in four areas in order to estimate the budget impact of the
proposed regulations: (1) Program performance under the proposed regulations;
(2) Student behavior in response to program performance; (3) Borrowing of
students under the proposed regulation; and (4) Enrollment growth of students in
GE and non-GE programs. Table 5.1 below provides an overview of the main
categories of assumptions and the sources. Assumptions that are included in our
sensitivity analysis are also highlighted. Wherever possible, our assumptions
are based on past performance and student enrollment patterns in data maintained
by the Department or documented by scholars in prior research. Additional
assumptions needed to quantify costs, Start Printed Page 32454 benefits, and
transfers are described later when we describe the methodology for those
calculations.
Expand Table
Table 5.1—Main Assumptions and Sources
CategoryDetailSourceIncluded in sensitivity?Assumptions for Budget Impact and
Calculation of Costs, Benefits, and TransfersProgram Performance at
BaselineShare in each performance category at baseline (GE and non-GE
programs)ED dataNo.Enrollment GrowthAnnual enrollment growth rate by
sector/level and yearSector-level projections based on Department dataNo.Program
transition between performance categoriesAY2025–26, AY2026–27 onward, separately
by loan risk group and for GE and non-GE programsBased on Department data +
program improvement assumptionsYes.Student responseShare of students who remain
in programs, transfer to passing programs, or withdraw or decline to enroll by
program performance category and transfer group; separately for GE and non-GE
programsAssumptions from 2014 RIA and prior workYes.Student borrowingDebt
changes if students transfer to passing program by program performance, risk
group, and cohort; separately for GE and non-GE programsBased on Department
dataNo.Additional Assumptions for Calculation of Costs, Benefits, and
TransfersEarnings gainAverage program earnings by risk group and program
performance, separately for GE and non-GE programsBased on Department
dataYes.Tax ratesFederal and State average marginal tax and transfer
ratesHendren and Sprung-Keyser 2020 estimates based on CBONo.Instructional
costAverage institution-level instructional expenditure by risk group and
program performance; separately for GE and non-GE programsIPEDSNo.
ENROLLMENT GROWTH ASSUMPTIONS
For AYs 2023 to 2034, the budget model assumes a constant yearly rate of growth
or decline in enrollment of students receiving title IV, HEA program funds in GE
and non-GE programs in absence of the rule.[266] We compute the average annual
rate of change in title IV, HEA enrollment from AY 2016 to AY 2022, separately
by the combination of control and credential level. We assume this rate of
growth for each type of program for AYs 2023 to 2034 when constructing our
baseline enrollment projections.[267] Table 5.2 below reports the assumed
average annual percent change in title IV, HEA enrollment.
Expand Table
Table 5.2—Annual Enrollment Growth Rate (Percent) Assumptions
PublicPrivate, non-profitProprietaryUG
Certificates−2.6−6.94.1Associate's−3.7−3.9−3.7Bachelor's−0.5−0.8−2.7Post-BA
Certs4.2−2.3−0.4Master's3.00.5−1.1Doctoral4.93.1−1.7Professional0.9−0.1−0.4Grad
Certs1.22.0−0.8
PROGRAM PERFORMANCE TRANSITION ASSUMPTIONS
The methodology, described in more detail below, models title IV, HEA enrollment
over time not for specific programs, but rather by groupings of programs by
broad credential level and control, the number of alternative programs
available, whether the program is GE or non-GE, and whether the program passes
or fails the D/E and EP metrics. The model estimates the flow of students
between these groups due to changes in program performance over time and
reflects assumptions for the share of enrollment that would transition between
the following four performance categories in each year:
* Passing (includes with and without data)
* Failing D/E rate only
* Failing EP rate only
* Failing both D/E and EP rates
A GE program becomes ineligible if it fails either the D/E or EP rate measures
in two out of three consecutive years. We assume that ineligible programs remain
that way for all future years and, therefore, do not model performance
transitions after ineligibility is reached. The model applies different
assumptions for the first year of transition (from year 2025 to 2026) and
subsequent years (after 2026). It assumes that the rates of program transition
reach a steady state in 2027. We assume modest improvement in performance,
indicated by a reduction in the rate of failing and an increase in the rate of
passing, among programs that fail one of the metrics, and an increase in the
rate of passing again, among GE programs that pass the metrics. All transition
probabilities are estimated separately for GE and non-GE programs and for four
Start Printed Page 32455 aggregate groups: proprietary 2-year or less; public or
non-profit 2-year or less; 4-year programs; graduate programs.[268]
The assumptions for the 2025 to 2026 transition are taken directly from an
observed comparison of actual rates results for two consecutive cohorts of
students. The initial assignment of performance categories in 2025 is based on
the 2022 PPD for students who completed programs in award years 2015 and 2016,
whose earnings are measured in calendar years 2018 and 2019. The program
transition assumptions for 2025 to 2026 are based on the outcomes for this
cohort of students along with the earnings outcomes of students who completed
programs in award years 2016 and 2017 (earnings measured in calendar years 2019
and 2020) and debt of students who completed programs in award years 2017 and
2018. A new set of D/E and EP metrics was computed for each program using this
additional two-year cohort. Programs with fewer than 30 completers or with fewer
than 30 completers with earnings records are determined to be passing, though
can transition out of this category between years. The share of enrollment that
transitions from each performance category to another is computed separately for
each group.[269]
The left panels of Tables 5.3 and Table 5.4 report the program transition
assumptions from 2025 to 2026 for non-GE and GE programs, respectively. Program
performance for non-GE is quite stable, with 95.8 percent of passing enrollment
in two-year or less public and non-profit expected to remain in passing
programs. Persistence rates are even higher among 4-year and graduate programs.
Among programs that fail the EP threshold, a relatively high share—more than
one-third among 2-year and less programs—would be at passing programs in a
subsequent year. The performance of GE programs is only slightly less persistent
than that of non-GE programs. Note that GE programs would become ineligible for
title IV, HEA funds the following year if they fail the same metric two years in
a row. Among enrollment in less than two-year proprietary programs that fail the
EP metric in 2025, 21.7 percent would pass in 2026 due to a combination of
passing with data and no data.
The observed results also serve as the baseline for each subsequent transition
of results (2026 to 2027, 2027 to 2028, etc.). The model applies additional
assumptions from this baseline for each transition beginning with 2026 to 2027.
Because the baseline assumptions are the actual observed results of programs
based on a cohort of students that completed programs prior to the Department's
GE rulemaking efforts, these transition assumptions do not account for changes
that institutions have made to their programs in response to the Department's
regulatory actions or would make after the final regulations are published.
As done with analysis of the 2014 rule, the Department assumes that institutions
at risk of warning or sanction would take at least some steps to improve program
performance by improving program quality, job placement, and lowering prices
(leading to lower levels of debt), beginning with the 2026 to 2027 transition.
There is evidence that institutions have responded to past GE measures by aiming
to improve outcomes or redirecting enrollment from low-performing programs.
Institutions subject to GE regulations have experienced slower enrollment and
those that pass GE thresholds tend to have a lower likelihood of program or
institution closure.[270] Some leaders of institutions subject to GE regulation
in 2014 did make improvements, such as lowering costs, increasing job placement
and academic support staff, and other changes.[271] We account for this by
increasing the baseline observed probability of having a passing result by five
percentage points for programs with at least one failing metric in 2026.
Additionally, we improve the baseline observed probability of passing GE
programs having a sequential passing result by two and a half percentage points
to capture the incentive that currently passing programs have to remain that
way. These new rates are shown in the right panels of Tables 5.3 and 5.4.
We assume the same rates of transition between performance categories for
subsequent years as we do for the 2026 to 2027 transitions.
Since the budget impact and net costs, benefits, and transfers depend on
assumptions about institutional performance after the rule is enacted, we
incorporate alternative assumptions about these transitions in our sensitivity
analysis.
Expand Table
Table 5.3—Program Transition Assumptions Non-GE Programs
Percent in year t+1 status (2026)Percent in year t+1 status (2027–2033)PassFail
D/E onlyFail EP onlyFail bothPassFail D/E onlyFail EP onlyFail bothPublic and
Non-Profit 2-year or lessYear t Status:Pass95.80.04.10.195.80.04.10.1Fail D/E
only9.886.00.04.214.881.00.04.2Fail EP only37.80.062.00.142.80.057.00.1Fail
Both21.75.23.269.926.75.23.264.94-yearYear t
Status:Pass99.00.30.50.299.00.30.50.2Fail D/E
only26.966.10.07.031.961.10.07.0Fail EP only36.80.058.74.641.80.053.74.6Start
Printed Page 32456Fail Both22.510.67.059.827.510.67.054.8GraduateYear t
Status:Pass98.41.50.00.098.41.50.00.0Fail D/E
only20.278.70.01.125.273.70.01.1Fail EP only75.60.024.40.080.60.019.40.0Fail
Both21.538.80.039.726.538.80.034.7
Expand Table
Table 5.4—Program Transition Assumptions GE Programs
Share in year t+1 status (2026)Share in year t+1 status (2027–2033)PassFail D/E
onlyFail EP onlyFail bothPassFail D/E onlyFail EP onlyFail bothProprietary
2-year or lessYear t Status:Pass93.40.65.80.195.90.43.60.1Fail D/E
only10.082.10.07.915.077.10.07.9Fail EP only21.70.077.80.626.70.072.80.6Fail
Both10.05.56.977.615.05.56.972.6Public and Non-Profit 2-year or lessYear t
Status:Pass92.40.56.20.994.90.44.20.6Fail D/E
only14.031.20.054.819.026.20.054.8Fail EP only38.80.057.63.643.80.052.63.6Fail
Both34.81.52.561.239.81.52.556.24-yearYear t
Status:Pass94.64.80.20.497.12.60.10.2Fail D/E
only18.672.50.08.923.667.50.08.9Fail EP only14.00.086.00.019.00.081.00.0Fail
Both5.137.80.057.010.137.80.052.0GraduateYear t
Status:Pass97.32.60.00.199.80.20.00.0Fail D/E
only15.183.00.01.920.178.00.01.9Fail EP only100.00.00.00.0100.00.00.00.0Fail
Both8.737.40.053.913.737.40.048.9
STUDENT RESPONSE ASSUMPTIONS
The Department's model applies assumptions for the probability that a current or
potential student would transfer or choose a different program, remain in or
choose the same program, or withdraw from or not enroll in any postsecondary
program in reaction to a program's performance. The model assumes that student
response would be greater when a program becomes ineligible for title IV, HEA
aid than when a program has a single year of inadequate performance, which
initiates warnings and the acknowledgment requirement for GE programs, an
acknowledgement requirement non-GE programs that fail D/E, and publicly reported
performance information in the ED portal for both GE and non-GE programs. We
also let the rates of transfer and withdrawal or non-enrollment differ with the
number of alternative transfer options available to students enrolled (or
planning to enroll) in a failing program. Specifically, building on the analysis
presented in “Measuring Students' Alternative Options” above, we categorize
individual programs into one of four categories:
* High transfer options: Have at least one passing program in the same
credential level at the same institution and in a related field (as indicated
by being in the same 2-digit CIP code).
* Medium transfer options: Have a passing transfer option within the same ZIP3,
credential level, and narrow field (4-digit CIP code).
* Low transfer options: Have a passing transfer option within the same ZIP3,
credential level, and broad (2-digit) CIP code.
* Few transfer options: Do not have a passing transfer option within the same
ZIP3, credential level, and broad (2-digit) CIP code. Students in these
programs would be required to enroll in either a distance education program
or enroll outside their ZIP3. As shown in “Measuring Students' Alternative
Options,” all failing programs have at least one non-failing program in the
same credential level and 2-digit CIP code in the same State.
For each of the four categories above, we make assumptions for each type of
student transition. Programs with Start Printed Page 32457 passing metrics are
assumed to retain all of their students.
Students that transfer are assumed to transfer to passing programs, and for the
purposes of the budget simulation this includes programs with an insufficient
n-size. We assume that rates of withdrawal (or non-enrollment) and transfer are
higher for ineligible programs than those where only the warning/acknowledgment
is required (GE programs with one year of a failing metric and non-GE programs
with a failing D/E metric). We also assume that rates of transfer are weakly
decreasing (and rates of dropout and remaining in program are both weakly
increasing) as programs have fewer transfer options. These assumptions regarding
student responses to program results are provided in Table 5.5 and Table 5.6.
Coupled with the scenarios presented in the “Sensitivity Analysis,” these
assumptions are intended to provide a reasonable estimation of the range of
impact that the proposed regulations could have on the budget and overall social
costs, benefits, and transfers.
The assumptions above are based on our best judgment and from extant research
that we view as reasonable guides to the share of students likely to transfer to
or choose another program when their program loses title IV, HEA eligibility.
For instance, a 2021 GAO report found that about half of non-completing students
who were at closed institutions transferred.[272] This magnitude is similar to
recent analysis that found that 47 percent of students reenrolled after an
institutional closure.[273] The authors of this report find very little movement
from public or non-profit institutions into for-profit institutions, but
considerable movement in the other direction. For example, about half of
re-enrollees at closed for-profit 2-year institutions moved to public 2-year
institutions, whereas less than 3% of re-enrollees at closed public and private
non-profit 4-year institutions moved to for-profit institutions. Other evidence
from historical cohort default rate sanctions indicates a transfer rate of about
half of students at for-profit colleges that were subject to loss of federal
financial aid disbursement eligibility, with much of that shift to public
two-year institutions.[274] The Department also conducted its own internal
analysis of ITT Technical Institute closures. About half of students subject to
the closure re-enrolled elsewhere (relative to pre-closure patterns). The
majority of students that re-enrolled did so in the same two-digit CIP code. Of
Associate's degree students that re-enrolled, 45% transferred to a public
institution, 41% transferred to a different for-profit institution, and 13%
transferred to a private non-profit institution. Most remained in Associate's or
certificate programs. Of Bachelor's degree students that re-enrolled, 54%
transferred to a different for-profit institution, 25% shifted to a public
institution, and 21% transferred to a private non-profit institution.
Data from the Beginning Postsecondary Students Longitudinal 2012/2017 study
provides further information on students' general patterns through and across
postsecondary institutions (not specific to responses to sanctions or closures).
Of students that started at a public or private non-profit 4-year institution,
about 3 percent shifted to a for-profit institution within 5 years. Of those
that began at a public or private non-profit 2-year institution, about 8 percent
shifted to a for-profit institution within 5 years.
Expand Table
Table 5.5—Student Response Assumptions, by Program Result and Number of
Alternative Program Options Available
Program result →PassFail onceIneligibleStudent response
→RemainTransferWithdrawal/ non- enrollmentRemainTransferWithdrawal/ non-
enrollmentRemainTransferWithdrawal/ non- enrollmentGE:High
Alternatives1.000.000.000.400.450.150.200.600.20Medium
Alternatives1.000.000.000.450.350.200.200.550.25Low
Alternatives1.000.000.000.500.300.200.250.450.30Few
Alternatives1.000.000.000.550.250.200.250.350.40Non-GE:High
Alternatives1.000.000.000.800.200.00nananaMedium
Alternatives1.000.000.000.850.150.00nananaLow
Alternatives1.000.000.000.900.100.00nananaFew
Alternatives1.000.000.000.950.050.00nanana
In Table 5.6, we provide detail of the assumptions of the destinations among
students who transfer, separately for the following groups: [275]
* Risk 1 (Proprietary =2 year)
* Risk 2 (Public, NonProfit =2 year)
* Risk 3 (Lower division 4 year)
* Risk 4 (Upper division 4 year)
* Risk 5 (Graduate)
Expand Table
Table 5.6—Student Response Assumptions, Among Transferring Students, Share
Shifting Sectors
Shift to GE programsShift to non-GE programsShift from . . .Risk 1Risk 2Risk
3Risk 4Risk 5Risk 2Risk 3Risk 4Risk 5GE:Risk
10.500.300.100.000.000.100.000.000.00Risk
20.300.500.100.000.000.100.000.000.00Risk
30.000.000.800.000.000.000.200.000.00Risk
40.000.000.000.800.000.000.000.200.00Start Printed Page 32458Risk
50.000.000.000.000.800.000.000.000.20Non-GE:Risk
20.050.050.000.000.000.700.200.000.00Risk
30.000.000.050.000.000.050.900.000.00Risk
40.000.000.000.050.000.000.000.950.00Risk 50.000.000.000.000.050.000.000.000.95
As we describe below, the assumptions for student responses are applied to the
estimated enrollment in each aggregate group after factoring in enrollment
growth.
STUDENT BORROWING ASSUMPTIONS
Analyses in the Regulatory Impact Analysis of the 2014 Prior Rule assumed that
student debt was unchanged if students transferred from failing to passing
programs, but we believe this assumption to be too conservative given that one
goal of the GE rule is to reduce the debt burden of students. Recall that tables
3.29 and 3.30 above reported the percent difference in mean debt between failing
GE and non-GE programs and their transfer options, by credential level and
2-digit CIP code. Across all subjects and credential levels, debt is 22 percent
lower at alternative programs than at failing GE programs. At non-GE programs,
there is no aggregate debt difference between failing programs and their
alternatives, though this masks heterogeneity across credential levels. For
graduate degree programs, movement to alternative programs from failing programs
is associated with lower debt levels while movement from failing to passing
Associate's programs is associated with an increase in debt. Students that drop
out of (or decline to enroll in) failing programs are assumed to acquire no
educational debt.
To incorporate changes in average loan volume associated with student
transitions, we compute average subsidized and unsubsidized direct loan, Grad
PLUS, and Parent PLUS per enrollment separately for GE and non-GE programs by
risk group and program performance group. These averages are then applied to
shifts in enrollment to generate changes in the amount of aid.
METHODOLOGY FOR NET BUDGET IMPACT
The budget model estimates a yearly enrollment for AYs 2023 to 2034 and the
distribution of those enrollments in programs characterized by D/E and EP
performance, risk group, transfer category, and whether it is a GE program. This
enrollment is projected for a baseline (in absence of the proposed rule) and
under the proposed policy. The net budget impact for each year is calculated by
applying assumptions regarding the average amount of title IV, HEA program funds
received by this distribution of enrollments across groups of programs. The
difference in these two scenarios provides the Department's estimate of the
impact of the proposed policy. We do not simulate the impact on the rule at the
individual program level because doing so would necessitate very specific
assumptions about which programs' students transfer to in response to the
regulations. While we made such assumptions in the “Measuring Students'
Alternatives” section above, we do not think it is analytically tractable to do
for all years. Therefore, for the purposes of budget modeling, we perform
analysis with aggregations of programs into groups defined by the
following: [276]
• Five student loan model risk groups: (1) 2-year (and below) for-profit; (2)
2-year (and below) public or non-profit; (3) 4-year (any control) lower
division, which is students in their first two years of a Bachelor's program;
(4) 4-year (any control) upper division, which is students beyond their first
two years of a Bachelor's program; (5) Graduate student (any control).277
* Four transfer categories (high, medium, low, few alternatives) by which the
student transfer rates are assumed to differ. This is a program-level
characteristic that is assumed not to change.
* Two GE program categories (GE and eligible non-GE) by which the program
transitions are assumed to differ.
* Six performance categories: Pass, Fail D/E, Fail EP, Fail Both,
Pre-ineligible (a program's current enrollment is Title IV, HEA eligible, but
next year's enrollment would not be), Ineligible (current enrollment is not
Title IV, HEA eligible).
We refer to groups defined by these characteristics as “program aggregate”
groups.
We first generate a projected baseline (in absence of the proposed rule)
enrollment, Pell volume, and loan volume for each of the program aggregate
groups from 2023 to 2033. This baseline projection includes several steps.
First, we compute average annual growth rate for each control by credential
level from 2016 to 2022. These growth rates are presented in Table 5.5. We then
apply these annual growth rates to the actual enrollment by program in 2022 to
forecast enrollment in each program in 2023. This step is repeated for each year
to get projected enrollment by program through 2033. We then compute average
Pell, subsidized and unsubsidized direct loan, Grad PLUS, and Parent PLUS per
enrollment by risk group, program performance group, and GE vs. non-GE for 2022.
These averages are then adjusted according to the PB2024 loan volume and Pell
Grant baseline assumptions for the change in average loan by loan type and the
change in average Pell Grant. We then multiply the projected enrollment for each
program by these average aid amounts to get projected total aid volume by
program through 2033. Finally, we sum the enrollment and aid amounts across
programs for each year to get enrollment and aid volume by program aggregate
group, 2023 to 2033.
The most significant task is to generate projected enrollment, Pell volume, and
loan volume for each of the program aggregate groups from 2023 to 2033 with the
rule in place. We assume the first set of rates would be released in 2025 award
year, so this is starting year for our projections. Projecting counterfactual
enrollment and aid volumes involves several steps:
Step 1: Start with the enrollment by program aggregate group in 2025. In this
first year there are no programs that are ineligible for Title IV, HEA funding.
Step 2: Apply the student transition assumptions to the enrollment by Start
Printed Page 32459 program aggregate group. This generates estimates of the
enrollment that is expected to remain enrolled in the program aggregate group,
the enrollment that is expected to drop out of postsecondary enrollment, and the
enrollment that is expected to transfer to a different program aggregate group.
Step 3: Compute new estimated enrollment for the start of 2026 (before the
second program performance is revealed) for each cell by adding the remaining
enrollment to the enrollment that is expected to transfer into that group. We
assume that (1) students transfer from failing or ineligible programs to passing
programs in the same transfer group and GE program group; (2) Students in risk
groups 3 (lower division 4-year), 4 (upper division 4-year college) or 5
(graduate) stay in those risk groups; (3) Students in risk group 1 can shift to
risk groups 2 or 3; (4) Students in risk group 2 can shift to risk groups 1 or
3. Therefore, we permit enrollment to shift between proprietary and public or
non-profit certificate programs and from certificate and Associate's programs to
lower-division Bachelor's programs. We also allow enrollment to shift between GE
and non-GE program, based on the assumptions listed in Table 5.6.
Step 4: Determine the change in aggregate baseline enrollment between 2025 and
2026 for each risk group and allocate these additional enrollments to each
program aggregate group in proportion to the group enrollment computed in Step
3.
Step 5: Apply the program transition assumptions to the aggregate group
enrollment from Step 4. This results in estimates of the enrollment that would
stay within or shift from each performance category to another performance
category in the next year. This mapping would differ for GE and non-GE programs
and by risk group, as reported in Table 5.3 and 5.4 above. For non-GE programs,
every performance category can shift enrollment to every performance category.
For GE programs, however, enrollment in each failure category would not remain
in the same category because if a metric is failed twice, this enrollment would
move to pre-ineligibility. The possible program transitions for GE programs are:
* Pass → Pass, Fail D/E, Fail EP, Fail Both
* Fail D/E → Pass, Fail EP, Pre-Ineligible
* Fail EP → Pass, Fail D/E, Pre-Ineligible
* Fail Both → Pass, Pre-Ineligible
Step 6: Compute new estimated enrollment at end of 2026 (after program
performance is revealed) for each program aggregate group by adding the number
that stay in the same performance category plus the number that shift from other
performance categories.
Step 7: Repeat steps 1 to 6 above using the end of 2026 enrollment by group as
the starting point for 2027 and repeat through 2034. The only addition is that
in Step 5, two more program transitions are possible for GE programs:
Pre-Ineligible moves to Ineligible and Ineligible remains Ineligible.
Step 8: Generate projected Pell and loan volume by program aggregate group from
AY 2023 to 2034 under the proposed rule. We multiply the projected enrollment by
group by average aid amounts (Pell and loan volume) to get projected total aid
amounts by group through 2034. Any enrollment that has dropped out (not enrolled
in postsecondary) or in the ineligible category get zero Pell and loan amounts.
Note that the average aid amounts by cell come from the PB projections, so are
allowed to vary over time.
Step 9: Shift Pell and loan volume under the proposed rule from AYs 2025 to 2034
to FYs 2025 to 2033 for calculating budget cost estimates.
A net savings for the title IV, HEA programs comes through four mechanisms. The
primary source is from students who drop out of postsecondary education in the
year after their program receives a failing D/E or EP rate or becomes
ineligible. The second is for the smaller number of students who remain enrolled
at a program that becomes ineligible for title IV, HEA program funds. Third, we
assume a budget impact on the title IV, HEA programs from students who transfer
from programs that are failing to better-performing programs because the typical
aid levels differ between programs according to risk group and program
performance. For instance, subsidized direct loan borrowing is 24 percent less
($2044 vs. $1547) for students at GE programs failing the D/E metric in risk
group 1 than in passing programs in the same risk group in 2026.
Finally, consistent with the requirements of the Credit Reform Act of 1990,
budget cost estimates for the title IV, HEA programs also reflect the estimated
net present value of all future non-administrative Federal costs associated with
a cohort of loans. To determine the estimated budget impact from reduced loan
volume, the difference in yearly loan volumes between the baseline and policy
scenarios were calculated as a percent of baseline scenario volumes. This
generated an adjustment factor that was applied to loan volumes in the Student
Loan Model (SLM) for each cohort, loan type, and risk group combination in the
President's Budget for FY2024 (PB2024). The reduced loan volumes are also
expected to result in some decrease in future consolidations which is also
captured in the model run. Since the implied subsidy rate for each loan type
differs by risk group, enrollment shifts to risk groups with greater expected
repayment would generate a net budget savings. Since our analysis does not
incorporate differences in subsidy rates between programs in the same risk
group, such as between programs passing and failing the D/E or EP metrics, these
estimates potentially understate the increase in expected repayment resulting
from the proposed regulations.
METHODOLOGY FOR COSTS, BENEFITS, AND TRANSFERS
The estimated enrollment in each aggregate program group is used to quantify the
costs, benefits, and transfers resulting from the proposed regulations for each
year from 2023 to 2033. As described in the Discussion of Costs, Benefits, and
Transfers, we quantify an earnings gain for students from attending higher
financial value programs and the additional tax revenue that comes from that
additional earnings. We quantify the cost associated with additional
instructional expenses to educate students who shift to different types of
programs and the transfer of instructional expenses as students shift programs.
We also estimate the transfer of title IV, HEA program funds from programs that
lose students to programs that gain students.
EARNINGS GAIN BENEFIT
A major goal of greater transparency and accountability is to shift students
towards higher financial value programs—those with greater earnings potential,
lower debt, or both. To quantify the earnings gain associated with the proposed
regulation, we estimate the aggregate annual earnings of would-be program
graduates under the baseline and policy scenarios and take the difference. For
each risk group and program performance group, we compute the
enrollment-weighted average of median program earnings. Average earnings for
programs that have become ineligible is assumed to be the average of median
earnings for programs in the three failing categories, weighted by the
enrollment share in these categories. This captures, for instance, that the
earnings of 2-year programs that Start Printed Page 32460 become ineligible are
quite lower than those that enroll graduate students. Since we have simulated
enrollment, but not completion, annual program enrollment is converted into
annual program completions by applying a ratio that differs for 2-year programs
or less, Bachelor's degree programs, or graduate programs.[278] Earnings for
students that do not complete are not available and thus not included in our
calculations. Students that drop out of failing programs (or decline to enroll
altogether) are assumed to receive earnings equal to the median earnings of high
school graduates in the State (the same measure used for the Earnings
Threshold). Therefore, earnings could increase for this group if students reduce
enrollment in programs leading to earnings less than a high school graduate. We
estimate aggregate earnings by program group by multiplying enrollment by
average earnings, reported in Table 5.7, and the completion ratio.
Expand Table
Table 5.7—Average Program Earnings by Group
[$2019]
PassFall D/EFail EP onlyFail bothIneligibleGE ProgramsProprietary 2yr or
less38,14728,67318,95018,49820,408Public/NP 2yr or
less37,23530,23419,90418,40019,789Bachelor
Lower51,09631,1605,14723,49130,427Bachelor
Upper51,09631,1605,14723,49130,427Graduate66,84847,52315,89119,97246,056Non-GE
ProgramsPublic/NP 2yr or less36,47329,62623,50219,071N/ABachelor
Lower47,60228,72319,81320,729N/ABachelor
Upper47,60228,72319,81320,729N/AGraduate74,63155,65419,76522,747N/A
Students experience earnings gain each year they work following program
completion. We compute the earnings benefit over the analysis window by giving
2026 completers 7 years of earnings gains, 2027 completers 6 years of earnings
gains, and so on. The earnings gain of students that graduate during 2033 are
only measured for one year. In reality program graduates would experience an
earnings gain annually over their entire working career; our estimates likely
understate the total likely earnings benefit of the policy.
However, our approach can overstate the earnings gain of students that shift
programs if students experience a smaller earnings gain than the average
difference between passing and failing programs within each GE-by-risk group in
Table 5.7. To account for this, we apply an additional adjustment factor to the
aggregate earnings difference to quantify how much of the earnings difference is
accounted for by programs.
There is not consensus in the research literature on the magnitude of this
parameter, with some studies finding very large impacts of specific programs or
institutions on earnings [279] and others finding smaller impacts.[280]
Unfortunately, many of these studies are set in specific contexts ( e.g., only
public four-year universities in one state) and most look at institutions
overall rather than programs, which may not extrapolate to our setting given the
large outcome variation across programs in the same institution.
To select the value used for this adjustment factor, we compared the average
earnings difference between passing and failing programs (conditional on
credential level) before versus after controlling for the rich demographic
characteristics described in “Student Demographic Analysis.” We find that this
conditional earnings difference declined by approximately 25 percent after
controlling for the share of students in each race/ethnic category, the share of
students that are male, independent, first-generation, and a Pell recipient, and
the average family income of students.[281] Our primary estimates thus adjust
the raw earnings difference in Table 5.7 down using an adjustment factor of 75
percent.
Given the uncertainty around the proper adjustment factor to use, we include a
range of values in the sensitivity analysis. We seek public comment as to how
best to craft any further assumptions of the earnings benefits of the Financial
Value Transparency and Gainful Employment components of the proposed rule.
In the analysis of alternative options above, we showed the expected change in
earnings for students that transfer from failing programs for each
credential-level by 2-digit CIP code. Across all credential levels, students
that shift from failing GE programs were expected to increase annual earnings by
44 percent and those transferring from failing non-GE programs were expected to
increase annual earnings by 22 percent. These estimates are in line with those
from Table 5.7 and used in the benefit impact. Start Printed Page 32461
FISCAL EXTERNALITY BENEFIT
The increased earnings of program graduates would generate additional Federal
and State tax revenue and reductions in transfer program expenditure. To the
earnings gain, we multiply an average marginal tax and transfer rate of 18.6
percent to estimate the fiscal benefit. This rate was computed in Hendren and
Sprung-Keyser (2020) specifically to estimate the fiscal externality of earnings
gains stemming from improvement in college quality, so it is appropriate for use
in our setting.[282] The rate is derived from 2016 CBO estimates and includes
Federal and State income taxes and transfers from the Supplemental Nutrition
Assistance Program (SNAP) but excludes payroll taxes, housing vouchers, and
other safety-net programs. Note that this benefit is not included in our budget
impact estimates.
INSTRUCTIONAL SPENDING COST AND TRANSFER
To determine the additional cost of educating students that shift from one type
of program to another or the cost savings from students who chose not to enroll,
we estimate the aggregate annual instructional spending under the baseline and
policy scenarios and take the difference. We used the instructional expense per
FTE enrollee data from IPEDS to calculate the enrollment-weighted average
institutional-level instructional expense per FTE student for programs by risk
group and performance result, separately for GE programs and non-GE programs.
Average spending for programs that have become ineligible is assumed to be the
average of the three failing categories, weighted by the enrollment share in
these categories. These estimates are reported in Table 5.8. We estimate
aggregate spending by program group by multiplying enrollment from 2023 through
2033 by average spending.
Expand Table
Table 5.8—Average Instructional Cost per FTE by Group
PassFall D/EFail EP onlyFail bothIneligibleGE Programs:Proprietary 2yr or
less4,3923,0384,3473,9574,045Public/NP 2yr or
less7,3345,8594,9563,6814,838Bachelor Lower3,6712,6678443,3962,721Bachelor
Upper3,6712,6678443,3962,721Graduate5,3093,8961,8375,1513,959Non-GE
Programs:Public/NP 2yr or less6,4115,1975,9404,357N/ABachelor
Lower11,2747,4678,57211,419N/ABachelor
Upper11,2747,4678,57211,419N/AGraduate15,69615,8747,52824,355N/A
Note that since we are using institution-level rather than program-level
spending, this will not fully capture spending differences between undergraduate
and graduate enrollment, between upper and lower division, and across field of
study.[283]
To calculate the transfer of instructional expenses from failing to passing
programs, we multiply the average instructional expense per enrollee shown in
5.7 by the estimated number of annual student transfers for 2023 to 2033 from
each risk group and failing category.
STUDENT AID TRANSFERS
To calculate the amounts of student aid that could transfer with students each
year, we multiply the estimated number of students receiving title IV, HEA
program funds transferring from ineligible or failing GE and non-GE programs to
passing programs in each risk category each year by the average Pell Grant,
Stafford subsidized loan, unsubsidized loan, PLUS loan, and GRAD PLUS loan per
enrollment in the same categories.
To annualize the amount of benefits, costs, and title IV, HEA program fund
transfers from 2023 to 2033, we calculate the net present value (NPV) of the
yearly amounts using a discount rate of 3 percent and a discount rate of 7
percent and annualize it over 10 years.
6. NET BUDGET IMPACTS
These proposed regulations are estimated to have a net Federal budget impact of
$−12.6 billion, consisting of $−8.6 billion in reduced Pell Grants and $−4.1
billion for loan cohorts 2024 to 2033.[284] A cohort reflects all loans
originated in a given fiscal year. Consistent with the requirements of the
Credit Reform Act of 1990, budget cost estimates for the student loan programs
reflect the estimated net present value of all future non-administrative Federal
costs associated with a cohort of loans. The baseline for estimating the cost of
these final regulations is the President's Budget for 2024 (PB2024) as modified
for the proposed changes to the REPAYE plan published in the NPRM dated January
10, 2023. The GE and Financial Transparency provisions are responsible for the
estimated net budget impact of the proposed regulations, as described below. The
other provisions are considered in the Other Provisions section of this Net
Budget Impact topic.
GAINFUL EMPLOYMENT AND FINANCIAL TRANSPARENCY
The proposed regulations are estimated to shift enrollment towards programs with
lower debt-to-earnings or higher median earnings or both, and away from programs
that fail either of the two performance metrics. The vast majority of students
are assumed to resume their education at the same or another program in the
event they are warned about poor program performance or if their program loses
eligibility. The proposed regulations are Start Printed Page 32462 also
estimated to reduce overall enrollment, as some students decide to not enroll.
Table 6.1 summarize the main enrollment results for non-GE programs. Enrollment
in non-GE programs is expected to increase by about 0.3 percent relative to
baseline over the budget period. There is a modest enrollment shift towards
programs that pass both metrics, with a particularly large (proportionate)
reduction in the share of enrollment in programs that fail D/E. By the end of
the analysis window, 96.5 percent of enrollment is expected to be in passing
programs.
Expand Table
Table 6.1—Primary Enrollment Estimate (Non-GE Programs)
202520262027202820292030203120322033Total Aggregate Enrollment
(millions)Baseline14.11913.97413.83913.71013.58813.47213.36413.26513.170Policy14.11914.00113.88513.76613.64613.53013.41813.31113.209Percent
of Enrollment by Program
PerformancePass:Baseline95.695.695.695.695.795.795.795.895.8Policy95.695.796.096.296.396.496.496.596.5Fail
D/E:Baseline1.81.81.81.91.91.91.92.02.0Policy1.81.71.51.41.41.31.31.31.4Fail
EP:Baseline2.12.12.02.01.91.91.81.81.8Policy2.12.22.12.02.01.91.91.81.8Fail
Both:Baseline0.50.50.50.50.50.50.50.50.5Policy0.50.50.40.40.40.40.40.40.4
Table 6.2 reports comparable estimates for GE programs. Note that for GE
programs we estimate enrollment in two additional categories: Pre-Ineligible,
i.e., programs that would be ineligible for title IV, HEA aid the following
year; and Ineligible. Enrollment in GE programs is projected to decline by 8
percent relative to baseline, with the largest marginal decline in the first
year programs become ineligible. There is a large enrollment shift towards
programs that pass both metrics, with a particularly large reduction in the
share of enrollment in programs that fail EP. By the end of the analysis window,
95.1 percent of enrollment is expected to be in passing programs, compared to
72.2 percent in the baseline scenario.
Expand Table
Table 6.2—Primary Enrollment Estimate (GE Programs)
202520262027202820292030203120322033Total Aggregate Enrollment
(millions)Baseline2.6282.6142.6042.5962.5902.5882.5882.5912.596Policy2.6282.4722.4432.4442.4372.4252.4102.3942.378Percent
of Enrollment by Program
PerformancePass:Baseline76.075.575.174.674.273.773.272.772.2Policy76.085.591.793.794.494.894.995.095.1Fail
D/E:Baseline6.86.66.56.46.36.16.05.95.7Policy6.82.31.11.21.21.21.11.11.1Fail
EP:Baseline13.914.414.915.516.016.617.117.718.3Policy13.92.41.71.81.81.81.81.81.9Fail
Both:Baseline3.43.43.53.53.63.63.73.73.8Policy3.40.40.20.20.20.20.20.20.2Pre-Inelig:Baseline0.00.00.00.00.00.00.00.00.0Policy0.09.33.21.51.21.21.21.21.2Inelig:Baseline0.00.00.00.00.00.00.00.00.0Policy0.00.02.11.71.20.80.70.60.6
For non-GE programs, these shifts occur primarily across programs that have
different performance in the same loan risk category, with a very modest shift
from public and non-profit two-year and less programs to lower-division 4-year
programs. This is shown in Table 6.3. Shifts away from the public and non-profit
two-year sector within non-GE programs is partially offset from shifts into
these programs from failing GE programs. Recall that in “Transfer Causes Net
Enrollment Increase in Some Sectors” above we showed that the vast majority of
community colleges would gain enrollment from the proposed regulations. Start
Printed Page 32463
Expand Table
Table 6.3—Primary Enrollment Estimates by Risk Group (Non-GE Programs)
202520262027202820292030203120322033Projected Total Enrollment by Loan Risk
Category (millions)Public/NP 2-year
below:Baseline2.9262.8182.7152.6152.5192.4262.3372.2512.169Policy2.9262.8242.7232.6232.5242.4282.3352.2462.1604-year
(lower):Baseline6.1636.0936.0265.9605.8965.8335.7715.7125.654Policy6.1636.1086.0545.9965.9375.8785.8195.7605.7014-year
(upper):Baseline2.5972.5802.5632.5462.5302.5132.4962.4812.464Policy2.5972.5822.5672.5522.5362.5202.5042.4882.472Graduate:Baseline2.4322.4832.5352.5882.6442.7012.7602.8212.883Policy2.4322.4872.5412.5952.6492.7042.7602.8172.875Percent
of Enrollment by Loan Risk CategoryPublic/NP 2-year
below:Baseline20.720.219.619.118.518.017.517.016.5Policy20.720.219.619.118.517.917.416.916.44-year
(lower):Baseline43.643.643.543.543.443.343.243.142.9Policy43.643.643.643.643.543.443.443.343.24-year
(upper):Baseline18.418.518.518.618.618.718.718.718.7Policy18.418.418.518.518.618.618.718.718.7Graduate:Baseline17.217.818.318.919.520.020.721.321.9Policy17.217.818.318.819.420.020.621.221.8
Table 6.4 reports a similar breakdown for GE programs. Shifts to passing
programs are accompanied by a shift away from proprietary two-year and below
programs and towards public and non-profit programs of similar length, along
with a more modest shift towards lower-division 4-year programs.
Expand Table
Table 6.4—Primary Enrollment Estimates by Risk Group (GE Programs)
202520262027202820292030203120322033 Projected Total Enrollment by Loan Risk
Category (Millions)Prop. 2-year
below:Baseline0.7100.7340.7590.7850.8130.8420.8720.9040.938Policy0.7100.6050.5920.6060.6210.6370.6530.6680.683Public/NP
2-year
below:Baseline0.5330.5180.5040.4890.4750.4620.4500.4370.424Policy0.5330.5480.5510.5470.5370.5230.5090.4940.4804-year
(lower):Baseline0.7940.7790.7650.7520.7390.7280.7170.7070.697Policy0.7940.7560.7460.7420.7350.7250.7140.7030.6924-year
(upper):Baseline0.2080.2020.1970.1920.1860.1820.1770.1720.168Policy0.2080.1940.1870.1830.1780.1730.1680.1630.158Graduate:Baseline0.3830.3810.3790.3780.3760.3740.3730.3710.369Policy0.3830.3690.3660.3670.3670.3670.3660.3660.365Percent
of Enrollment by Loan Risk CategoryProp. 2-year
below:Baseline27.028.129.130.331.432.533.734.936.1Policy27.024.524.324.825.526.327.127.928.7Public/NP
2-year
below:Baseline20.319.819.418.918.417.917.416.916.3Policy20.322.222.522.422.021.621.120.720.24-year
(lower):Baseline30.229.829.429.028.528.127.727.326.8Policy30.230.630.630.430.129.929.629.429.14-year
(upper):Baseline7.97.77.67.47.27.06.86.66.5Policy7.97.97.77.57.37.17.06.86.7Graduate:Baseline14.614.614.614.514.514.514.414.314.2Policy14.614.915.015.015.115.115.215.315.3
Start Printed Page 32464
As reported in Tables 6.5 and 6.6, we estimate that the regulations would result
in a reduction of title IV, HEA aid between fiscal years 2025 and 2033.
Expand Table
Table 6.5—Estimated Annual Change in Title IV, HEA Aid Volume Relative to
Baseline
[Millions, $2019]
202520262027202820292030203120322033TotalNon-GE
Programs:Pell(80)(157)(217)(157)(149)(150)(197)(210)(221)(1,538)Subs(46)(54)(51)(48)(52)(54)(51)(53)(51)(460)Unsub(18)(34)(123)(88)(110)(175)(194)(219)(238)(1,200)Grad
PLUS87(30)(69)(68)(199)(249)(269)(285)(300)(1,381)Par.
PLUS385388717713151314381GE
Programs:Pell(102)(354)(648)(838)(906)(944)(1,003)(1,077)(1,168)(7,040)Subs(133)(327)(383)(374)(372)(381)(397)(418)(444)(3,229)Unsub(229)(531)(631)(595)(579)(593)(610)(634)(665)(5,067)Grad
PLUS(10)(49)(58)(49)(57)(57)(54)(53)(51)(437)Par.
PLUS(8)(25)(18)(10)(5)(11)(14)(19)(26)(135)Total:Pell(181)(510)(864)(995)(1,055)(1,094)(1,200)(1,287)(1,388)(8,574)Subs(180)(381)(435)(423)(424)(435)(448)(471)(495)(3,689)Unsub(247)(564)(754)(683)(689)(769)(804)(853)(903)(6,267)Grad
PLUS76(78)(127)(117)(255)(305)(323)(338)(351)(1,818)Par.
PLUS302970627221(6)(13)246
Expand Table
Table 6.6—Estimated Annual Percent Change in Title IV, HEA Aid Volume by Fiscal
Year
[%]
202520262027202820292030203120322033TotalNon−GE
Programs:Pell−0.80−0.78−0.71−0.18−0.63−0.63−0.67−0.73−0.71−0.65Subs−0.43−0.50−0.48−0.46−0.50−0.52−0.50−0.52−0.51−0.49Unsub−0.08−0.15−0.55−0.40−0.49−0.77−0.85−0.95−1.03−0.59Grad
PLUS1.72−0.55−1.25−1.19−3.26−3.97−4.21−4.37−4.50−2.58Par.
PLUS0.420.590.960.770.830.130.170.140.150.46GE
Programs:Pell−4.88−11.87−14.12−13.51−13.86−14.23−14.92−15.74−16.61−13.31Subs−4.75−10.78−12.78−12.12−11.79−12.01−12.32−12.77−13.33−11.41Unsub−4.74−10.78−12.79−12.15−11.86−12.11−12.44−12.93−13.51−11.48Grad
PLUS−1.50−6.81−8.01−6.63−7.46−7.42−7.14−6.95−6.78−6.56Par.
PLUS−1.11−3.43−2.47−1.28−0.63−1.37−1.77−2.38−3.19−1.96Total:Pell−1.51−2.73−3.10−2.59−3.05−3.15−3.35−3.60−3.81−2.97Subs−1.32−2.82−3.24−3.17−3.20−3.30−3.43−3.63−3.84−3.10Unsub−0.95−2.12−2.81−2.55−2.55−2.82−2.93−3.09−3.25−2.57Grad
PLUS1.33−1.29−2.03−1.80−3.73−4.34−4.52−4.64−4.73−3.02Par.
PLUS0.310.290.710.620.720.020.01−0.06−0.130.28
Table 6.7 reports the annual net budget impact after accounting for estimated
loan repayment. We estimate a net Federal budget impact of $12.6 billion,
consisting of $8.6 billion in reduced Pell Grants and $4.1 billion for loan
cohorts 2024 to 2033.
Expand Table
Table 6.7—Estimated Annual Net Budget Impact
[Outlays in millions]
202520262027202820292030203120322033TotalPell−181−510−864−995−1,055−1,094−1,200−1,287−1,388−8,574Subs−38−99−121−117−115−115−117−140−114−975Unsub−36−115−177−174−169−185−197−208−216−1,476PLUS
(Par.
Grad)−55−56−62−66−94−106−106−108−111−764Consol0−1−10−33−65−109−157−207−262−844Total−310−781−1,234−1,385−1,498−1,609−1,777−1,950−2,091−12,633
The provisions most responsible for the costs of the proposed regulations are
those related to Financial Value Transparency and Gainful Employment. The
Department does not anticipate significant costs related to the Ability to
Benefit, Financial Responsibility, Administrative Capability, and Certification
Procedures provisions. The Department's calculations of the net budget impacts
represent our best estimate of the effect of the regulations on the Federal
student aid programs. However, realized budget impacts will be heavily
influenced by actual program performance, student response to program
performance, student borrowing and repayment behavior, and changes in enrollment
as a result of the regulations. For example, if students, including prospective
students, react more strongly to the warnings, acknowledgement requirement, or
potential ineligibility of programs than Start Printed Page 32465 anticipated
and, if many of these students leave postsecondary education, the impact on Pell
Grants and loans could increase. Similarly, if institutions react to the
regulations by improving performance, the assumed enrollment and aid amounts
could be overstated, though this would be very beneficial to students. Finally,
if students' repayment behavior is different than that assumed in the model, the
realized budget impact could be larger or smaller than our estimate.
OTHER PROVISIONS
The proposed regulations related to Financial Responsibility, Administrative
Capability, Certification Procedures, and Ability to Benefit have not been
estimated to have a significant budget impact. This is consistent with how the
Department has treated similar changes in recent regulatory packages related to
Financial Responsibility and Certification Procedures. The Financial
Responsibility triggers are intended to identify struggling institutions and
increase the financial protection the Department receives. While this may
increase recoveries from institutions for certain types of loan discharges,
affect the level of closed school discharges, or result in the Department
withholding title IV, HEA funds, all items that would have some budget impact,
we have not estimated any savings related to those provisions. Historically, the
Department has not been able to obtain much financial protection obtained from
closed schools and existing triggers have not been used to a great extent.
Therefore, we would wait to include any effects from the proposed revisions
until indications are available in title IV, HEA loan data that they
meaningfully reduce closed school discharges or significantly increasing
recoveries. However, we did run some sensitivity analyses where these changes
did affect these discharges, as described in Table 6.8. We only project these
sensitivity analyses affecting future cohorts of loans since it would be related
to financial protection obtained in the future.
Expand Table
Table 6.8—Financial Responsibility Sensitivity Analysis
ScenarioCohorts 2024–2033 outlays ($ in millions)Closed School Discharges
Reduced by 5 percent−4,060Closed School Discharges Reduced by 25
percent−5,516Borrower Defense Discharges Reduced by 5 percent−4,130Borrower
Defense Discharges Reduced by 15 percent−4,290
7. ACCOUNTING STATEMENT
As required by OMB Circular A–4, we have prepared an accounting statement
showing the classification of the benefits, costs, and transfers associated with
the provisions of these regulations.
PRIMARY ESTIMATES
We estimate that by shifting enrollment to higher financial-value programs, the
proposed regulations would increase student's earnings, resulting in net
after-tax gains to students and benefits for taxpayers in the form of additional
tax revenue. Table 7.1 reports the estimated aggregate earnings gain for each
cohort of completers, separately for GE and non-GE programs, and the cumulative
(not discounted) earnings gain over the budget window. The proposed regulation
is estimated to generate $19.4 billion of additional earnings gains over the
budget window, both from GE and non-GE programs. Using the approach described in
“Methodology for Costs, Benefits, and Transfers,” we expect $15.8 billion to
benefit students and $3.6 billion to benefit Federal and State governments and
taxpayers.
Expand Table
Table 7.1—Annual and Cumulative Earnings Gain and Distribution Between Students
and Government
[millions, $2019]
202520262027202820292030203120322033TotalSingle-year Earnings Gains of Each
Cohort of
CompletersNon-GE02515136447037016705995204,602GE03786547808248187927567125,714Total06291,1671,4231,5271,5191,4631,3551,23210,316Cumulative
Earnings GainCumulative gain06291,7972,5912,9503,0462,9822,8182,58719,400Student
share05121,4622,1092,4012,4792,4272,2942,10615,792Gov't
share01173344825495675555244813,608
The proposed rule could also alter aggregate instructional spending, by shifting
enrollment to higher-cost institutions (an increase in spending) or by reducing
aggregate enrollment (a decrease in spending). Table 7.2 reports estimated
annual and cumulative changes in instructional spending, overall and separately
for GE and non-GE programs. The net effect is an increase in aggregate
cumulative instructional spending of $2.7 billion (not discounted), though this
masks differences between non-GE programs (net increase in spending) and GE
programs (net decrease in spending). Spending is reduced in the first year of
the policy due to the decrease in enrollment, but then increases as more
students transfer to more costly programs. Start Printed Page 32466
Expand Table
Table 7.2—Instructional Spending Change
[Millions, $2019]
202520262027202820292030203120322033TotalNon-GE03626447808368307947026135,562GE0−435−358−258−240−282−352−434−525−2,883Total0−73287522596548442268882,679
The proposed rule would create transfers between students, the Federal
Government, and among postsecondary institutions by shifting enrollment between
programs, removing title IV, HEA eligibility for GE programs that fail a GE
metric multiple times, and causing some students to choose non-enrollment
instead of a low value program. Table 7.3 reports the number of enrolments that
transfer programs, remain enrolled at ineligible programs, or decline to enroll
in postsecondary education altogether. We estimate that more than 1.6 million
enrollments would transfer from low financial value programs to better programs
over the decade. A more modest number would remain enrolled at a program that is
no longer eligible for title IV, HEA aid.
Expand Table
Table 7.3—Estimated Enrollment of Transfers and Ineligible Under Proposed
Regulation
202520262027202820292030203120322033TotalNon-GE:Transfer0115,145112,08897,41188,45583,33180,24078,20076,722731,591Inelig0000000000GE:Transfer0212,919191,246129,75694,84077,57669,14064,86262,537902,876Inelig0050,10641,12728,10020,40016,37414,28413,168183,559Total:Transfer0328,064303,334227,167183,296160,906149,380143,062139,2591,634,467Inelig0050,10641,12728,10020,40016,37414,28413,168183,559
The resulting reductions in expenditures on title IV, HEA program funds from
enrollment declines and continued enrollment at non-eligible institutions are
classified as transfers from affected student loan borrowers and Pell grant
recipients to the Federal Government. The combined reduction in title IV, HEA
expenditures was presented in the Net Budget Impacts section above. Transfers
also include title IV, HEA program funds that follow students as they shift from
low-performing programs to higher-performing programs, which is presented in
Table 7.4.
Expand Table
Table 7.4—Estimated Title IV, HEA Aid Transferred From Failing To Passing
Programs Under Proposed Regulation
[$2019, millions]
202520262027202820292030203120322033TotalNon-GE05475324664304093963873813,548GE01,1631,0397005124173703473334,882Total01,7101,5711,1679428267667347158,430
Transfers are neither costs nor benefits, but rather the reallocation of
resources from one party to another.
Table 7.5 provides our best estimate of the changes in annual monetized
benefits, costs, and transfers as a result of these proposed regulations. Our
baseline estimate with a discount rate of 3 percent is that the proposed
regulation would generate $1.851 billion of annualized benefits against $371
million of annualized costs and $1.209 billion of transfers to the Federal
government and $836 million transfers from failing programs to passing programs.
A discount rate of 7 percent results in $1.734 billion of benefits against $361
million of annualized costs and $1.138 billion of transfers to the Federal
government and $823 million transfers from failing programs to passing programs.
Note that the accounting statement does not include benefits that are
unquantified, such as benefits for students associated with lower default and
better credit and benefits for institutions from improved information about
their value.
Expand Table
Table 7.5—Accounting Statement for Primary Scenario
Annualized impact (millions, $2019)Discount rate = 3%Discount rate =
7%BenefitsEarnings gain (net of taxes) for students1,5071,411Start Printed Page
32467Additional Federal and State tax revenue and reductions in transfer program
expenditure (not included in budget impact)344323For students, lower default,
better credit leading to family and business formation, more retirement savings.
For institutions, increased enrollment and revenue associated with new
enrollments from improved information about valueNot quantified.CostsGreater
instructional spending258245Additional reporting by
institutions89.092.3Warning/acknowledgment by institutions and
students20.120.1Implementation of reporting, website, acknowledgement by
ED3.44.0Time/moving cost for transfers; Investments to improve program
qualityNot quantified.TransfersTransfer of Federal Pell dollars to Federal
government from enrollment reduction821773Transfer of Federal loan dollars to
Federal government from reduced borrowing and greater repayment388365Transfer of
aid dollars from non-passing programs to passing programs836823Transfer of State
aid dollars from failing programs for dropoutsNot quantified.
SENSITIVITY ANALYSIS
We conducted the simulations of the rule while varying several key assumptions.
Specifically, we provide estimates of the change in title IV, HEA volumes using
varied assumptions about student transitions, student dropout, program
performance, and the earnings gains associated with enrollment shifts. We
believe these to be the main sources of uncertainty in our model.
VARYING LEVELS OF STUDENT TRANSITION
Our primary analysis assumes rates of transfer and dropout for GE programs based
on the research literature, but these quantities are uncertain. The alternative
models adjust transfer and dropout rates for all transfer groups to the rates
for high alternatives and few alternatives, respectively, as shown in Table 5.5.
As reported in Tables 7.6 and 7.7, we estimate that the regulations would result
in a reduction of title IV, HEA aid between fiscal years 2025 and 2033,
regardless of if all students have the highest or lowest amount of transfer
alternatives.
Expand Table
Table 7.6—High Transfer Sensitivity Analysis—Estimated Annual Change in Title
IV, HEA Aid Volume Relative to Baseline
[Millions, $2019]
202520262027202820292030203120322033TotalNon-GE
Programs:Pell(81)(160)(225)(170)(165)(169)(219)(233)(245)(1,667)Subs(46)(54)(53)(50)(55)(57)(53)(55)(53)(477)Unsub(32)(68)(168)(137)(159)(224)(242)(266)(284)(1,580)Grad
PLUS71(71)(122)(126)(258)(306)(325)(340)(354)(1,831)Par.
PLUS395690737915191718406GE
Programs:Pell(100)(338)(607)(778)(841)(886)(954)(1,035)(1,129)(6,668)Subs(131)(313)(356)(348)(350)(363)(382)(404)(431)(3,079)Unsub(225)(509)(590)(554)(545)(565)(585)(611)(642)(4,826)Grad
PLUS(11)(49)(55)(45)(53)(53)(51)(49)(48)(415)Par.
PLUS(4)(15)(7)03(4)(9)(14)(21)(72)Total:Pell(179)(497)(832)(947)(1,005)(1,055)(1,171)(1,267)(1,373)(8,326)Subs(177)(367)(409)(399)(405)(420)(435)(460)(484)(3,555)Unsub(257)(577)(759)(691)(704)(788)(826)(876)(926)(6,406)Grad
PLUS59(120)(178)(172)(311)(360)(376)(389)(401)(2,247)Par.
PLUS354183738211103(3)334
Expand Table
Table 7.7—Low Transfer Sensitivity Analysis—Estimated Annual Change in Title IV,
HEA Aid Volume Relative to Baseline
[Millions, $2019]
202520262027202820292030203120322033TotalNon-GE
Programs:Pell(77)(149)(203)(133)(114)(106)(144)(149)(154)(1,229)Start Printed
Page
32468Subs(43)(44)(40)(35)(38)(40)(36)(38)(37)(351)Unsub1350(6)5043(11)(23)(41)(55)18Grad
PLUS121646492(19)(58)(71)(81)(91)21Par. PLUS375388737915171414391GE
Programs:Pell(96)(367)(721)(987)(1,100)(1,139)(1,184)(1,245)(1,326)(8,165)Subs(125)(352)(459)(461)(453)(454)(464)(480)(504)(3,753)Unsub(216)(572)(758)(740)(716)(716)(722)(739)(766)(5,946)Grad
PLUS(10)(55)(73)(66)(73)(71)(68)(65)(64)(546)Par.
PLUS(10)(39)(46)(40)(33)(37)(38)(41)(47)(331)Total:Pell(173)(516)(924)(1,119)(1,214)(1,245)(1,328)(1,393)(1,480)(9,392)Subs(168)(396)(499)(497)(492)(494)(500)(519)(540)(4,104)Unsub(203)(522)(765)(690)(672)(728)(745)(781)(822)(5,928)Grad
PLUS1119(9)26(93)(130)(139)(147)(155)(525)Par. PLUS2713433346(22)(20)(27)(34)59
NO PROGRAM IMPROVEMENT
Our primary analysis assumes that both non-GE and GE programs improve
performance after failing either the D/E or EP metric and that GE programs that
pass both metrics still improve performance in response to the rule. We
incorporate this by increasing the fail to pass program transition rate by 5
percentage points for each type of program failure after 2026 for GE and non-GE
programs, by reducing the rate of repeated failure by 5 percentage points for GE
and non-GE programs, and by increasing the rate of a repeated passing result by
two and a half percentage points for GE programs. The alternative model will
assume no program improvement in response to failing metrics.
As reported in Table 7.8, we estimate that the regulations would result in a
reduction of title IV, HEA aid between fiscal years 2025 and 2033, regardless of
if programs show improvement.
Expand Table
Table 7.8—No Program Improvement Sensitivity Analysis—Estimated Annual Change in
Title IV, HEA Aid Volume Relative to Baseline
[Millions, $2019]
202520262027202820292030203120322033TotalNon-GE
Programs:Pell(80)(157)(214)(147)(124)(110)(139)(135)(131)(1,237)Subs(46)(54)(49)(41)(40)(38)(31)(29)(24)(353)Unsub(18)(34)(110)(51)(54)(105)(111)(124)(132)(739)Grad
PLUS87(30)(56)(34)(150)(191)(204)(215)(226)(1,020)Par.
PLUS385390778828343640483GE
Programs:Pell(102)(354)(650)(854)(948)(1,015)(1,104)(1,204)(1,321)(7,552)Subs(133)(327)(388)(393)(404)(426)(453)(484)(520)(3,529)Unsub(229)(531)(639)(627)(639)(677)(714)(758)(807)(5,621)Grad
PLUS(10)(49)(60)(55)(68)(72)(73)(74)(76)(535)Par.
PLUS(8)(25)(22)(20)(20)(31)(39)(48)(59)(270)Total:Pell(181)(510)(865)(1,000)(1,071)(1,124)(1,243)(1,341)(1,451)(8,786)Subs(180)(381)(437)(434)(445)(464)(484)(514)(544)(3,881)Unsub(247)(564)(749)(678)(694)(782)(825)(881)(939)(6,360)Grad
PLUS76(78)(116)(89)(218)(263)(277)(290)(301)(1,555)Par.
PLUS3029685867(4)(4)(12)(19)213
ALTERNATIVE EARNINGS GAIN
Our primary analysis assumes that the earnings change associated with shifts in
enrollment is equal to the difference in average earnings between groups defined
by loan risk group, program performance category, and whether the program is a
GE program or not, multiplied by an adjustment factor equal to 0.75. This
adjustment factor was derived from a regression model where the earnings
difference between passing and failing programs conditional on credential level
was shown to decline by 25 percent when a rich set of student characteristics
are controlled for. The estimated earnings gain associated with the rule scales
directly with the value of this adjustment factor. A value of 1.0 (all of the
difference in average earnings between groups would manifest as earnings gain)
would increase the total annualized earnings gain for students from $1.412
billion up to $1.883 billion (3 percent discount rate).
A value of 0.40 reduces it to $0.754 billion; a value of 0.20 reduces it to
$0.377 billion. The net fiscal externality increases or decreases
proportionately. Each of these two scenarios would involve more of the raw
earnings difference between passing and failing programs of the same credential
level being explained by factors we are not able to measure (such as student
academic preparation) than those that we are able to measure (such as race, sex,
parent education, family income, and Pell receipt).[285] Even at these low Start
Printed Page 32469 values for the adjustment factor, the estimated earnings
benefits of the rule by themselves outweigh the estimated costs.
ADDITIONAL SENSITIVITY ANALYSIS
The Department is currently examining the sensitivity to changes in the
following assumptions.
* Constant aid amounts for students that transfer. Our primary analysis assumes
that students' aid volume (Pell and loans) would change as they shift
enrollment between types of programs. This assumption captures the fact that
students moving to less expensive programs would likely require less
financial aid. The alternative model will assume that students' aid packages
are unchanged when they transfer between institutions.
* Alternative enrollment growth rates. Our primary analysis projects
program-level enrollment based on annual growth rates for each credential
level and control from 2016 to 2022. It is possible that these recent growth
patterns will not continue for the next decade. The alternative model will
project baseline enrollment growth using assumed higher and lower growth
rates for the sectors that have the highest failure rates of the performance
metrics.
We seek public comment as to how best to craft any further assumptions of the
possible budgetary effect of the Financial Value Transparency and Gainful
Employment components of the proposed rule.
FINANCIAL RESPONSIBILITY TRIGGERS
We also conducted several sensitivity analyses to provide some indication of the
potential effects of the Financial Responsibility triggers if they did result in
meaningful increases in financial protection obtained that can offset either
closed school or borrower defense discharges. We modeled these as reductions in
the amount of projected discharges in these categories. This would not represent
a reduction in benefits given to students, but a way of considering what the
cost would be if the Department was reimbursed for a portion of the discharges.
These are described above in Net Budget Impacts. We seek public comment as to
how best to craft any further assumptions of the possible budgetary effect of
these triggers.
8. DISTRIBUTIONAL CONSEQUENCES
The proposed regulation would advance distributional equity aims because the
benefits of the proposed regulation—better information, increased earnings, and
more manageable debt repayment—would disproportionately be realized by students
who otherwise would have low earnings. Students without access to good
information about program performance tend to be more disadvantaged; improved
transparency about program performance would be particularly valuable to these
students. The proposed regulation improves program quality in the undergraduate
certificate sector in particular, which, as documented above, disproportionately
enrolls low-income students. Students already attending high-quality colleges,
who tend to be more advantaged, would be relatively unaffected by the
regulation. The major costs of the program involve additional paperwork and
instructional spending, which are not incurred by students directly.
9. ALTERNATIVES CONSIDERED
As part of the development of these proposed regulations, the Department engaged
in a negotiated rulemaking process in which we received comments and proposals
from non-Federal negotiators representing numerous impacted constituencies.
These included higher education institutions, consumer advocates, students,
financial aid administrators, accrediting agencies, and State attorneys general.
Non-Federal negotiators submitted a variety of proposals relating to the issues
under discussion. Information about these proposals is available on our
negotiated rulemaking website at www2.ed.gov/ policy/ highered/ reg/
hearulemaking/ 2021/ index.html.
FINANCIAL VALUE TRANSPARENCY AND GAINFUL EMPLOYMENT
D/E RATE ONLY
The Department considered using only the D/E rates metric, consistent with the
2014 Prior Rule. Tables 9.1 and 9.2 show the share of GE and non-GE programs and
enrollment that would fail under only the D/E metric compared to our preferred
rule that considers both D/E and EP metrics.
Expand Table
Table 9.1—Percent of GE Students and Programs That Fail Under D/E Only vs. D/E +
EP
ProgramsStudentsFail D/E onlyFail D/E + EPFail D/E onlyFail D/E + EPPublic:UG
Certificates0.01.00.44.4Post-BA Certs0.00.00.00.0Grad
Certs0.10.10.40.4Total0.00.90.44.1Private, Nonprofit:UG
Certificates0.65.84.943.5Post-BA Certs0.00.00.00.0Grad
Certs0.70.73.53.5Total0.52.64.228.9Proprietary:UG
Certificates5.034.08.750.0Associate's10.814.833.838.3Bachelor's10.710.824.324.4Post-BA
Certs0.00.00.00.0Master's10.110.117.917.9Doctoral10.010.015.115.1Start Printed
Page 32470Professional13.813.850.750.7Grad
Certs4.87.337.938.6Total7.822.820.533.5Foreign Private:UG
Certificates0.00.00.00.0Post-BA Certs0.00.00.00.0Grad
Certs1.51.584.284.2Total0.90.979.679.6Foreign
For-Profit:Master's0.00.00.00.0Doctoral0.00.00.00.0Professional28.628.620.320.3Total11.811.817.217.2
Expand Table
Table 9.2—Percent of Non-GE Programs and Enrollment at GE Programs That Fail
Under D/E Only vs.
D/E + EP
ProgramsStudentsFail D/E onlyFail D/E + EPFail D/E onlyFail D/E +
EPPublic:Associate's0.21.70.57.8Bachelor's0.91.41.31.8Master's0.40.41.51.5Doctoral0.20.22.62.6Professional3.33.37.57.5Total0.51.21.04.6Private,
Nonprofit:Associate's2.73.223.024.7Bachelor's0.70.92.94.3Master's2.42.47.77.8Doctoral2.32.319.719.7Professional17.117.734.634.7Total1.41.76.97.9Foreign
Private:Associate's0.00.00.00.0Bachelor's0.10.11.21.2Master's0.10.11.81.9Doctoral0.00.00.00.0Professional3.43.420.720.7Total0.20.22.92.9
ALTERNATIVE EARNINGS THRESHOLDS
The Department examined the consequences of two different ways of computing the
earnings threshold. For the first, we computed the earnings threshold as the
annual earnings among all respondents aged 25–34 in the American Community
Survey who have a high school diploma or GED, but no postsecondary education.
The second is the median annual earnings among respondents aged 25–34 in the
American Community Survey who have a high school diploma or GED, but no
postsecondary education, and who worked a full year prior to being surveyed.
These measures, which are included in the 2022 PPD, straddle our preferred
threshold, which includes all respondents in the labor force, but excludes those
that are not in the labor force.
Tables 9.3 and 9.4 reports the share of programs and enrollment that would pass
GE metrics under three different earnings threshold methods, with our proposed
approach in the middle column. The share of enrollment in undergraduate
proprietary certificate programs that would fail ranges from 34 percent under
the lowest threshold up to 66 percent under the highest threshold. The failure
rate for public undergraduate certificate programs is much lower than
proprietary programs under all three scenarios, ranging from 2 percent for the
lowest threshold to 9 percent under the highest. The earnings threshold chosen
would have a much smaller impact on failure rates for degree programs, which
range from 36 percent to 46 percent of enrollment for associate's programs and
essentially no impact for Bachelor's degree or higher programs. Start Printed
Page 32471
Expand Table
Table 9.3—Share of Enrollment in GE Programs That Fail, by Where Earnings
Threshold Is Set
DTE + lower EP% Failing DTE + medium EPDTE + higher EPTotal number of
enrolleesPublic:UG Certificates1.74.49.1869,600Post-BA Certs0.00.00.012,600Grad
Certs0.40.40.441,900Private, Nonprofit:UG Certificates27.943.546.177,900Post-BA
Certs0.00.00.07,900Grad Certs3.53.55.535,700Proprietary:UG
Certificates31.450.064.1549,900Associate's34.538.344.7326,800Bachelor's24.324.424.9675,800Post-BA
Certs0.00.00.0800Master's17.917.917.9240,000Doctoral15.115.115.154,000Professional50.750.750.712,100Grad
Certs38.338.638.610,800Note: Enrollment counts rounded to the nearest hundred.
Expand Table
Table 9.4—Share of GE Programs That Fail, by Where Earnings Threshold Is Set
DTE + lower EP% Failing DTE + medium EPDTE + higher EPTotal number of
programsPublic:UG Certificates0.61.01.619,00Post-BA Certs0.00.00.0900Grad
Certs0.10.10.11,900Private, Nonprofit:UG Certificates3.35.66.31,400Post-BA
Certs0.00.00.0600Grad Certs0.60.60.71,400Proprietary:UG
Certificates21.733.239.83,200Associate's11.114.118.11,700Bachelor's10.510.611.41,000Post-BA
Certs0.00.00.050Master's10.010.010.0500Doctoral9.89.89.8100Professional12.512.512.530Grad
Certs5.57.07.0100Note: Program counts rounded to the nearest 100, except where
50 or fewer.
Tables 9.5 and 9.6 illustrate this for non-GE programs. As with GE programs, the
earnings threshold chosen would have almost no impact on the share of Bachelors'
or higher programs that fail but would impact failure rates for associate degree
programs at public institutions, where the share of enrollment in failing
programs ranges from 2 percent at the lowest threshold to 23 percent at the
highest. Our proposed measure would result in 8 percent of enrollment failing.
Expand Table
Table 9.5—Share of Enrollment in Non-GE Programs That Fail, by Where Earnings
Threshold Is Set
DTE + lower EP% Failing DTE + medium EPDTE + higher EPTotal number of
enrolleesPublic:Associate's1.67.823.25,496,800Bachelor's1.41.84.35,800,700Master's1.51.51.6760,500Doctoral2.62.62.6145,200Professional7.57.57.5127,500Private,
Nonprofit:Associate's23.324.727.0266,900Bachelor's3.74.36.02,651,300Master's7.77.87.9796,100Doctoral19.719.719.7142,900Start
Printed Page 32472Professional34.734.734.7130,400Note: Enrollment counts rounded
to the nearest hundred.
Expand Table
Table 9.6—Share of Non-GE Programs That Fail, by Where Earnings Threshold Is Set
DTE + lower EP% Failing DTE + medium EPDTE + higher EPTotal number of
programsPublic:Associate's0.41.73.627,300Bachelor's1.01.43.024,300Master's0.40.40.414,600Doctoral0.20.20.25,700Professional3.23.23.2600Private,
Nonprofit:Associate's2.83.14.02,300Bachelor's0.80.91.429,800Master's2.42.42.410,400Doctoral2.32.32.32,900Professional17.217.217.2500Note:
Program counts rounded to the nearest 100.
NO REPORTING, DISCLOSURE, AND ACKNOWLEDGMENT FOR NON-GE PROGRAMS
The Department considered proposing to apply the reporting, disclosure, and
acknowledgment requirements only to GE programs, and calculating D/E rates and
the earnings premium measure only for these programs, similar to the 2014 Prior
Rule. This approach, however, would fail to protect students, families, and
taxpayers from investing in non-GE programs that deliver low value and poor debt
and earnings outcomes. As higher education costs and student debt levels
increase, students, families, institutions, and the public have a commensurately
growing interest in ensuring their higher education investments are justified
through positive career, debt, and earnings outcomes for graduates, regardless
of the sector in which the institution operates or the credential level of the
program. Furthermore, comprehensive performance information about all programs
is necessary to guide students that would otherwise choose failing GE programs
to better options.
SMALL PROGRAM RATES
While we believe the D/E rates and earnings premium measure are reasonable and
useful metrics for assessing debt and earnings outcomes, we acknowledge that the
minimum n-size of 30 completers would exempt small programs from these Financial
Value Transparency measures. In our initial proposals during negotiated
rulemaking, the Department considered calculating small program rates in such
instances. These small program rates would have been calculated by combining all
of an institution's small programs to produce the institution's small program
D/E rates and earnings premium measure, which would be used for informational
purposes only. In the case of GE programs, these small program rates would not
have resulted in program eligibility consequences. Several negotiators
questioned the usefulness of the small program rates because they would not
provide information specific to any particular program, and because an
institution's different small programs in various disciplines could lead to
vastly different debt and earnings outcomes. In addition, several negotiators
expressed concerns about the use of small program rates as a supplementary
performance measure under proposed § 668.13(e). Upon consideration of these
points, and in the interest of simplifying the proposed rule, the Department has
opted to omit the small program rates.
ALTERNATIVE COMPONENTS OF THE D/E RATES MEASURE
The Department considered alternative ways of computing the D/E rates measure,
including:
* Lower completer thresholds n-size
* Different ways of computing interest rates
* Different amortization periods
We concluded that the proposed parameters used in the D/E rates and earnings
premium calculations were most consistent with best practices identified in
prior analysis and research.
DISCRETIONARY EARNINGS RATE
The Department considered simplifying the D/E rates metric by only including a
discretionary earnings rate. We believe that using only the discretionary
earnings rate would be insufficient because there may be some instances in which
a borrower's annual earnings would be sufficient to pass an 8 percent annual
debt-to-earnings threshold, even if that borrower's discretionary earnings are
insufficient to pass a 20 percent discretionary debt-to-earnings threshold.
Utilizing both annual and discretionary D/E rates would provide a more complete
picture of a program's true debt and earnings outcomes and would be more
generous to institutions because a program that passes either the annual
earnings rate or the discretionary earnings rate would pass the D/E rates
metric.
PRE- AND POST-EARNINGS COMPARISON
A standard practice for evaluating the effectiveness of postsecondary programs
is to compare the earnings of students after program completion to earnings
before program enrollment, to control for any student-specific factors that
determine labor market success that should not be attributed to program
performance. While the Department Start Printed Page 32473 introduced limited
analysis of pre-program earnings from students' FAFSA data into the evidence
above, it is not feasible to perform such comparisons on a wide and ongoing
scale in the proposed regulation. Pre-program earnings data is only available
for students who have labor market experience prior to postsecondary enrollment,
which excludes many students who proceed directly to postsecondary education
from high school. Furthermore, earnings data from part-time work during high
school is mostly uninformative for earnings potential after postsecondary
education. Although some postsecondary programs enroll many students with
informative pre-program earnings, many postsecondary programs would lack
sufficient numbers of such students to reliably incorporate pre-program earnings
from the FAFSA into the proposed regulation.
FINANCIAL RESPONSIBILITY
We considered keeping the existing set of financial responsibility triggers, but
ultimately decided it was important to propose to expand the options. The
Department is concerned that the existing set of triggers do not properly
account for all the scenarios in which there is significant financial risk at an
institution. We also believe these additional triggers are necessary due to
concerns about the frequency with which institutions close or can face
liabilities without sufficient financial protection in place.
The Department considered proposing a mandatory trigger for borrower defense
based solely upon the approval of claims. However, we decided not to propose
that given that there may be circumstances in which we did not decide to seek to
recoup the cost of approved claims or would not be able to do so under the
relevant regulations, and in these circumstances it is not necessary to retain
financial protection to ensure the institution is able to cover the cost of
approved borrower defense claims.
We also considered constructing the proposed trigger related to closing a
location or a program solely in terms of the share of locations or programs at
an institution. However, we decided that a component that reflects student
enrollment is important because if an institution only has two locations but
enrolls 95 percent of its students at one of them, then closing the smaller
location should not be as much of a concern.
We also considered constructing more of the proposed triggers as requiring a
recalculation of the composite score as was done in the 2016 regulations.
However, we are concerned that determining how to recalculate the composite
score in many circumstances would be challenging and could create additional
burden internally and externally to properly assess the financial situation.
Moreover, composite scores by their very nature always have a built-in lag since
an institution must wait for its fiscal year to end and then conduct a financial
audit. The result is that recalculating composite scores that may reflect a
quite old financial situation for an institution would not help further the goal
of better protecting against unreimbursed discharges or unpaid liabilities.
Instead, dividing triggers into situations that would automatically require
financial protection versus those where the Department has discretion ensures
that the Department can obtain protection more readily when severe situations
necessitate it.
ADMINISTRATIVE CAPABILITY
The Department considered additional guidance regarding the validity of a high
school diploma. We are proposing that a high school diploma should not be valid
if (1) it does not meet the requirements set by the State agency where the high
school is located, (2) it has been deemed invalid by the Department, State
agency where the high school is located, or through a court proceeding, (3) was
obtained from an entity that requires little or no secondary instruction, or (4)
was obtained from an entity that maintains a business relationship with the
eligible institution or is not accredited. We considered providing greater
discretion to the institution around how it would determine that a high school
diploma is valid. However, we are concerned that the current situation, which
already incorporates extensive deference, has led to the too many instances of
insufficient verification of high school diplomas.
CERTIFICATION PROCEDURES
For circumstances that may lead to provisional certification, the Department
initially considered proposing to make an institution provisionally certified
when an institution received the same finding of noncompliance in more than one
program review or audit. However, after hearing negotiators' concerns on how and
when this provision would be used, we abandoned this proposed specification. We
agreed with negotiators who noted that we already have the authority to place an
institution on provisional status for repeat findings of noncompliance.
In addition, to address excessive program hours in GE programs, the Department
considered proposing to limit title IV, HEA eligibility for GE programs to no
longer than the national median of hours required for the occupation in all
States that license the occupation (if at least half of States license the
occupation). However, negotiators were concerned with funding being cut off
before students finished their programs, and many negotiators also pointed out
how harmful it would be for students to begin programs with title IV, HEA funds
but not be able to finish with them. During negotiations there was also support
for the Department to revert to using the “greater” language instead of
“lesser”. Ultimately, we are proposing the “greater” language, and we also
dropped the proposal of establishing a limitation on the amount of title IV, HEA
aid that can be provided to a GE program that is subject to State licensure
requirements. We did not propose this out of concern about its complexity and
the confusing situation that would arise where a borrower would potentially only
receive funding for a portion of their program.
Moreover, to address transcript withholding we initially considered language for
institutions at risk of closure to release holds on student transcripts over a
de minimis amount of unpaid balances, and to release all holds on student
transcripts in the event of a closure. However, negotiators felt that this
approach was too narrow and did not go far enough to help students. Several
negotiators stated that students of color are disproportionately unable to
access their transcripts due to transcript withholding. In addition, one
negotiator argued that if an institution was being considered at risk for
closure, most students would want to transfer institutions, but unfortunately
transcript holds for certain amounts would negatively impact a student's ability
to transfer to another institution. As mentioned during negotiations, the
Department's authority to prohibit institutions from withholding transcripts is
limited to instances where the institution's reason for withholding the
transcript involves the title IV, HEA functions. However, if an institution is
provisionally certified, we may apply other conditions that are necessary or
appropriate to the institution, including, but not limited to releasing holds on
student transcripts. Accordingly, we are proposing to expand the provisional
conditions related to transcript withholding to increase students' access Start
Printed Page 32474 to their educational records at institutions with risk of
closure or institutions that are not financially responsible or administratively
capable.
ABILITY TO BENEFIT
The Department considered not regulating in this area. We were concerned,
however, that the lack of an update to ATB regulations since the mid-1990s could
create confusion. Moreover, the Department had stated in DCL GEN 16–09 that we
would not develop a career pathway program approval process but would instead
review the eligibility of these programs through program reviews and audits.
This statement in effect allowed institutions to use their best-faith
determinations to initiate eligible career pathway programs but provided no
framework for how the Department would evaluate these programs from through a
program review. This led to a vacuum in guidance for institutions and authority
to intervene for the Department. We also think this ultimately chilled the usage
of a State process, the first application we received was in 2019 and as of
February 2023 only six States have applied for approval. The Department also
noted that there were technical updates to the regulations necessary to codify
the changes to student eligibility made by Public Law 113–235 in 2014.
Therefore, we decided the added clarity from these proposed regulations would
result in greater usage of the State process for ATB, while still preserving
protections for students and taxpayers.
The Department also considered using completion rates as an outcome metric in
our approval of a State process, as opposed to the success rate calculation that
is required under the current regulation and amended in this proposed
regulation. We were concerned with the complexity of developing a framework for
a completion rate in regulation for eligible career pathway programs. These
programs can be less than two-years, two-years, or four-years long. We did not
want to create a framework in regulation that did not account for the nuances
between programs. We believe we have clarified the calculation with the proposed
amendments to the success rate calculation. We also propose to lower the success
rate threshold from 95 percent to 85 percent and to give the Secretary the
ability to lower it to 75 percent for up to two years if more than 50 percent of
the participating institutions in the State cannot achieve the 85 percent
success rate. This would provide participating institutions and the Department
reasonable accommodations for unintended or unforeseen circumstances that may
arise.
In drafting proposed § 668.157, we initially did not require postsecondary
institutions to document that students would receive adult education and
literacy activities as described in 34 CFR 463.30 and workforce preparation
activities as described in 34 CFR 463.34, simultaneously. A negotiator
recommended that the Department utilize existing definitions in the Code of
Federal regulations for concepts like adult education and literacy services and
workforce preparation activities, and the Department agreed to propose to cross
reference them instead of creating different standards in 34 CFR 668.157. We
also did not initially consider proposing to require that, in order to
demonstrate that the program aligns with the skill needs of industries in the
State or regional labor market, the institution would have to submit (1)
Government reports (2) Surveys, interviews, meetings, or other information, and
(3) Documentation that demonstrates direct engagement with industry. We were
persuaded by a committee member that the documentation the Department initially
considered proposing was lacking and could allow programs that did not comply
with the definition of an eligible career pathway program to be approved. Our
goal is to ensure students have ability to benefit and we believe these proposed
reasonable documentation standards would achieve that.
CLARITY OF THE REGULATIONS
Executive Order 12866 and the Presidential memorandum “Plain Language in
Government Writing” require each agency to write regulations that are easy to
understand. The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such as the
following:
* Are the requirements in the proposed regulations clearly stated?
* Do the proposed regulations contain technical terms or other wording that
interferes with their clarity?
* Does the format of the proposed regulations (grouping and order of sections,
use of headings, paragraphing, etc.) aid or reduce their clarity?
* Would the proposed regulations be easier to understand if we divided them
into more (but shorter) sections? (A “section” is preceded by the symbol “§ ”
and a numbered heading; for example, § 668.2.)
• Could the description of the proposed regulations in the SUPPLEMENTARY
INFORMATION section of this preamble be more helpful in making the proposed
regulations easier to understand? If so, how?
* What else could we do to make the proposed regulations easier to understand?
To send any comments that concern how the Department could make these proposed
regulations easier to understand, see the instructions in the ADDRESSES section.
10. REGULATORY FLEXIBILITY ACT ANALYSIS
This section considers the effects that the proposed regulations may have on
small entities in the Educational Sector as required by the Regulatory
Flexibility Act (RFA, 5 U.S.C. et seq., Pub. L. 96–354) as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA). The purpose of
the RFA is to establish as a principle of regulation that agencies should tailor
regulatory and informational requirements to the size of entities, consistent
with the objectives of a particular regulation and applicable statutes. The RFA
generally requires an agency to prepare a regulatory flexibility analysis of any
rule subject to notice and comment rulemaking requirements under the
Administrative Procedure Act or any other statute unless the agency certifies
that the rule will not have a “significant impact on a substantial number of
small entities.” As we describe below, the Department anticipates that the
proposed regulatory action would have a significant economic impact on a
substantial number of small entities. We therefore present this Initial
Regulatory Flexibility Analysis. Our analysis focuses on the financial value
transparency and gainful employment (GE) components of the proposed regulation,
as those would have the most economically significant implications for small
entities.
DESCRIPTION OF THE REASONS THAT ACTION BY THE AGENCY IS BEING CONSIDERED
The Secretary is proposing new regulations to address concerns about the rising
cost of postsecondary education and training and increased student borrowing by
establishing an accountability and transparency framework to encourage eligible
postsecondary programs to produce acceptable debt and earnings outcomes, apprise
current and prospective students of those outcomes, and provide better
information about program price. Proposed regulations for gainful employment
would establish eligibility and certification requirements tied to the
debt-to-earnings and median earnings (relative to high school Start Printed Page
32475 graduates) of program graduates. These regulations address ongoing
concerns about educational programs that are required by statute to provide
training that prepares students for gainful employment in a recognized
occupation, but instead are leaving students with unaffordable levels of loan
debt in relation to their earnings or earnings lower than that of a typical high
school graduate. These programs often lead to default or provide no earnings
benefit beyond that provided by a high school education, thus failing to fulfill
their intended goal of preparing students for gainful employment.
SUCCINCT STATEMENT OF THE OBJECTIVES OF, AND LEGAL BASIS FOR, THE REGULATIONS
Through the proposed financial value transparency regulations, the Department
aims to ensure that prospective students, families, and taxpayers can receive
accurate information about program costs, typical borrowing, available financial
aid, and realistic earnings potential to evaluate a program and compare it to
similar programs offered at other institutions before investing time and
resources in a postsecondary program. The GE regulations further aim to ensure
that students receiving title IV, HEA aid only enroll in GE programs if such
programs prepare students for gainful employment.
The Department's authority to pursue financial value transparency in GE programs
and eligible non-GE programs and accountability in GE programs is derived
primarily from three categories of statutory enactments: first, the Secretary's
generally applicable rulemaking authority in 20 U.S.C. 1221e–3 (section 410 of
the General Education Provisions Act) and 20 U.S.C. 3474 (section 414 of the
Department of Education Organization Act), along with 20 U.S.C. 1231a, which
applies in part to title IV, HEA; second, authorizations and directives within
sections 131 and 132 of title IV of the HEA, regarding the collection and
dissemination of potentially useful information about higher education programs,
as well as section 498 of the HEA, regarding eligibility and certification
standards for institutions that participate in title IV; and third, the further
provisions within title IV of the HEA, such as sections 101 and 481, which
address the limits and responsibilities of gainful employment programs. The
specific statutory sources of this authority are detailed in the Authority for
This Regulatory Action section of the Preamble above.
DESCRIPTION OF AND, WHERE FEASIBLE, AN ESTIMATE OF THE NUMBER OF SMALL ENTITIES
TO WHICH THE PROPOSED REGULATIONS WOULD APPLY
The Small Business Administration (SBA) defines “small institution” using data
on revenue, market dominance, tax filing status, governing body, and population.
The majority of entities to which the Office of Postsecondary Education's (OPE)
regulations apply are postsecondary institutions, however, which do not report
data on revenue that is directly comparable across institutions. As a result,
for purposes of this NPRM, the Department proposes to continue defining “small
entities” by reference to enrollment, to allow meaningful comparison of
regulatory impact across all types of higher education institutions. The
enrollment standard for a small two-year institution is less than 500
full-time-equivalent (FTE) students and for a small four-year institution, less
than 1,000 FTE students.[286] We invite public comment on whether our Regulatory
Flexibility Analysis would more accurately reflect the burden on small entities
if we instead used the revenue standards set out in 13 CFR part 121, sector
61—Educational Services.
Expand Table
Table 10.1—Small Institutions Under Enrollment-Based Definition
SmallTotalPercentProprietary1,9732,331852-year1,7341,990874-year23934170Private
not-for-profit9831,831542-year185203914-year7981,62849Public3801,924202-year3171,145284-year637798Total3,3366,08655
Table 10.1 summarizes the number of institutions affected by these proposed
regulations. As seen in Table 10.2, the average total revenue at small
institutions ranges from $2.6 million for proprietary institutions to $16.6
million at private institutions.
Expand Table
Table 10.2—Average and Total Revenues at Small Institutions
AverageTotalProprietary2,593,3825,116,742,1792-year1,782,9693,091,667,6944-year8,473,1152,025,074,485Private
not-for-profit16,608,84916,326,498,5342-year3,101,962573,862,9384-year19,740,14515,752,635,596Public8,644,3873,284,866,903Start
Printed Page
324762-year4,153,8421,316,767,9904-year31,239,6651,968,098,913Total7,412,50224,728,107,616
These proposed regulations require additional reporting and compliance by all
title IV postsecondary institutions, including all small entities, and thus
would have a significant impact on a substantial number of small entities.
Furthermore, GE programs at small institutions could be at risk of losing the
ability to distribute title IV, HEA funds under the proposed regulations if they
fail either the debt-to-earnings (D/E) or Earnings Premium (EP) metrics, as
described in the Financial Value and Transparency and GE sections of the
proposed regulation. Non-GE programs at small institutions that fail the D/E
metric would be required to have students acknowledge having seen this
information prior to aid disbursement.
Thus, all (100 percent) of small entities will be impacted by the reporting and
compliance aspects of the rule, which we quantify below. As we describe in more
detail below, the Department estimates that 1.2 percent of non-GE programs at
small institutions would fail the D/E metric, thus triggering the
acknowledgement requirement. The Department also estimates that 15.9 percent of
GE programs at small institutions would fail either the D/E or EP metric, thus
being at risk of losing title IV, HEA eligibility. GE programs represent 45
percent of enrollment at small institutions.
The Department's analysis shows programs at small institutions are much more
likely to have insufficient sample size to compute and report D/E and EP
metrics, though the rate of failing to pass both metrics is higher for programs
at such institutions.[287]
As noted in the net budget estimate section, we do not anticipate that the
proposed Financial Responsibility, Administrative Capability, Certification
Procedures, and Ability to Benefit components of the regulation would have any
significant budgetary impact, this includes on a substantial number of small
entities. We have, however, run a sensitivity analysis of what an effect of the
Financial Responsibility provisions could be on offsetting the transfers of
certain loan discharges from the Department to borrowers by obtaining additional
funds from institutions. We conclude that these provisions could increase
recoveries via closed school discharges or borrower defense of $4 to $5 million
from all types of institutions, not just small institutions. Since these amounts
scale with the number of students, we anticipate the impact to be much smaller
at small entities.
Table 10.3 and 10.4 show the number and percentage of non-GE enrollees and
non-GE programs at small institutions in each status relative to the performance
standard. The share of non-GE programs that have sufficient data and fail the
D/E metric is higher for programs at small institutions (1.6 percent) than it is
for all institutions (0.6 percent, Table 3.5). Failing the D/E metric for non-GE
programs initiates a requirement that the institution must have title IV, HEA
students acknowledge having seen the informational disclosures before Federal
student aid is disbursed. The share of title IV, HEA enrollment in such programs
is also higher at small institutions (9.3 percent for small institutions vs. 1.9
percent for all institutions, Table 3.5).
Expand Table
Table 10.3—Number of Enrollees in Non-GE Programs at Small Institutions by
Result, by Control and Credential Level
Result in 2019No dataPassFail D/E onlyFail both D/E and EPFail EP
onlyN%N%N%N%N%Public:Associate's23,00085.03,50013.000.000.05002.0Bachelor's8,90075.13,00024.900.000.000.0Master's50032.21,10067.800.000.000.0Doctoral30036.360063.700.000.000.0Professional2,10045.31,40029.81,20024.900.000.0Total35,00075.69,50020.71,2002.500.05001.2Private,
Nonprofit:Associate's27,00058.613,50029.32,5005.51,4003.11,6003.4Bachelor's160,20073.943,30019.94,6002.15,1002.43,7001.7Master's28,10058.115,40031.93,7007.61,1002.3500.1Doctoral6,30037.93,60021.36,80040.4700.400.0Professional8,00022.48,30023.119,40053.800.02000.7Total229,80063.184,10023.137,00010.27,7002.15,6001.5Total:Associate's50,00068.417,00023.32,5003.41,4002.02,1002.9Bachelor's169,10073.946,20020.24,6002.05,1002.23,7001.6Master's28,60057.316,50033.03,7007.41,1002.2500.1Doctoral6,70037.84,20023.56,80038.3700.400.0Start
Printed Page
32477Professional10,20025.09,70023.920,50050.500.02000.6Total264,60064.593,60022.838,1009.37,7001.96,1001.5Note:
Enrollment counts rounded to the nearest 100.
Expand Table
Table 10.4—Number of Non-GE Programs at Small Institutions by Result, by Control
and Credential Level
Result in 2019No dataPassFail D/E onlyFail both D/E and EPFail EP
onlyN%N%N%N%N%Public:Associate's70097.3202.300.000.030.4Bachelor's20095.494.600.000.000.0Master's3081.1718.900.000.000.0Doctoral2089.5210.500.000.000.0Professional1060.0426.7213.300.000.0Total10095.6403.920.200.030.3Private,
Nonprofit:Associate's70091.6506.730.450.660.7Bachelor's4,20094.72004.1200.4190.4200.4Master's90087.21009.5302.660.620.2Doctoral20087.1104.9207.610.400.0Professional8065.61010.93021.100.032.3Total6,10092.34005.4901.4310.5300.4Total:Associate's1,50094.3704.630.250.390.6Bachelor's4,40094.72004.1200.4190.4200.3Master's1,00086.91009.8302.560.620.2Doctoral20087.2105.3207.010.400.0Professional10065.02012.63020.300.032.1Total7,10092.74005.21001.2310.4300.4Note:
Program counts rounded to nearest hundred when above hundred, nearest 10 when
below 100, and unrounded when below 10.
Tables 10.5 and 10.6 report similar tabulations for GE programs at small
institutions. GE programs include non-degree certificate programs at all
institutions and all degree programs at proprietary institutions. GE programs at
small institutions are more likely to have a failing D/E or EP metrics (15.9
percent of all GE programs at small institutions, compared to 5.5 percent for
all institutions in Table 3.9) and have a greater share of enrollment in such
programs (45.3 percent vs. 24.0 percent for all institutions in Table 3.8). GE
programs that fail the same performance metric in two out of three consecutive
years will become ineligible to administer Federal title IV, HEA student aid.
Expand Table
Table 10.5—Number of Enrollees in GE Programs at Small Institutions by Result,
by Control and Credential Level
Result in 2019No dataPassFail D/E onlyFail both D/E and EPFail EP
onlyN%N%N%N%N%Public:UG Cert26,00071.89,30025.700.000.09002.6Post-BA
Cert30100.000.000.000.000.0Grad
Cert10077.24022.800.000.000.0Total26,10071.89,30025.600.000.09002.6Private,
Nonprofit:UG Cert9,10045.65,10025.800.01000.65,50027.9Post-BA
Cert.1,400100.000.000.000.000.0Grad
Cert1,40070.300.060029.700.000.0Total11,90051.05,10022.06002.61000.55,50023.8Proprietary:Start
Printed Page 32478UG
Cert44,70021.636,50017.6800.025,20012.1101,00048.7Associate's18,80040.912,60027.47,10015.55,20011.32,3005.0Bachelor's8,80065.13,40025.11,1008.22001.700.0Post-BA
Cert5055.84044.200.000.000.0Master's2,90074.22003.93008.260013.600.0Doctoral1,70075.430011.330013.300.000.0Professional1,00037.71003.71,60058.600.000.0Grad
Cert30077.800.000.000.07022.2Total78,20028.353,00019.210,5003.831,10011.3103,40037.4Total:UG
Cert79,80030.350,90019.3800.025,3009.6107,50040.8Associate's18,80040.912,60027.47,10015.55,20011.32,3005.0Bachelor's8,80065.13,40025.11,1008.22001.700.0Post-BA
Certs1,40097.4402.600.000.000.0Master's2,90074.22003.93008.250013.600.0Doctoral1,70075.430011.330013.300.000.0Professional1,00037.71003.71,60058.600.000.0Grad
Certs1,80071.7301.460024.000.0702.9Total116,30034.667,40020.111,1003.331,3009.3109,80032.7Note:
Enrollment counts rounded to the nearest 100, except where counts are less than
100, where they are rounded to nearest 10 (and suppressed when under 30).
Expand Table
Table 10.6—Number of GE Programs at Small Institutions by Result, by Control and
Credential Level
Result in 2019No dataPassFail D/E onlyFail both D/E and EPFail EP
onlyN%N%N%N%N%Public UG:Certificates1,70092.41006.300.000.0201.3Post-BA
Certs10100.000.000.000.000.0Grad
Certs1091.718.300.000.000.0Total1,70092.51006.300.000.0201.2Private, Nonprofit
UG:Certificates30083.9409.000.010.2306.8Post-BA
Certs100100.000.000.000.000.0Grad
Certs10098.100.021.900.000.0Total60089.6405.720.310.2304.3Proprietary
UG:Certificates1,00052.320010.610.11006.460030.6Associate's50079.6709.6365.3202.9202.5Bachelor's20087.9207.194.020.900.0Post-BA
Certs1091.718.300.000.000.0Master's9091.822.022.044.100.0Doctoral3094.312.912.900.000.0Professional2080.015.0315.000.000.0Grad
Certs2084.200.000.000.0315.8Total1,90063.33009.7521.72005.062020.4Total
UGCertificates3,10072.84008.610.01003.065015.5Associate's50079.6709.6365.3202.9202.5Bachelor's20087.9207.194.020.900.0Post-BA
Certs20099.410.600.000.000.0Master's10091.822.022.044.100.0Doctoral3094.312.912.900.000.0Professional2080.015.0315.000.000.0Grad
Certs10095.610.721.500.032.2Total4,20076.15008.1541.02002.870012.1Note: Program
counts rounded to nearest hundred when above hundred, nearest 10 when below 100,
and unrounded when below 10.
Start Printed Page 32479
DESCRIPTION OF THE PROJECTED REPORTING, RECORDKEEPING, AND OTHER COMPLIANCE
REQUIREMENTS OF THE PROPOSED REGULATIONS, INCLUDING AN ESTIMATE OF THE CLASSES
OF SMALL ENTITIES THAT WOULD BE SUBJECT TO THE REQUIREMENTS AND THE TYPE OF
PROFESSIONAL SKILLS NECESSARY FOR PREPARATION OF THE REPORT OR RECORD
The proposed rule involves four types of reporting and compliance requirements
for institutions, including small entities. First, under proposed § 668.43,
institutions would be required to provide additional programmatic information to
the Department and make this and additional information assembled by the
Department available to current and prospective students by providing a link to
a Department-administered disclosure website. Second, under proposed § 668.407,
the Department would require acknowledgments from current and prospective
students prior to the disbursement of title IV, HEA funds if an eligible non-GE
program leads to high debt outcomes based on its D/E rates. Third, under
proposed § 668.408, institutions would be required to provide new annual
reporting about programs, current students, and students that complete or
withdraw during each award year. As described in the Preamble of this proposed
rule, reporting includes student-level information on enrollment, cost of
attendance, tuition and fees, allowances for books and supplies, allowances for
housing, institutional and other grants, and private loans disbursed. Finally,
under proposed § 668.605, institutions with GE programs that fail at least one
of the metrics would be required to provide warnings to current and prospective
students about the risk of losing title IV, HEA eligibility and would require
that students must acknowledge having seen the warning before the institution
may disburse any title IV, HEA funds.
Initial estimates of the reporting and compliance burden for these four items
for small entities are provided in Table 10.7, though these are subject to
revision as the content of the required reporting is refined.[288]
Expand Table
Table 10.7—Initial and Subsequent Reporting and Compliance Burden for Small
Entities
§ 668.43Amend § 668.43 to establish a website for the posting and distribution
of key information and disclosures pertaining to the institution's educational
programs, and to require institutions to provide information about how to access
that website to a prospective student before the student enrolls, registers, or
makes a financial commitment to the institution6,700,807.§ 668.407Add a new
§ 668.407 to require current and prospective students to acknowledge having seen
the information on the disclosure website maintained by the Secretary if an
eligible non-GE program has failed the D/E rates measure, to specify the content
and delivery of such acknowledgments, and to require that students must provide
the acknowledgment before the institution may disburse any title IV, HEA
funds25,522.§ 668.408Add a new § 668.408 to establish institutional reporting
requirements for students who enroll in, complete, or withdraw from a GE program
or eligible non-GE program and to establish the reporting timeframe31,121,875
initial, 12,689,497 subsequent years.§ 668.605Add a new § 668.605 to require
warnings to current and prospective students if a GE program is at risk of
losing title IV, HEA eligibility, to specify the content and delivery parameters
of such notifications, and to require that students must acknowledge having seen
the warning before the institution may disburse any title IV, HEA funds415,809.
As described in the Preamble, much of the necessary information for GE programs
would already have been reported to the Department under the 2014 Prior Rule,
and as such we believe the added burden of this reporting relative to existing
requirements would be reasonable. Furthermore, 88 percent of public and 47
percent of private non-profit institutions operated at least one GE program and
thus have experience with similar data reporting for the subset of their
students enrolled in certificate programs under the 2014 Prior Rule. Moreover,
many institutions report more detailed information on the components of cost of
attendance and other sources of financial aid in the Federal National
Postsecondary Student Aid Survey (NPSAS) administered by the National Center for
Education Statistics. Finally, the Department proposes flexibility for
institutions to avoid reporting data on students who completed programs in the
past for the first year of implementation, and instead to use data on more
recent completer cohorts to estimate median debt levels. In part, this is
intended to ease the administrative burden of providing this data for programs
that were not covered by the 2014 Prior Rule reporting requirements, especially
for the small number of institutions that may not previously have had any
programs subject to these requirements.
The Department recognizes that institutions may have different processes for
record-keeping and administering financial aid, so the burden of the GE and
financial transparency reporting could vary by institution. As noted previously,
a high percentage of institutions have already reported data related to the 2014
Prior Rule or similar variables for other purposes. Many institutions may have
systems that can be queried or existing reports that can be adapted to meet
these reporting requirements. On the other hand, some institutions may still
have data entry processes that are very manual in nature and generating the
information for their programs could involve many more hours and resources.
Small entities may be less likely to have invested in systems and processes that
allow easy data reporting because it is not needed for their operations.
Institutions may fall in between these poles and be able to automate the
reporting of some variables but need more effort for others.
We believe that, while the reporting relates to program or student-level
information, the reporting process is likely to be handled at the institutional
level. There would be a cost to establish the query or report and validate it
upfront, but then the marginal increase in costs to process additional programs
or students should not be too significant. The reporting process will involve
staff members or contractors with different skills and levels of responsibility.
We have estimated this using Bureau of Labor statistics median hourly wage rates
for postsecondary administrators of $46.59.[289] Table 10.8 presents the
Department's estimates of the hours associated with the reporting requirements.
Start Printed Page 32480
Expand Table
Table 10.8—Estimated Hours for Reporting Requirements
ProcessHoursHours basisReview systems and existing reports for adaptability for
this reporting10Per institution.Develop reporting query/result
template:Program-level reporting15Per institution.Student-level reporting30Per
institution.Run test reports:Program-level reporting0.25Per
institution.Student-level reporting0.5Per institution.Review/validate test
report results:Program-level reporting10Per institution.Student-level
reporting20Per institution.Run reports:Program-level reporting0.25Per
program.Student-level reporting0.5Per program.Review/validate report
results:Program-level reporting2Per program.Student-level reporting5Per
program.Certify and submit reporting10Per institution.
The ability to set up reports or processes that can be rerun in future years,
along with the fact that the first reporting cycle includes information from
several prior years, means that the expected burden should decrease
significantly after the first reporting cycle. We estimate that the hours
associated with reviewing systems, developing or updating queries, and reviewing
and validating the test queries or reports will be reduced by 35 percent after
the first year. The queries or reports would have to be run and validated to
make sure no system changes have affected them and the institution will need to
confirm there are no program changes in CIP code, credential level, preparation
for licensure, accreditation, or other items, but we expect that would be less
burdensome than initially establishing the reporting. Table 10.9 presents
estimates of reporting burden for small entities for the initial year and
subsequent years under proposed § 668.408.
Expand Table
Table 10.9.1—Estimated Reporting Burden for Small Entities for the Initial
Reporting Cycle
Control and levelInstitution countProgram countHoursAmountPrivate
2-year13939325,4921,187,684Proprietary 2-year1,2272,635199,1709,279,342Public
2-year2862,05891,1834,248,193Private 4-year6556,876275,87212,852,888Proprietary
4-year1461,09848,0182,237,135Public
4-year5275128,2601,316,633Total2,50513,811667,99531,121,875
Expand Table
Table 10.9.2—Estimated Reporting Burden for Small Entities for Subsequent
Reporting Cycle
Control and levelInstitution countProgram countHoursAmountPrivate
2-year13939312,220569,318Proprietary 2-year1,2272,635101,4034,724,377Public
2-year2862,05834,8261,622,520Private 4-year6556,87696,5194,496,820Proprietary
4-year1461,09818,146845,399Public
4-year527519,252431,062Total2,50513,811272,36512,689,497
The Department welcomes comments from small entities on the processes and burden
required to meet the reporting requirements under the proposed regulations.
IDENTIFICATION, TO THE EXTENT PRACTICABLE, OF ALL RELEVANT FEDERAL REGULATIONS
THAT MAY DUPLICATE, OVERLAP OR CONFLICT WITH THE PROPOSED REGULATIONS
The proposed regulations are unlikely to conflict with or duplicate existing
Federal regulations. Under existing law and regulations, institutions are
already required to disclose data and provide reporting in a number of areas
related to the regulations. The regulations propose using data that is already
reported by institutions or collected administratively by the Department
wherever possible.
ALTERNATIVES CONSIDERED
As described in section 9 of the Regulatory Impact Analysis above, Start Printed
Page 32481 “Alternatives Considered”, we evaluated several alternative
provisions and approaches including using D/E rates only, alternative earnings
thresholds, no reporting or acknowledgement requirements for non-GE programs,
and several alternative ways of computing the performance metrics (smaller
n-sizes and different interest rates or amortization periods). Most relevant to
small entities was the alternative of using a lower n-size, which would result
in larger effects on programs at small entities, both in terms of risk for loss
of eligibility for GE programs and greater burden for providing warnings and/or
disclosure acknowledgement. The alternative of not requiring reporting or
acknowledgements in the case of failing metrics for non-GE programs would result
in lower reporting burden for small institutions but was deemed to be
insufficient to achieve the goal of creating greater transparency around program
performance.
11. PAPERWORK REDUCTION ACT OF 1995
As part of its continuing effort to reduce paperwork and respondent burden, the
Department provides the general public and Federal agencies with an opportunity
to comment on proposed and continuing collections of information in accordance
with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)). This
helps ensure that the public understands the Department's collection
instructions, respondents can provide the requested data in the desired format,
reporting burden (time and financial resources) is minimized, collection
instruments are clearly understood, and the Department can properly assess the
impact of collection requirements on respondents. Sections 600.21, 668.14,
668.15, 668.16, 668.23, 668.43, 668.156, 668.157, 668.171, 668.407, 668.408, and
668.605 of this proposed rule contain information collections requirements.
Under the PRA, the Department has or will at the required time submit a copy of
these sections and Information Collection requests to OMB for its review. A
Federal agency may not conduct or sponsor a collection of information unless OMB
approves the collection under the PRA and the corresponding information
collection instrument displays a currently valid OMB control number.
Notwithstanding any other provision of law, no person is required to comply
with, or is subject to penalty for failure to comply with, a collection of
information if the collection instrument does not display a currently valid OMB
control number. In the final regulations, we would display the control numbers
assigned by OMB to any information collection requirements proposed in this NPRM
and adopted in the final regulations.
Section 600.21—Updating application information.
Requirements: The proposed change to §§ 600.21((1)(11)(v) and (vi), would
require an institution with GE programs to update any changes in certification
of those program(s).
Burden Calculations: The proposed regulatory change would require an update to
the current institutional application form, 1845–0012. The form update would be
made available for comment through a full public clearance package before being
made available for use by the effective dates of the regulations. The burden
changes would be assessed to OMB Control Number 1845–0012, Application for
Approval to Participate in Federal Student Aid Programs.
Section 668.14—Program participation agreement.
Requirements: The NPRM proposes to redesignate current § 668.14(e) as
§ 668.14(h). The Department also proposes to add a new paragraph (e) that
outlines a non-exhaustive list of conditions that we may opt to apply to
provisionally certified institutions. The NPRM proposes that institutions at
risk of closure must submit an acceptable teach-out plan or agreement to the
Department, the State, and the institution's recognized accrediting agency. The
NPRM proposes that institutions at risk of closure must submit an acceptable
records retention plan that addresses title IV, HEA records, including but not
limited to student transcripts, and evidence that the plan has been implemented,
to the Department.
The NPRM also proposes that an institution at risk of closure that is teaching
out, closing, or that is not financially responsible or administratively
capable, would release holds on student transcripts. Other conditions for
institutions that are provisionally certified and may be applied by the
Secretary are also proposed.
Burden Calculations: The proposed NPRM regulatory language in § 668.14 would add
burden to all institutions, domestic and foreign. The proposed change in
§ 668.14(e) would potentially require provisionally certified institutions at
risk of closure to submit to the Department acceptable teach-out plans, and
acceptable record retention plans. For provisionally certified institutions at
risk of closure, are teaching out or closing, or are not financially responsible
or administratively capable, the proposed change requires the release of holds
on student transcripts.
We believe that this type of update would require 10 hours for each institution
to provide the appropriate material, or required action based on the proposed
regulations. As of January 2023, there were a total of 863 domestic and foreign
institutions that were provisionally certified. We estimate that of that figure
5% or 43 provisionally certified institutions may be at risk of closure. We
estimate that it would take private non-profit institutions 250 hours (25 × 10 =
250) to complete the submission of information or required action. We estimate
that it would take proprietary institutions 130 hours (13 × 10 = 130) to
complete the submission of information or required action. We estimate that it
would take public institutions 50 hours (5 × 10 = 50) to complete the submission
of information or required action.
The estimated § 668.14(e) total burden is 430 hours with a total rounded
estimated cost for all institutions of $20,035 (430 × $46.59 = $20,033.70).
Expand Table
Student Assistance General Provisions—OMB Control Number 1845–0022
Affected entityRespondentResponsesBurden hoursCost $46.59 per institutionPrivate
non-profit2525250$11,648Proprietary13131306,057Public55502,330Total434343020,035
Start Printed Page 32482
Section 668.15—Factors of financial responsibility.
Requirements: This section is being removed and reserved.
Burden Calculations: With the removal of regulatory language in Section 668.15
the Department would remove the associated burden of 2,448 hours under OMB
Control Number 1845–0022.
Expand Table
Student Assistance General Provisions—OMB Control Number 1845–0022
Affected entityRespondentResponsesBurden hoursCost $46.59 per institutionPrivate
non-profit−866−866−816−$38,017Proprietary−866−866−816−$38,017Public−866−866−816−$38,017Total−2,598−2,598−2,448−$114,051
Section 668.16—Standards of administrative capability.
Requirements: The Department proposes to amend § 668.16 to clarify the
characteristics of institutions that are administratively capable. The NPRM
proposes amending § 668.16(h) which would require institutions to provide
adequate financial aid counseling and financial aid communications to advise
students and families to accept the most beneficial types of financial
assistance available to enrolled students. This would include clear information
about the cost of attendance, sources and amounts of each type of aid separated
by the type of aid, the net price, and instructions and applicable deadlines for
accepting, declining, or adjusting award amounts. Institutions would also have
to provide students with information about the institution's cost of attendance,
the source and type of aid offered, whether it must be earned or repaid, the net
price, and deadlines for accepting, declining, or adjusting award amounts.
The NPRM also proposes amending § 668.16(p) which would strengthen the
requirement that institutions must develop and follow adequate procedures to
evaluate the validity of a student's high school diploma if the institution or
the Department has reason to believe that the high school diploma is not valid
or was not obtained from an entity that provides secondary school education. The
Department proposes to update the references to high school completion in the
current regulation to high school diploma which would set specific requirements
to the existing procedural requirement for adequate evaluation of the validity
of a student's high school diploma.
Burden Calculations: The proposed NPRM regulatory language in § 668.16 would add
burden to all institutions, domestic and foreign. The proposed changes in
§ 668.16(h) would require an update to the financial aid communications provided
to students.
We believe that this update would require 8 hours for each institution to review
their current communications and make the appropriate updates to the material
based on the proposed regulations. We estimate that it would take private
non-profit institutions 15,304 hours (1,913 × 8 = 15,304) to complete the
required review and update. We estimate that it would take proprietary
institutions 12,302 hours (1,504 × 8 = 12,302) to complete the required review
and update. We estimate that it would take public institutions 14,504 hours
(1,813 × 8 = 14,504) to complete the required review and update. The estimated
§ 668.16(h) total burden is 41,840 hours with a total rounded estimated cost for
all institutions of $1,949,326 (41,840 × $46.59 = 1,949,325.60).
The proposed changes in § 668.16(p) would add requirements for adequate
procedures to evaluate the validity of a student's high school diploma if the
institution or the Department has reason to believe that the high school diploma
is not valid or was not obtained from an entity that provides secondary school
education.
We believe that this update would require 3 hours for each institution to review
their current policy and procedures for evaluating high school diplomas and make
the appropriate updates to the material based on the proposed regulations. We
estimate that it would take private non-profit institutions 5,739 hours (1,913 ×
3 = 5,739) to complete the required review and update. We estimate that it would
take proprietary institutions 4,512 hours (1,504 × 3 = 4,512) to complete the
required review and update. We estimate that it would take public institutions
5,439 hours (1,813 × 3 = 5,439) to complete the required review and update. The
estimated § 668.16(p) total burden is 15,690 hours with a total rounded
estimated cost for all institutions of $730,997 (15,690 × $46.59 = $730,997.10).
The total estimated increase in burden to OMB Control Number 1845–0022 for
§ 668.16 is 57,530 hours with a total rounded estimated cost of $2,680,323.
Expand Table
Student Assistance General Provisions—OMB Control Number 1845–0022
Affected entityRespondentResponsesBurden hoursCost $46.59 per institutionPrivate
non-profit1,9133,82621,043$980,394Proprietary1,5043,00816,544770,785Public1,8133,62619,943929,144Total5,23010,46057,5302,680,323
Section 668.23—Compliance audits and audited financial statements.
Requirements: The Department proposes to add § 668.23(d)(2)(ii) that would
require that an institution, domestic or foreign, that is owned by a foreign
entity holding at least a 50 percent voting or equity interest to Start Printed
Page 32483 provide documentation of its status under the law of the jurisdiction
under which it is organized, as well as basic organizational documents. The
submission of such documentation would better equip the Department to obtain
appropriate and necessary documentation from an institution which has a foreign
owner or owners with 50 percent or greater voting or equity interest which would
provide a clearer picture of the institution's legal status to the Department,
as well as who exercises direct or indirect ownership over the institution.
The Department also proposes adding new § 668.23(d)(5) that would require an
institution to disclose in a footnote to its financial statement audit the
dollar amounts it has spent in the preceding fiscal year on recruiting
activities, advertising, and other pre-enrollment expenditures.
Burden Calculations: The proposed NPRM regulatory language in § 668.23(d)(2)(ii)
would add burden to foreign institutions and certain domestic institutions to
submit documentation, translated into English as needed.
We believe this reporting activity would require an estimated 40 hours of work
for affected institutions to complete. We estimate that it would take private
non-profit institutions 13,520 hours (338 × 40 = 13,520) to complete the
required documentation gathering and translation as needed. We estimate that it
would take proprietary institutions 920 hours (23 × 40 = 920) to complete the
required footnote activity. The estimated § 668.23(d)(2)(ii) total burden is
14,440 hours with a total rounded estimated cost for all institutions of
$672,760 (14,440 × $46.59 = $672,759.60).
The proposed NPRM regulatory language in § 668.23(d)(5) would add burden to all
institutions, domestic and foreign. The proposed changes in § 668.23(d)(5) would
require a footnote to its financial statement audit regarding the dollar amount
spent in the preceding fiscal year on recruiting activities, advertising, and
other pre-enrollment expenditures.
We believe that this footnote reporting activity would require an estimated 8
hours per institution to complete. We estimate that it would take private
non-profit institutions 15,304 hours (1,913 × 8 = 15,304) to complete the
required footnote activity. We estimate that it would take proprietary
institutions 12,032 hours (1,504 × 8 = 12,032) to complete the required footnote
activity. We estimate that it would take public institutions 14,504 hours (1,813
× 8 = 14,504) to complete the required footnote activity. The estimated
§ 668.23(d)(5) total burden is 41,840 hours with a total rounded estimated cost
for all institutions of $1,949,326 (41,840 × $46.59 = $1,949,325.60).
The total estimated increase in burden to OMB Control Number 1845–0022 for
§ 668.23 is 56,280 hours with a total rounded estimated cost of $2,622,085.
Expand Table
Student Assistance General Provisions—OMB Control Number 1845–0022
Affected entityRespondentResponsesBurden hoursCost $46.59 per institutionPrivate
non-profit1,9132,25128,824$1,342,910Proprietary1,5041,52712,952603,434Public1,8131,81314,504675,742Total5,2305,59156,2802,622,086
Section 668.43—Institutional and programmatic information.
Requirements: Under proposed § 668.43(d), the Department would establish and
maintain a website for posting and distributing key information and disclosures
pertaining to the institution's educational programs. An institution would
provide such information as the Department prescribes through a notice published
in the Federal Register for disclosure to prospective and enrolled students
through the website.
This information could include, but would not be limited to, the primary
occupations that the program prepares students to enter, along with links to
occupational profiles on O*NET or its successor site; the program's or
institution's completion rates and withdrawal rates for full-time and
less-than-full-time students, as reported to or calculated by the Department;
the length of the program in calendar time; the total number of individuals
enrolled in the program during the most recently completed award year; the total
cost of tuition and fees, and the total cost of books, supplies, and equipment,
that a student would incur for completing the program within the length of the
program; the percentage of the individuals enrolled in the program during the
most recently completed award year who received a title IV, HEA loan, a private
education loan, or both; whether the program is programmatically accredited and
the name of the accrediting agency; and the supplementary performance measures
in proposed § 668.13(e).
The institution would be required to provide a prominent link and any other
needed information to access the website on any web page containing academic,
cost, financial aid, or admissions information about the program or institution.
The Department could require the institution to modify a web page if the
information about how to access the Department's website is not sufficiently
prominent, readily accessible, clear, conspicuous, or direct.
In addition, the Department would require the institution to provide the
relevant information to access the website to any prospective student or third
party acting on behalf of the prospective student before the prospective student
signs an enrollment agreement, completes registration, or makes a financial
commitment to the institution.
Burden Calculations: The proposed NPRM regulatory language in § 668.43(d) would
add burden to all institutions, domestic and foreign. The proposed changes in
§ 668.43(d) would require institutions to supply the Department with specific
information about programs it is offering as well as disclose to enrolled and
prospective students this information.
We believe that this reporting or disclosure activity would require an estimated
50 hours per institution. We estimate that it would take private non-profit
institutions 95,650 hours (1,913 × 50 = 95,650) to complete the required
reporting or disclosure activity. We estimate that it would take proprietary
institutions 75,200 hours (1,504 × 50 = 75,200) to complete the required
reporting or disclosure activity. We estimate that it would take public
institutions 90,650 hours (1,813 × 50 = 90,650) to complete the required
reporting/disclosure activity. Start Printed Page 32484
The total estimated increase in burden to OMB Control Number 1845–0022 for
§ 668.43 is 261,500 hours with a total rounded estimated cost of $12,183,286.
Expand Table
Student Assistance General Provisions—OMB Control Number 1845–0022
Affected entityRespondentResponsesBurden hoursCost $46.59 per institutionPrivate
non-profit1,9131,91395,650$4,456,334Proprietary1,5041,50475,2003,503,568.00Public1,8131,81390,6504,223,384Total5,2305,230261,50012,183,286.00
Section 668.156—Approved State process.
Requirements: The proposed changes in the NPRM to § 668.156 would clarify the
requirements for the approval of a State process. Under proposed § 668.156, a
State must apply to the Secretary for approval of its State process as an
alternative to achieving a passing score on an approved, independently
administered test or satisfactory completion of at least six credit hours or its
recognized equivalent coursework for the purpose of determining a student's
eligibility for title IV, HEA program. The State process is one of the three
ability to benefit alternatives that an individual who is not a high school
graduate could fulfill to receive title IV, HEA, Federal student aid to enroll
in an eligible career pathway program.
The NPRM proposes to amend the monitoring requirement in redesignated
§ 668.156(c) to provide a participating institution that has failed to achieve
the 85 percent success rate up to three years to achieve compliance.
The NPRM also proposes to amend redesignated § 668.156(e) to require that States
report information on race, gender, age, economic circumstances, and education
attainment and permit the Secretary to publish a notice in the Federal Register
with additional information that the Department may require States to submit.
Burden Calculation: We estimate that it would take a State 160 hours to create
and submit an application for a State Process to the Department under the
regulations in Section 668.156(a) for a total of 1,600 hours (160 hours × 10
States).
We estimate that it would take a State an additional 40 hours annually to
monitor the compliance of the institution's use of the State Process under
Section 668.156(c) for a total of 400 hours (40 hours × 10 States). This time
includes the development of any Corrective Action Plan for any institution the
State finds not be complying with the State Process.
We estimate that it would take a State 120 hours to meet the reapplication
requirements in Section 668.156(e) for a total of 1,200 hours (120 hours × 10
States).
The total hours associated with the change in the regulations as of the
effective date of the regulations are estimated at a total of 3,200 hours of
burden (320 hours × 10 States) with a total estimated cost of $1,149,088.00 in
OMB Control Number 1845–NEW1.
Expand Table
Approved State Process—1845–NEW1
Affected entityRespondentResponsesBurden hoursCost $46.59 per
institutionState10303,200$149,088Total10303,200149,088
Section 668.157—Eligible career pathway program.
Requirements: The NPRM proposes changes to subpart J by adding § 668.157 to
clarify the documentation requirements for eligible career pathway program. This
new section would dictate the documentation requirements for eligible career
pathway programs for submission to the Department for approval as a title IV
eligible program. Under § 668.157(b) we propose that, for career pathways
programs that do not enroll students through a State process as defined in
§ 668.156, the Secretary would verify the eligibility of eligible career pathway
programs for title IV, HEA program purposes pursuant to proposed § 668.157(a).
Under proposed § 668.157(b), we would also provide an institution with the
opportunity to appeal any adverse eligibility decision.
Burden Calculations: The proposed NPRM regulatory language in § 668.157 would
add burden to institutions to participate in the eligible career pathway
programs. The proposed regulations in § 668.157 would require institutions to
demonstrate to the Department that the eligible career pathways programs being
offered meet the regulations as proposed.
We estimate that 1,000 institutions would submit the required documentation to
determine eligibility for the eligible career pathway programs. We believe that
this documentation and reporting activity would require an estimated 10 hours
per program per institution. We estimate that each institution would document
and report on five individual eligible career pathways programs for a total of
50 hours per institution. We estimate it would take private non-profit
institutions 18,000 hours (360 institutions × 5 programs = 1,800 programs × 10
hours per program = 18,000) to complete the required documentation and reporting
activity. We estimate that it would take proprietary institutions 6,500 hours
(130 institutions × 5 programs = 650 programs × 10 hours per program = 6,500) to
complete the required documentation and reporting activity. We estimate that it
would take public institutions 25,500 hours (510 institutions × 5 programs =
2,550 programs × 10 hours per program = 25,500) to complete the required
documentation/reporting activity. The total estimated increase in burden to OMB
Control Number 1845–NEW2 for § 668.157 is 50,000 hours with a total estimated
cost of $2,329,500.00. Start Printed Page 32485
Expand Table
Eligible Career Pathways Program—1845–NEW2
Affected entityRespondentResponsesBurden hoursCost $46.59 per institutionPrivate
non-profit3601,80018,000$838,620Proprietary1306506,500302,835Public5102,55025,5001,188,045Total1,0005,00050,0002,329,500
Section 668.171—General.
Requirements: The NPRM proposes to amend § 668.171(f) by adding several new
events to the existing reporting requirements, and expanding others, that must
be reported generally no later than 10 days following the event. Implementation
of the proposed reportable events would make the Department more aware of
instances that may impact an institution's financial responsibility or
stability. The proposed reportable events are linked to the financial standards
in § 668.171(b) and the proposed financial triggers in § 668.171(c) and (d)
where there is no existing mechanism for the Department to know that a failure
or a triggering event has occurred. Notification regarding these events would
allow the Department to initiate actions to either obtain financial protection,
or determine if financial protection is necessary, to protect students from the
negative consequences of an institution's financial instability and possible
closure.
The NPRM also proposes to amend § 668.171(g) by adding language which would
require a public institution to provide to the Department a letter from an
official of the government entity or other signed documentation acceptable to
the Department. The letter or documentation must state that the institution is
backed by the full faith and credit of the government entity. The Department
also proposes similar amendments to apply to foreign institutions.
Burden Calculations: The proposed NPRM regulatory language in § 668.171(f) would
add burden to institutions regarding evidence of financial responsibility. The
proposed regulations in § 668.171(f) would require institutions to demonstrate
to the Department that it met the triggers set forth in the regulations. We
estimate that domestic and foreign, have the potential to hit a trigger that
would require them to submit documentation to determine eligibility for
continued participation in the title IV programs. The overwhelming majority of
reporting would likely stem from the mandatory triggering event on gainful
employment programs that are failing with limited reporting under additional
events. We believe that this documentation and reporting activity would require
an estimated 2 hours per institution. We estimate it would take private
non-profit institutions 100 hours (50 institutions × 2 hours = 100) to complete
the required documentation and reporting activity. We estimate that it would
take proprietary institutions 1,300 hours (650 institutions × 2 hours = 1,300)
to complete the required documentation and reporting activity.
The proposed NPRM regulatory language in § 668.171(g) would add burden to public
institutions regarding evidence of financial responsibility. The proposed
regulations in § 668.171(g) would require institutions to demonstrate to the
Department that the public institution is backed by the full faith and credit of
the government entity. We believe that this document filing would be done by the
majority of the public institutions upon recertification of currently
participating institutions. We estimate that 36 public institutions (two percent
of the currently participating public institutions) would be required to
recertify in a given year. We further estimate that it would take each
institution 5 hours to procure the required documentation from the appropriate
governmental agency for a total of 180 hours (36 institutions × 5 hours = 180
hours).
The total estimated increase in burden to OMB Control Number 1845–0022 for
§ 668.171 is 1,580 hours with a total rounded estimated cost of $73,612.
Expand Table
Student Assistance General Provisions—OMB Control Number 1845–0022
Affected entityRespondentResponsesBurden hoursCost $46.59 per institutionPrivate
non-profit50501004,659Proprietary6506501,30060,567Public36361808,386Total7367361,58073,612
Section 668.407—Student disclosure acknowledgments.
Requirements: The NPRM proposes in Subpart Q—Financial Value Transparency
§ 668.407(a)(1) that a student would be required to provide an acknowledgment of
the D/E rate information for any year for which the Secretary notifies an
institution that the eligible non-GE program has failing D/E rates for the year
in which the D/E rates were most recently calculated by the Department.
Burden Calculations: The proposed NPRM regulatory language in § 668.407 would
add burden to institutions. The proposed changes in § 668.407 would require
institutions to develop and provide notices to enrolled and prospective students
that a program has unacceptable D/E rates for non-GE programs or an unacceptable
D/E rate and earnings premium measure for GE programs for the year in which the
D/E rates or earnings premium measure were most recently calculated by the
Department.
We believe that most institutions would develop the notice directing impacted
students to the Department's disclosure website and make it available
electronically to current and prospective students. We believe that this action
Start Printed Page 32486 would require an estimated 1 hour per affected program.
We estimate that it would take private institutions 661 hours (661 programs × 1
hour = 661) to develop and deliver the required notice based on the information
provided by the Department. We estimate that it would take public institutions
335 hours (335 programs × 1 hour = 335) to develop and deliver the required
notice based on the information provided by the Department.
The proposed changes in § 668.407(a)(1) would require institutions to direct
prospective and students enrolled in the non-GE programs that failed the D/E
rates for the year in which the D/E rates were most recently calculated by the
Department to the Department's disclosure website. We estimate that it would
take the 401,600 students 10 minutes to read the notice and go to the disclosure
website to acknowledge receiving the information for a total of hours (401,600
students × .17 hours = 68,272).
The total estimated increase in burden to OMB Control Number 1845–NEW3 for
§ 668.407 is 69,268 hours with a total rounded estimated cost of $1,548,388.
Expand Table
Student Disclosure Acknowledgments—OMB Control Number 1845–NEW3
Affected entityRespondentResponsesBurden hoursCost $46.59 per institution $22.00
per individualIndividual401,600401,60068,272$1,501,984Private
non-profit17366166130,796Public7433533515,608Total401,847402,59669,2681,548,388
Section 668.408—Reporting requirements.
Requirements: The NPRM proposes in Subpart Q—Financial Value Transparency to add
a new § 668.408 to establish institutional reporting requirements for students
who enroll in, complete, or withdraw from a GE program or eligible non-GE
program and to define the timeframe for institutions to report this information.
Burden Calculations: The proposed regulatory change would require an update to a
Federal Student Aid data system. The reporting update would be made available
for comment through a full public clearance package before being made available
for use on or after the effective dates of the regulations. The burden changes
would be assessed to the OMB Control Number assigned to the system.
Section 668.605—Student warnings and acknowledgments.
Requirements: The NPRM adds a new § 668.605 to require warnings to current and
prospective students if a GE program is at risk of losing title IV, HEA
eligibility, to specify the content and delivery parameters of such
notifications, and to require that students must acknowledge having seen the
warning before the institution may disburse any title IV, HEA funds.
In addition, warnings provided to students enrolled in GE programs would include
a description of the academic and financial options available to continue their
education in another program at the institution in the event that the program
loses eligibility, including whether the students could transfer academic credit
earned in the program to another program at the institution and which course
credit would transfer; an indication of whether, in the event of a loss of
eligibility, the institution would continue to provide instruction in the
program to allow students to complete the program, and refund the tuition, fees,
and other required charges paid to the institution for enrollment in the
program; and an explanation of whether, in the event that the program loses
eligibility, the students could transfer credits earned in the program to
another institution through an established articulation agreement or teach-out.
The institution would be required to provide alternatives to an English-language
warning for current and prospective students with limited English proficiency.
Burden Calculations: The proposed NPRM regulatory language in § 668.605 would
add burden to institutions. The proposed changes in § 668.605 would require
institutions to provide warning notices to enrolled and prospective students
that a GE program has unacceptable D/E rates or an unacceptable earnings premium
measure for the year in which the D/E rates or earnings premium measure were
most recently calculated by the Department along with warnings about the
potential loss of title IV eligibility.
We believe that most institutions would develop the warning and make it
available electronically to current and prospective students. We believe that
this action would require an estimated 1 hour per affected program. We estimate
that it would take private institutions 86 hours (86 programs × 1 hour = 86) to
develop and deliver the required warning based on the information provided by
the Department. We estimate that it would take proprietary institutions 1,524
hours (1,524 programs × 1 hour = 1,524) to develop and deliver the required
warning based on the information provided by the Department. We estimate that it
would take public institutions 193 hours (193 programs × 1 hour = 193) to
develop and deliver the required warning based on the information provided by
the Department.
The proposed changes in § 668.605(d) would require institutions to provide
alternatives to the English-language warning notices to enrolled and prospective
students with limited English proficiency.
We estimate that it would take private institutions 688 hours (86 programs × 8
hours = 688) to develop and deliver the required alternate language the required
warning based on the information provided by the Department. We estimate that it
would take proprietary institutions 12,192 hours (1,524 programs × 8 hours =
12,192) to develop and deliver the required alternate language the required
warning based on the information provided by the Department. We estimate that it
would take public institutions 1,544 hours (193 programs × 8 hours = 1,544) to
develop and deliver the required warning based on the information provided by
the Department.
The proposed changes in § 668.605(e) would require institutions to provide the
warning notices to students enrolled in the GE programs with failing metrics. We
estimate that it would take the 703,200 students 10 minutes to read the warning
and go to the disclosure website to acknowledge receiving the information for a
total of 119,544 hours Start Printed Page 32487 (703,200 students × .17 hours =
119,544).
The proposed changes in § 668.605 (f) would require institutions to provide the
warning notices to prospective students who express interest in the effected GE
programs. We estimate that it would take the 808,680 prospective students 10
minutes to read the warning and go to the disclosure website to acknowledge
receiving the information for a total of 137,476 hours (808,680 students × .17
hours = 137,476).
The total estimated increase in burden to OMB Control Number 1845–NEW4 for
§ 668.605 is 273,247 hours with a total rounded estimated cost of $6,410,456.
Expand Table
GE Student Warnings and Acknowledgments—OMB Control Number 1845–NEW4
Affected entityRespondentResponsesBurden hoursCost $46.59 per institution $22.00
per individualIndividual1,511,8801,511,880257,020$5,654,44 0Private
non-profit8617277436,061Proprietary8733,04813,716639,028Public1933861,73780,927Total1,513,0321,515,486273,2476,410,456
Consistent with the discussions above, the following chart describes the
sections of the final regulations involving information collections, the
information being collected and the collections that the Department will submit
to OMB for approval and public comment under the PRA, and the estimated costs
associated with the information collections. The monetized net cost of the
increased burden for institutions, lenders, guaranty agencies and students,
using wage data developed using Bureau of Labor Statistics (BLS) data. For
individuals, we have used the median hourly wage for all occupations, $22.00 per
hour according to BLS. https://www.bls.gov/ oes/ current/ oes_ nat.htm#00-0000.
For institutions, lenders, and guaranty agencies we have used the median hourly
wage for Education Administrators, Postsecondary, $46.59 per hour according to
BLS. https://www.bls.gov/ oes/ current/ oes119033.htm.
Expand Table
Collection of Information
Regulatory sectionInformation collectionOMB control No. and estimated
burdenEstimated cost $46.59 institutional $22.00 individual unless otherwise
noted§ 600.21Amend § 600.21 to require an institution to notify the Secretary
within 10 days of any update to information included in the GE program's
certificationBurden will be cleared at a later date through a separate
information collectionCosts will be cleared through separate information
collection.§ 668.14Amend § 668.14(e) to establish a non-exhaustive list of
conditions that the Secretary may apply to provisionally certified institutions,
such as the submission of a teach-out plan or agreement. Amend § 668.14(g) to
establish conditions that may apply to an initially certified nonprofit
institution, or an institution that has undergone a change of ownership and
seeks to convert to nonprofit status1845–0022, +430 hrs$+20,035.§ 668.15Remove
and reserve § 668.15 thereby consolidating all financial responsibility factors,
including those governing changes in ownership, under part 668, subpart
L1845–0022, −2,448 hrs$−114,051.§ 668.16Amend § 668.16(h) to require
institutions to provide adequate financial aid counseling and financial aid
communications to advise students and families to accept the most beneficial
types of financial assistance available. Amend § 668.16(p) to strengthen the
requirement that institutions must develop and follow adequate procedures to
evaluate the validity of a student's high school diploma1845–0022, +57,530
hrs$+2,680,323.§ 668.23Amend § 668.23(d) to require that any domestic or foreign
institution that is owned directly or indirectly by any foreign entity holding
at least a 50 percent voting or equity interest in the institution must provide
documentation of the entity's status under the law of the jurisdiction under
which the entity is organized. Amend § 668.23(d) to require an institution to
disclose in a footnote to its financial statement audit the dollar amounts it
has spent in the preceding fiscal year on recruiting activities, advertising,
and other pre-enrollment expenditures1845–0022, +56,280
hrs$+2,622,086.§ 668.43Amend § 668.43 to establish a website for the posting and
distribution of key information and disclosures pertaining to the institution's
educational programs, and to require institutions to provide information about
how to access that website to a prospective student before the student enrolls,
registers, or makes a financial commitment to the institution1845–0022, +261,500
hrs$+12,183,286.§ 668.156Amend § 668.156 to clarify the requirements for the
approval of a State process. The State process is one of the three ability to
benefit alternatives that an individual who is not a high school graduate could
fulfill to receive title IV, Federal student aid to enroll in an eligible career
pathway program1845–NEW1, +3,200$+149,088.§ 668.157Add a new § 668.157 to
clarify the documentation requirements for eligible career pathway
programs1845–NEW2, +50,000$+2,329,500.Start Printed Page 32488§ 668.171Amend
§ 668.171(f) to revise the set of conditions whereby an institution must report
to the Department that a triggering event, described in § 668.171(c) and (d),
has occurred. Amend § 668.171(g) to require public institutions to provide
documentation from a government entity that confirms that the institution is a
public institution and is backed by the full faith and credit of that government
entity to be considered as financially responsible1845–0022, +1,580
hrs$+73,612.§ 668.407Add a new § 668.407 to require current and prospective
students to acknowledge having seen the information on the disclosure website
maintained by the Secretary if an eligible non-GE program has failed the D/E
rates measure, to specify the content and delivery of such acknowledgments, and
to require that students must provide the acknowledgment before the institution
may disburse any title IV, HEA funds1845–NEW3, +69,268$+1,548,388.§ 668.408Add a
new § 668.408 to establish institutional reporting requirements for students who
enroll in, complete, or withdraw from a GE program or eligible non-GE program
and to establish the reporting timeframeBurden will be cleared at a later date
through a separate information collectionCosts will be cleared through separate
information collection.§ 668.605Add a new § 668.605 to require warnings to
current and prospective students if a GE program is at risk of losing title IV,
HEA eligibility, to specify the content and delivery parameters of such
notifications, and to require that students must acknowledge having seen the
warning before the institution may disburse any title IV, HEA funds1845–NEW4,
+273,247$6,410,456.
The total burden hours and change in burden hours associated with each OMB
Control number affected by the final regulations follows: 1845–0022, 1845–NEW1,
1845–NEW2, 1845–NEW3, 1845–NEW4.
Expand Table
Control No.Total burden hoursChange in burden
hours1845–00222,663,120+374,8721845–NEW13,200+3,2001845–NEW250,000+50,0001845–NEW369,268+69,2681845–NEW4273,247+273,247Total3,058,835770,587
If you want to comment on the information collection requirements, please send
your comments to the Office of Information and Regulatory Affairs in OMB,
Attention: Desk Officer for the U.S. Department of Education. Send these
comments by email to OIRA_DOCKET@omb.eop.gov or by fax to (202)395–6974. You may
also send a copy of these comments to the Department contact named in the
ADDRESSES section of the preamble.
We have prepared the Information Collection Request (ICR) for these collections.
You may review the ICR which is available at www.reginfo.gov. Click on
Information Collection Review. These collections are identified as collections
1845–022, 1845–NEW1, 1845–NEW2, 1845–NEW3, 1845–NEW4.
INTERGOVERNMENTAL REVIEW
This program is subject to Executive Order 12372 and the regulations in 34 CFR
part 79. One of the objectives of the Executive Order is to foster an
intergovernmental partnership and a strengthened federalism. The Executive order
relies on processes developed by State and local governments for coordination
and review of proposed Federal financial assistance.
This document provides early notification of our specific plans and actions for
this program.
ASSESSMENT OF EDUCATIONAL IMPACT
In accordance with section 411 of the General Education Provisions Act, 20
U.S.C. 1221e–4, the Secretary particularly requests comments on whether these
proposed regulations would require transmission of information that any other
agency or authority of the United States gathers or makes available.
Accessible Format: On request to one of the program contact persons listed under
FOR FURTHER INFORMATION CONTACT , individuals with disabilities can obtain this
document in an accessible format. The Department will provide the requestor with
an accessible format that may include Rich Text Format (RTF) or text format
(txt), a thumb drive, an MP3 file, braille, large print, audiotape, or compact
disc, or other accessible format.
Electronic Access to This Document: The official version of this document is the
document published in the Federal Register . You may access the official edition
of the Federal Register and the Code of Federal Regulations at www.govinfo.gov.
At this site you can view this document, as well as all other documents of this
Department published in the Federal Register , in text or Portable Document
Format (PDF). To use PDF you must have Adobe Acrobat Reader, which is available
free at the site.
You may also access documents of the Department published in the Federal
Register by using the article search feature at www.federalregister.gov.
Specifically, through the advanced search feature at this site, you can limit
your search to documents published by the Department.
Start List of Subjects
LIST OF SUBJECTS
34 CFR PART 600
* Colleges and universities
* Foreign relations
* Grant programs-education
* Loan programs—education
* Reporting and recordkeeping requirements
* Selective service system
* Student aid
* Vocational education
34 CFR PART 668
* Administrative practice and procedure
* Aliens
* Colleges and universities
* Consumer protection
* Grant programs-education
* Loan programs-education
* Reporting and recordkeeping requirements
* Selective Service System
* Student aid
* Vocational education
End List of Subjects Start Signature
Miguel A. Cardona,
Secretary of Education.
End Signature
For the reasons discussed in the preamble, the Secretary proposes to amend parts
600 and 668 of title 34 of the Code of Federal Regulations as follows:
Start Part
PART 600—INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT OF 1965, AS
AMENDED
End Part Start Amendment Part
1. The authority citation for part 600 continues to read as follows:
End Amendment Part Start Authority
Authority: 20 U.S.C. 1001, 1002, 1003, 1088, 1091, 1094, 1099b, and 1099c,
unless otherwise noted.
End Authority Start Amendment Part
2. Section 600.10, amended October 28, 2022 at 87 FR 65426, is further amended
by:
End Amendment Part Start Amendment Part
a. In paragraph (c)(1)(iii) removing the word “and” at the end of the paragraph;
End Amendment Part Start Amendment Part
b. Revising paragraph (c)(1)(iv); and
End Amendment Part Start Amendment Part
c. Adding paragraph (c)(1)(v).
End Amendment Part
The revisions and addition read as follows:
§ 600.10
Date, extent, duration, and consequence of eligibility.
* * * * *
(c) * * *
(1) * * *
(iv) For the first eligible prison education program under subpart P of 34 CFR
part 668 offered at the first two additional locations (as defined in § 600.2)
at a Federal, State, or local penitentiary, prison, jail, reformatory, work
farm, juvenile justice facility, or other similar correctional institution; and
(v) For a gainful employment program under 34 CFR part 668, subpart S, subject
to any restrictions in 34 CFR 668.603 on establishing or reestablishing the
eligibility of the program, update its application under § 600.21.
* * * * *
Start Amendment Part
3. Section 600.21 is amended by:
End Amendment Part Start Amendment Part
a. Revising paragraph (a) introductory text.
End Amendment Part Start Amendment Part
b. In paragraph (a)(11)(iv) by removing the word “or”.
End Amendment Part Start Amendment Part
c. Revising paragraph (a)(11)(v).
End Amendment Part Start Amendment Part
d. Adding paragraph (a)(11)(vi).
End Amendment Part
The revisions and addition read as follows:
§ 600.21
Updating application information.
(a) Reporting requirements. Except as provided in paragraph (b) of this section,
an eligible institution must report to the Secretary, in a manner prescribed by
the Secretary and no later than 10 days after the change occurs, any change in
the following:
* * * * *
(11) * * *
(v) Changing the program's name, CIP code, or credential level; or
(vi) Updating the certification pursuant to 34 CFR 668.604.
* * * * *
Start Part
PART 668—STUDENT ASSISTANCE GENERAL PROVISIONS
End Part Start Amendment Part
4. The authority citation for part 668 is revised to read as follows:
End Amendment Part Start Authority
Authority: 20 U.S.C. 1001–1003, 1070g, 1085, 1088, 1091, 1092, 1094, 1099c,
1099c–1, 1221e–3, and 1231a, unless otherwise noted.
End Authority
Section 668.14 also issued under 20 U.S.C. 1085, 1088, 1091, 1092, 1094,
1099a–3, 1099c, and 1141.
Section 668.41 also issued under 20 U.S.C. 1092, 1094, 1099c.
Section 668.91 also issued under 20 U.S.C. 1082, 1094.
Section 668.171 also issued under 20 U.S.C. 1094 and 1099c and section 4 of Pub.
L. 95–452, 92 Stat. 1101–1109.
Section 668.172 also issued under 20 U.S.C. 1094 and 1099c and section 4 of Pub.
L. 95–452, 92 Stat. 1101–1109.
Section 668.175 also issued under 20 U.S.C. 1094 and 1099c.
Start Amendment Part
5. In § 668.2 amend paragraph (b) by adding, in alphabetical order, definitions
of “Annual debt-to-earnings rate,” “Classification of instructional program
(CIP) code,” “Cohort period,” “Credential level,” “Debt-to-earnings rates (D/E
rates),” “Discretionary debt-to-earnings rate (Discretionary D/E rate)”,
“Earnings premium,” “Earnings threshold,” “Eligible career pathway program,”
“Eligible non-GE program,” “Federal agency with earnings data,” “Financial
exigency”, “Gainful employment program (GE program),” “Institutional grants and
scholarships,” “Length of the program,” “Metropolitan statistical area,”
“Poverty Guideline,” “Prospective student,” “Student,” and “Title IV loan” to
read as follows:
End Amendment Part
§ 668.2
General definitions.
* * * * *
(b) * * *
Annual debt-to-earnings rate (Annual D/E rate): The ratio of a program's annual
loan payment amount to the annual earnings of the students who completed the
program, expressed as a percentage, as calculated under § 668.404.
* * * * *
Classification of instructional program (CIP) code. A taxonomy of instructional
program classifications and descriptions developed by the U.S. Department of
Education's National Center for Education Statistics (NCES). Specific programs
offered by institutions are classified using a six-digit CIP code.
Cohort period. The set of award years used to identify a cohort of students who
completed a program and whose debt and earnings outcomes are used to calculate
debt-to earnings rates and the earnings premium measure under subpart Q of this
part. The Secretary uses a two-year cohort period to calculate the
debt-to-earnings rates and earnings premium measure for a program when the
number of students (after exclusions identified in §§ 668.403(e) and 668.404(c))
in the two-year cohort period is 30 or more. The Secretary uses a four-year
cohort period to calculate the debt-to-earnings rates and earnings premium
measure when the number of students completing the program in the two-year
cohort period is fewer than 30 and when the number of students completing the
program in the four-year cohort period is 30 or more. The cohort period covers
consecutive award years that are—
(1) For the two-year cohort period—
(i) The third and fourth award years prior to the year for which the most recent
data are available from the Federal agency with earnings data at the time the
D/E rates and earnings premium measure are calculated, pursuant to §§ 668.403
and 668.404; or
(ii) For a program whose students are required to complete a medical or dental
internship or residency, the sixth and seventh award years prior to the year for
which the most recent data are available from the Federal agency with earnings
data at the time the D/E rates and earnings premium measure are calculated. For
this purpose, a required medical or dental internship or residency is a
supervised training program that—
(A) Requires the student to hold a degree as a doctor of medicine or osteopathy,
or as a doctor of dental science;
(B) Leads to a degree or certificate awarded by an institution of higher
education, a hospital, or a health care facility that offers post-graduate
training; and
(C) Must be completed before the student may be licensed by a State and board
certified for professional practice or service. Start Printed Page 32490
(2) For the four-year cohort period—
(i) The third, fourth, fifth, and sixth award years prior to the year for which
the most recent data are available from the Federal agency with earnings data at
the time the D/E rates and earnings premium measure are calculated, pursuant to
§§ 668.403 and 668.404; or
(ii) For a program whose students are required to complete a medical or dental
internship or residency, the sixth, seventh, eighth, and ninth award years prior
to the year for which the most recent earnings data are available from the
Federal agency with earnings data at the time the D/E rates and earnings premium
measure are calculated. For this purpose, a required medical or dental
internship or residency is a supervised training program that meets the
requirements in paragraph (1)(ii) of this definition.
Credential level. The level of the academic credential awarded by an institution
to students who complete the program. For the purposes of this subpart, the
undergraduate credential levels are: undergraduate certificate or diploma,
associate degree, bachelor's degree, and post-baccalaureate certificate; and the
graduate credential levels are master's degree, doctoral degree,
first-professional degree ( e.g., MD, DDS, JD), and graduate certificate
(including a postgraduate certificate).
Debt-to-earnings rates (D/E rates). The discretionary debt-to-earnings rate and
annual debt-to-earnings rate as calculated under § 668.403.
* * * * *
Discretionary debt-to-earnings rate (Discretionary D/E rate). The percentage of
a program's annual loan payment compared to the discretionary earnings of the
students who completed the program, as calculated under § 668.403.
Earnings premium. The amount by which the median annual earnings of students who
recently completed a program exceed the earnings threshold, as calculated under
§ 668.404. If the median annual earnings of recent completers is equal to the
earnings threshold, the earnings premium is zero. If the median annual earnings
of recent completers is less than the earnings threshold, the earnings premium
is negative.
Earnings threshold. Based on data from a Federal agency with earnings data, the
median earnings for working adults aged 25–34, who either worked during the year
or indicated they were unemployed when interviewed, with only a high school
diploma (or recognized equivalent)—
(1) In the State in which the institution is located; or
(2) Nationally, if fewer than 50 percent of the students in the program are
located in the State where the institution is located while enrolled.
Eligible career pathway program. A program that combines rigorous and
high-quality education, training, and other services that—
(1) Align with the skill needs of industries in the economy of the State or
regional economy involved;
(2) Prepare an individual to be successful in any of a full range of secondary
or postsecondary education options, including apprenticeships registered under
the Act of August 16, 1937 (commonly known as the “National Apprenticeship Act”;
50 Stat. 664, chapter 663; 29 U.S.C. 50 et seq.);
(3) Include counseling to support an individual in achieving the individual's
education and career goals;
(4) Include, as appropriate, education offered concurrently with and in the same
context as workforce preparation activities and training for a specific
occupation or occupational cluster;
(5) Organize education, training, and other services to meet the particular
needs of an individual in a manner that accelerates the educational and career
advancement of the individual to the extent practicable;
(6) Enable an individual to attain a secondary school diploma or its recognized
equivalent, and at least one recognized postsecondary credential; and
(7) Help an individual enter or advance within a specific occupation or
occupational cluster.
Eligible non-GE program. For purposes of subpart Q of this part, an educational
program other than a GE program offered by an institution and approved by the
Secretary to participate in the title IV, HEA programs, identified by a
combination of the institution's six-digit Office of Postsecondary Education ID
(OPEID) number, the program's six-digit CIP code as assigned by the institution
or determined by the Secretary, and the program's credential level. Includes all
coursework associated with the program's credential level.
* * * * *
Federal agency with earnings data. A Federal agency with which the Department
enters into an agreement to access earnings data for the D/E rates and earnings
threshold measure. The agency must have individual earnings data sufficient to
match with title IV, HEA recipients who completed any title IV-eligible program
during the cohort period and may include agencies such as the Treasury
Department (including the Internal Revenue Service), the Social Security
Administration (SSA), the Department of Health and Human Services (HHS), and the
Census Bureau.
* * * * *
Financial exigency. A status declared by an institution to a governmental entity
or its accrediting agency representing severe financial distress that, absent
significant reductions in expenditures or increases in revenue, reductions in
administrative staff or faculty, or the elimination of programs, departments, or
administrative units, could result in the closure of the institution.
* * * * *
Gainful employment program (GE program). An educational program offered by an
institution under § 668.8(c)(3) or (d) and identified by a combination of the
institution's six-digit Office of Postsecondary Education ID (OPEID) number, the
program's six-digit CIP code as assigned by the institution or determined by the
Secretary, and the program's credential level.
* * * * *
Institutional grants and scholarships. Assistance that the institution or its
affiliate controls or directs to reduce or offset the original amount of a
student's institutional costs and that does not have to be repaid. Typically a
grant, scholarship, fellowship, discount, or fee waiver.
* * * * *
Length of the program. The amount of time in weeks, months, or years that is
specified in the institution's catalog, marketing materials, or other official
publications for a student to complete the requirements needed to obtain the
degree or credential offered by the program.
* * * * *
Metropolitan statistical area: A core area containing a substantial population
nucleus, together with adjacent communities having a high degree of economic and
social integration with that core.
* * * * *
Poverty Guideline. The Poverty Guideline for a single person in the continental
United States, as published by the U.S. Department of Health and Human Services
and available at http://aspe.hhs.gov/ poverty or its successor site.
* * * * *
Prospective student. An individual who has contacted an eligible institution for
the purpose of requesting information about enrolling in a program or who has
been contacted directly by the institution or by a third Start Printed Page
32491 party on behalf of the institution about enrolling in a program.
* * * * *
Student. For the purposes of subparts Q and S of this part, an individual who
received title IV, HEA program funds for enrolling in the program.
* * * * *
Title IV loan. A loan authorized under the William D. Ford Direct Loan Program
(Direct Loan).
* * * * *
Start Amendment Part
6. Section 668.13 is amended by:
End Amendment Part Start Amendment Part
a. Removing paragraph (b)(3).
End Amendment Part Start Amendment Part
b. Revising paragraphs (c)(1) an (2).
End Amendment Part Start Amendment Part
c. Revising paragraph (d)(2)(ii).
End Amendment Part Start Amendment Part
d. Adding paragraph (e).
End Amendment Part
The revisions and addition read as follows:
§ 668.13
Certification procedures.
* * * * *
(c) * * *
(1)(i) The Secretary may provisionally certify an institution if—
(A) The institution seeks initial participation in a Title IV, HEA program;
(B) The institution is an eligible institution that has undergone a change in
ownership that results in a change in control according to the provisions of 34
CFR part 600;
(C) The institution is a participating institution that is applying for a
renewal of certification—
( 1) That the Secretary determines has jeopardized its ability to perform its
financial responsibilities by not meeting the factors of financial
responsibility under subpart L of this part or the standards of administrative
capability under § 668.16;
( 2) Whose participation has been limited or suspended under subpart G of this
part; or
( 3) That voluntarily enters into provisional certification;
(D) The institution seeks to be reinstated to participate in a Title IV, HEA
program after a prior period of participation in that program ended;
(E) The institution is a participating institution that was accredited or
preaccredited by a nationally recognized accrediting agency on the day before
the Secretary withdrew the Secretary's recognition of that agency according to
the provisions contained in 34 CFR part 602; or
(F) The Secretary has determined that the institution is at risk of closure.
(G) The institution is under the provisions of subpart L.
(ii) An institution's certification becomes provisional upon notification from
the Secretary if—
(A) The institution triggers one of the financial responsibility events under
§ 668.171(c) or (d) and, as a result, the Secretary requires the institution to
post financial protection; or
(B) Any owner or interest holder of the institution with control over that
institution, as defined in 34 CFR 600.31, also owns another institution with
fines or liabilities owed to the Department and is not making payments in
accordance with an agreement to repay that liability.
(iii) A proprietary institution's certification automatically becomes
provisional at the start of a fiscal year if it did not derive at least 10
percent of its revenue for its preceding fiscal year from sources other than
Federal educational assistance funds, as required under § 668.14(b)(16).
(2) If the Secretary provisionally certifies an institution, the Secretary also
specifies the period for which the institution may participate in a Title IV,
HEA program. Except as provided in paragraph (c)(3) of this section or subpart
L, a provisionally certified institution's period of participation expires—
(i) Not later than the end of the first complete award year following the date
on which the Secretary provisionally certified the institution for its initial
certification;
(ii) Not later than the end of the second complete award year following the date
on which the Secretary provisionally certified an institution for reasons
related to substantial liabilities owed or potentially owed to the Department
for discharges related to borrower defense to repayment or false certification,
or arising from claims under consumer protection laws;
(iii) Not later than the end of the third complete award year following the date
on which the Secretary provisionally certified the institution as a result of a
change in ownership, recertification, reinstatement, automatic re-certification,
or a failure under 668.14(b)(32); and
(iv) If the Secretary provisionally certified the institution as a result of its
accrediting agency losing recognition, not later than 18 months after the date
that the Secretary withdrew recognition from the institution's nationally
recognized accrediting agency.
* * * * *
(d) * * *
(2) * * *
(ii) The revocation takes effect on the date that the Secretary transmits the
notice to the institution.
* * * * *
(e) Supplementary performance measures. In determining whether to certify, or
condition the participation of, an institution under §§ 668.13 and 668.14, the
Secretary may consider the following, among other information at the program or
institutional level:
(i) Withdrawal rate. The percentage of students who withdrew from the
institution within 100 percent or 150 percent of the published length of the
program.
(ii) Debt-to-earnings rates. The debt-to-earnings rates under § 668.403, if
applicable.
(iii) Earnings premium measure. The earnings premium measure under § 668.404, if
applicable.
(iv) Educational and pre-enrollment expenditures. The amounts the institution
spent on instruction and instructional activities, academic support, and support
services, and the amounts spent on recruiting activities, advertising, and other
pre-enrollment expenditures, as provided through a disclosure in the audited
financial statements required under § 668.23(d).
(v) Licensure pass rate. If a program is designed to meet educational
requirements for a specific professional license or certification that is
required for employment in an occupation, and the institution is required by an
accrediting agency or State to report passage rates for the licensure exam for
the program, such passage rates.
* * * * *
Start Amendment Part
7. Section 668.14 is amended by:
End Amendment Part Start Amendment Part
a. Adding paragraph (a)(3).
End Amendment Part Start Amendment Part
b. Revising paragraphs (b)(5), (17), (18), and (26).
End Amendment Part Start Amendment Part
c. In paragraph (b)(30)(ii)(C) removing the word “and” at the end of the
paragraph.
End Amendment Part Start Amendment Part
d. Adding paragraphs (b)(32) through (b)(34).
End Amendment Part Start Amendment Part
e. Redesignating paragraphs (e) through (h) as paragraphs (h) through (k),
respectively.
End Amendment Part Start Amendment Part
f. Adding new paragraphs (e) through (g).
End Amendment Part
The revisions and additions read as follows:
§ 668.14
Program participation agreement.
(a) * * *
(3) An institution's program participation agreement must be signed by—
(i) An authorized representative of the institution; and
(ii) For a proprietary or private nonprofit institution, an authorized
representative of an entity with direct or indirect ownership of the institution
if that entity has the power to exercise control over the institution. The
Secretary considers the following as examples of circumstances in which an
entity has such power:
(A) If the entity has at least 50 percent control over the institution through
Start Printed Page 32492 direct or indirect ownership, by voting rights, by its
right to appoint board members to the institution or any other entity, whether
by itself or in combination with other entities or natural persons with which it
is affiliated or related, or pursuant to a proxy or voting or similar agreement.
(B) If the entity has the power to block significant actions.
(C) If the entity is the 100 percent direct or indirect interest holder of the
institution.
(D) If the entity provides or will provide the financial statements to meet any
of the requirements of 34 CFR 600.20(g) or (h), or subpart L of this part.
(b) * * *
(5) It will comply with the provisions of subpart L relating to factors of
financial responsibility;
* * * * *
(17) The Secretary, guaranty agencies and lenders as defined in 34 CFR part 682,
nationally recognized accrediting agencies, Federal agencies, State agencies
recognized under 34 CFR part 603 for the approval of public postsecondary
vocational education, State agencies that legally authorize institutions and
branch campuses or other locations of institutions to provide postsecondary
education, and State attorneys general have the authority to share with each
other any information pertaining to the institution's eligibility for or
participation in the title IV, HEA programs or any information on fraud, abuse,
or other violations of law;
(18) It will not knowingly—
(i) Employ in a capacity that involves the administration of the title IV, HEA
programs or the receipt of funds under those programs, an individual who has
been
(A) Convicted of, or pled nolo contendere or guilty to, a crime involving the
acquisition, use, or expenditure of Federal, State, or local government funds;
(B) Administratively or judicially determined to have committed fraud or any
other material violation of law involving Federal, State, or local government
funds;
(C) An owner, director, officer, or employee who exercised substantial control
over an institution, or a direct or indirect parent entity of an institution,
that owes a liability for a violation of a title IV, HEA program, requirement
and is not making payments in accordance with an agreement to repay that
liability; or
(D) A Ten-percent-or-higher equity owner, director, officer, principal,
executive, or contractor at an institution in any year in which the institution
incurred a loss of Federal funds in excess of 5 percent of the participating
institution's annual title IV, HEA program funds.
(ii) Contract with any institution, third-party servicer, individual, agency, or
organization that has, or whose owners, officers or employees have—
(A) Been convicted of, or pled nolo contendere or guilty to, a crime involving
the acquisition, use, or expenditure of Federal, State, or local government
funds;
(B) Been administratively or judicially determined to have committed fraud or
any other material violation of law involving Federal, State, or local
government funds;
(C) Had its participation in the title IV programs terminated, certification
revoked, or application for certification or recertification for participation
in the title IV programs denied;
(D) Been an owner, director, officer, or employee who exercised substantial
control over an institution, or a direct or indirect parent entity of an
institution, that owes a liability for a violation of a title IV, HEA program
requirement and is not making payments in accordance with an agreement to repay
that liability; or
(E) Been a ten-percent-or-higher equity owner, director, officer, principal,
executive, or contractor affiliated with another institution in any year in
which the other institution incurred a loss of Federal funds in excess of 5
percent of the participating institution's annual title IV, HEA program funds.
* * * * *
(26) If an educational program offered by the institution is required to prepare
a student for gainful employment in a recognized occupation, the institution
must—
(i) Establish the need for the training for the student to obtain employment in
the recognized occupation for which the program prepares the student; and
(ii) Demonstrate a reasonable relationship between the length of the program and
entry level requirements for the recognized occupation for which the program
prepares the student by limiting the number of hours in the program to the
greater of—
(A) The required minimum number of clock hours, credit hours, or the equivalent
required for training in the recognized occupation for which the program
prepares the student, as established by the State in which the institution is
located, if the State has established such a requirement, or as established by
any Federal agency or the institution's accrediting agency; or
(B) Another State's required minimum number of clock hours, credit hours, or the
equivalent required for training in the recognized occupation for which the
program prepares the student, if certain criteria is met. This exception to
paragraph (A) would only be applicable if the institution documents, with
substantiation by a certified public accountant who prepares the institution's
compliance audit report as required under § 668.23 that—
( 1) A majority of students resided in that State while enrolled in the program
during the most recently completed award year;
( 2) A majority of students who completed the program in the most recently
completed award year were employed in that State; or
( 3) The other State is part of the same metropolitan statistical area as the
institution's home State and a majority of students, upon enrollment in the
program during the most recently completed award year, stated in writing that
they intended to work in that other State;
* * * * *
(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—
(i) Is programmatically accredited if the State or a Federal agency requires
such accreditation, including as a condition for employment in the occupation
for which the program prepares the student, or is programmatically
pre-accredited when programmatic pre-accreditation is sufficient according to
the State or Federal agency;
(ii) Satisfies the applicable educational prerequisites for professional
licensure or certification requirements in the State so that a student who
completes the program and seeks employment in that State qualifies to take any
licensure or certification exam that is needed for the student to practice or
find employment in an occupation that the program prepares students to enter;
and
(iii) Complies with all State consumer protection laws related to closure,
recruitment, and misrepresentations, including both generally applicable State
laws and those specific to educational institutions;
(33) It will not withhold transcripts or take any other negative action against
a student related to a balance owed by the student that resulted from an error
in Start Printed Page 32493 the institution's administration of the title IV,
HEA programs, any fraud or misconduct by the institution or its personnel, or
returns of title IV, HEA funds required under § 668.22 unless the balance owed
was the result of fraud on the part of the student; and
(34) It will not maintain policies and procedures to encourage, or condition
institutional aid or other student benefits in a manner that induces, a student
to limit the amount of Federal student aid, including Federal loan funds, that
the student receives, except that the institution may provide a scholarship on
the condition that a student forego borrowing if the amount of the scholarship
provided is equal to or greater than the amount of Federal loan funds that the
student agrees not to borrow.
* * * * *
(e) If an institution is provisionally certified, the Secretary may apply such
conditions as are determined to be necessary or appropriate to the institution,
including, but not limited to—
(1) For an institution that the Secretary determines may be at risk of closure—
(i) Submission of an acceptable teach-out plan or agreement to the Department,
the State, and the institution's recognized accrediting agency; and
(ii) Submission to the Department of an acceptable records retention plan that
addresses title IV, HEA records, including but not limited to student
transcripts, and evidence that the plan has been implemented;
(2) For an institution that the Secretary determines may be at risk of closure,
that is teaching out or closing, or that is not financially responsible or
administratively capable, the release of holds on student transcripts;
(3) Restrictions or limitations on the addition of new programs or locations;
(4) Restrictions on the rate of growth, new enrollment of students, or Title IV,
HEA volume in one or more programs;
(5) Restrictions on the institution providing a teach-out on behalf of another
institution;
(6) Restrictions on the acquisition of another participating institution, which
may include, in addition to any other required financial protection, the posting
of financial protection in an amount determined by the Secretary but not less
than 10 percent of the acquired institution's Title IV, HEA volume for the prior
fiscal year;
(7) Additional reporting requirements, which may include, but are not limited
to, cash balances, an actual and protected cash flow statement, student rosters,
student complaints, and interim unaudited financial statements;
(8) Limitations on the institution entering into a written arrangement with
another eligible institution or an ineligible institution or organization for
that other eligible institution or ineligible institution or organization to
provide between 25 and 50 percent of the institution's educational program under
§ 668.5(a) or (c); and
(9) For an institution alleged or found to have engaged in misrepresentations to
students, engaged in aggressive recruiting practices, or violated incentive
compensation rules, requirements to hire a monitor and to submit marketing and
other recruiting materials ( e.g., call scripts) for the review and approval of
the Secretary.
(f) If a proprietary institution seeks to convert to nonprofit status following
a change in ownership, the following conditions will apply to the institution
following the change in ownership, in addition to any other conditions that the
Secretary may deem appropriate:
(1) The institution must continue to meet the requirements under § 668.28(a)
until the Department has accepted, reviewed, and approved the institution's
financial statements and compliance audits that cover two complete consecutive
fiscal years in which the institution meets the requirements of § 668.14(b)(16)
under its new ownership, or until the Department approves the institution's
request to convert to nonprofit status, whichever is later.
(2) The institution must continue to meet the gainful employment requirements of
subpart S of this part until the Department has accepted, reviewed, and approved
the institution's financial statements and compliance audits that cover two
complete consecutive fiscal years under its new ownership, or until the
Department approves the institution's request to convert to nonprofit status,
whichever is later.
(3) The institution must submit regular and timely reports on agreements entered
into with a former owner of the institution or a natural person or entity
related to or affiliated with the former owner of the institution, so long as
the institution participates as a nonprofit institution.
(4) The institution may not advertise that it operates as a nonprofit
institution for the purposes of Title IV, HEA until the Department approves the
institution's request to convert to nonprofit status.
(g) If an institution is initially certified as a nonprofit institution, or if
it has undergone a change of ownership and seeks to convert to nonprofit status,
the following conditions will apply to the institution upon initial
certification or following the change in ownership, in addition to any other
conditions that the Secretary may deem appropriate:
(1) The institution must submit reports on accreditor and State authorization
agency actions and any new servicing agreements within 10 business days of
receipt of the notice of the action or of entering into the agreement, as
applicable, until the Department has accepted, reviewed, and approved the
institution's financial statements and compliance audits that cover two complete
consecutive fiscal years following initial certification, or two complete fiscal
years after a change in ownership, or until the Department approves the
institution's request to convert to nonprofit status, whichever is later.
(2) The institution must submit a report and copy of the communications from the
Internal Revenue Service or any State or foreign country related to tax-exempt
or nonprofit status within 10 business days of receipt so long as the
institution participates as a nonprofit institution.
* * * * *
§ 668.15
[Removed and Reserved]
Start Amendment Part
8. Remove and reserve § 668.15.
End Amendment Part Start Amendment Part
9. Section 668.16 is amended by:
End Amendment Part Start Amendment Part
a. Revising the introductory text, and paragraphs (h_, (k), (m), (n) and (p);
and
End Amendment Part Start Amendment Part
b. Adding paragraphs (q) through (v).
End Amendment Part
The revisions and additions read as follows:
§ 668.16
Standards of administrative capability.
To begin and to continue to participate in any title IV, HEA program, an
institution must demonstrate to the Secretary that the institution is capable of
adequately administering that program under each of the standards established in
this section. The Secretary considers an institution to have that administrative
capability if the institution—
* * * * *
(h) Provides adequate financial aid counseling with clear and accurate
information to students who apply for title IV, HEA program assistance. In
determining whether an institution provides adequate counseling, the Secretary
considers whether its counseling and financial aid communications advise
students and families to accept the most beneficial types of financial
assistance available to them and include information regarding— Start Printed
Page 32494
(1) The cost of attendance of the institution as defined under section 472 of
the HEA, including the individual components of those costs and a total of the
estimated costs that will be owed directly to the institution, for students,
based on their attendance status;
(2) The source and amount of each type of aid offered, separated by the type of
the aid and whether it must be earned or repaid;
(3) The net price, as determined by subtracting total grant or scholarship aid
included in paragraph (h)(2) of this section from the cost of attendance in
paragraph (h)(1) of this section;
(4) The method by which aid is determined and disbursed, delivered, or applied
to a student's account, and instructions and applicable deadlines for accepting,
declining, or adjusting award amounts; and
(5) The rights and responsibilities of the student with respect to enrollment at
the institution and receipt of financial aid, including the institution's refund
policy, the requirements for the treatment of title IV, HEA program funds when a
student withdraws under § 668.22, its standards of satisfactory progress, and
other conditions that may alter the student's aid package;
* * * * *
(k)(1) Is not, and has not been—
(i) Debarred or suspended under Executive Order (E.O.) 12549 (3 CFR, 1986 Comp.,
p. 189) or the Federal Acquisition Regulations (FAR), 48 CFR part 9, subpart
9.4; or
(ii) Engaging in any activity that is a cause under 2 CFR 180.700 or 180.800, as
adopted at 2 CFR 3485.12, for debarment or suspension under Executive Order
(E.O.) 12549 (3 CFR, 1986 Comp., p. 189) or the FAR, 48 CFR part 9, subpart 9.4;
and
(2) Does not have any principal or affiliate of the institution (as those terms
are defined in 2 CFR parts 180 and 3485), or any individual who exercises or
previously exercised substantial control over the institution as defined in
§ 668.174(c)(3), who—
(i) Has been convicted of, or has pled nolo contendere or guilty to, a crime
involving the acquisition, use, or expenditure of Federal, State, Tribal, or
local government funds, or has been administratively or judicially determined to
have committed fraud or any other material violation of law involving those
funds; or
(ii) Is a current or former principal or affiliate (as those terms are defined
in 2 CFR parts 180 and 3485), or any individual who exercises or exercised
substantial control as defined in § 668.174(c)(3), of another institution whose
misconduct or closure contributed to liabilities to the Federal government in
excess of 5 percent of its title IV, HEA program funds in the award year in
which the liabilities arose or were imposed;
* * * * *
(m)(1) Has a cohort default rate—
(i) That is less than 25 percent for each of the three most recent fiscal years
during which rates have been issued, to the extent those rates are calculated
under subpart M of this part;
(ii) On or after 2014, that is less than 30 percent for at least two of the
three most recent fiscal years during which the Secretary has issued rates for
the institution under subpart N of this part; and
(iii) As defined in 34 CFR 674.5, on loans made under the Federal Perkins Loan
Program to students for attendance at that institution that does not exceed 15
percent;
(2) Provided that—
(i) if the Secretary determines that an institution's administrative capability
is impaired solely because the institution fails to comply with paragraph (m)(1)
of this section, and the institution is not subject to a loss of eligibility
under § 668.187(a) or § 668.206(a), the Secretary allows the institution to
continue to participate in the title IV, HEA programs. In such a case, the
Secretary may provisionally certify the institution in accordance with
§ 668.13(c) except as provided in paragraphs (m)(2)(ii) through (v) of this
section;
(ii) An institution that fails to meet the standard of administrative capability
under paragraph (m)(1)(ii) of this section based on two cohort default rates
that are greater than or equal to 30 percent but less than or equal to 40
percent is not placed on provisional certification under paragraph (m)(2)(i) of
this section if it—
(A) Has timely filed a request for adjustment or appeal under § 668.209,
§ 668.210, or § 668.212 with respect to the second such rate, and the request
for adjustment or appeal is either pending or succeeds in reducing the rate
below 30 percent;
(B) Has timely filed an appeal under § 668.213 after receiving the second such
rate, and the appeal is either pending or successful; or
(C)( 1) Has timely filed a participation rate index challenge or appeal under
§ 668.204(c) or § 668.214 with respect to either or both of the two rates, and
the challenge or appeal is either pending or successful; or
( 2) If the second rate is the most recent draft rate, and the institution has
timely filed a participation rate challenge to that draft rate that is either
pending or successful;
(iii) The institution may appeal the loss of full participation in a title IV,
HEA program under paragraph (m)(2)(i) of this section by submitting an erroneous
data appeal in writing to the Secretary in accordance with and on the grounds
specified in § 668.192 or § 668.211 as applicable;
(iv) If the institution has 30 or fewer borrowers in the three most recent
cohorts of borrowers used to calculate its cohort default rate under subpart N
of this part, we will not provisionally certify it solely based on cohort
default rates; and
(v) If a rate that would otherwise potentially subject the institution to
provisional certification under paragraphs (m)(1)(ii) and (2)(i) of this section
is calculated as an average rate, we will not provisionally certify it solely
based on cohort default rates;
(n) Has not been subject to a significant negative action or a finding as by a
State or Federal agency, a court or an accrediting agency where the basis of the
action is repeated or unresolved, such as non-compliance with a prior
enforcement order or supervisory directive, and the institution has not lost
eligibility to participate in another Federal educational assistance program due
to an administrative action against the institution.
* * * * *
(p) Develops and follows adequate procedures to evaluate the validity of a
student's high school diploma if the institution or the Secretary has reason to
believe that the high school diploma is not valid or was not obtained from an
entity that provides secondary school education, consistent with the following
requirements:
(1) Adequate procedures to evaluate the validity of a student's high school
diploma must include—
(i) Obtaining documentation from the high school that confirms the validity of
the high school diploma, including at least one of the following—
(A) Transcripts;
(B) Written descriptions of course requirements; or
(C) Written and signed statements by principals or executive officers at the
high school attesting to the rigor and quality of coursework at the high school;
(ii) If the high school is regulated or overseen by a State agency, Tribal
agency, or Bureau of Indian Education, confirming with, or receiving
documentation from that agency that the high school is recognized or meets Start
Printed Page 32495 requirements established by that agency; and
(iii) If the Secretary has published a list of high schools that issue invalid
high school diplomas, confirming that the high school does not appear on that
list; and
(2) A high school diploma is not valid if it—
(i) Did not meet the applicable requirements established by the appropriate
State agency, Tribal agency, or Bureau of Indian Education in the State where
the high school is located and, if the student does not attend in-person
classes, the State where the student was located at the time the diploma was
obtained;
(ii) Has been determined to be invalid by the Department, the appropriate State
agency in the State where the high school was located, or through a court
proceeding;
(iii) Was obtained from an entity that requires little or no secondary
instruction or coursework to obtain a high school diploma, including through a
test that does not meet the requirements for a recognized equivalent of a high
school diploma under 34 CFR 600.2; or
(iv) Was obtained from an entity that—
(A) Maintains a business relationship or is otherwise affiliated with the
eligible institution at which the student is enrolled; and
(B) Is not accredited.
(q) Provides adequate career services to eligible students who receive title IV,
HEA program assistance. In determining whether an institution provides adequate
career services, the Secretary considers—
(1) The share of students enrolled in programs designed to prepare students for
gainful employment in a recognized occupation;
(2) The number and distribution of career services staff;
(3) The career services the institution has promised to its students; and
(4) The presence of institutional partnerships with recruiters and employers who
regularly hire graduates of the institution;
(r) Provides students, within 45 days of successful completion of other required
coursework, geographically accessible clinical or externship opportunities
related to and required for completion of the credential or licensure in a
recognized occupation;
(s) Disburses funds to students in a timely manner that best meets the students'
needs. The Secretary does not consider the manner of disbursements to be
consistent with students' needs if, among other conditions—
(1) The Secretary is aware of multiple verified and relevant student complaints;
(2) The institution has high rates of withdrawals attributable to delays in
disbursements;
(3) The institution has delayed disbursements until after the point at which
students have earned 100 percent of their eligibility for title IV, HEA funds,
in accordance with the return to title IV, HEA requirements in 34 CFR 668.22; or
(4) The institution has delayed disbursements with the effect of ensuring the
institution passes the 90/10 ratio;
(t) Offers gainful employment (GE) programs subject to subpart S of this part
and—
(1) At least half of its total title IV, HEA funds in the most recent award year
are not from programs that are “failing” under subpart S; and
(2) At least half of its full-time equivalent title IV-receiving students are
not enrolled in programs that are “failing” under subpart S;
(u) Does not engage in misrepresentations, as defined in subpart F of this part,
or aggressive and deceptive recruitment tactics or conduct, including as defined
in subpart R of this part; or
(v) Does not otherwise appear to lack the ability to administer the title IV,
HEA programs competently.
* * * * *
Start Amendment Part
10. Section 668.23 amended October 28, 2022 at 87 FR 65426, is further amended
by
End Amendment Part Start Amendment Part
a. Revising paragraphs (a)(4), (a)(5), (d)(1), and (d)(2).
End Amendment Part Start Amendment Part
b. Adding paragraph (d)(5).
End Amendment Part
The revisions and addition read as follows:
§ 668.23
Compliance audits and audited financial statements.
(a) * * *
(4) Submission deadline. Except as provided by the Single Audit Act, chapter 75
of title 31, United States Code, an institution must submit annually to the
Department its compliance audit and its audited financial statements by the date
that is the earlier of—
(i) Thirty days after the later of the date of the auditor's report for the
compliance audit and the date of the auditor's report for the audited financial
statements; or
(ii) Six months after the last day of the institution's fiscal year.
(5) Audit submission requirements. In general, the Department considers the
compliance audit and audited financial statements submission requirements of
this section to be satisfied by an audit conducted in accordance with 2 CFR part
200—Uniform Administrative Requirements, Cost Principles, And Audit Requirements
For Federal Awards, or the audit guides developed by and available from the
Department of Education's Office of Inspector General, whichever is applicable
to the entity, and provided that the Federal student aid functions performed by
that entity are covered in the submission.
* * * * *
(d) * * *
(1) General. To enable the Department to make a determination of financial
responsibility, an institution must, to the extent requested by the Department,
submit to the Department a set of acceptable financial statements for its latest
complete fiscal year (or such fiscal years as requested by the Department or
required by these regulations), as well as any other documentation the
Department deems necessary to make that determination. Financial statements
submitted to the Department must match the fiscal year end of the entity's
annual return(s) filed with the Internal Revenue Service. Financial statements
submitted to the Department must include the Supplemental Schedule required
under § 668.172(a) and section 2 of Appendix A and B to subpart L of this part,
and be prepared on an accrual basis in accordance with generally accepted
accounting principles, and audited by an independent auditor in accordance with
generally accepted government auditing standards, issued by the Comptroller
General of the United States and other guidance contained in 2 CFR part
200—Uniform Administrative Requirements, Cost Principles, And Audit Requirements
For Federal Awards; or in audit guides developed by and available from the
Department of Education's Office of Inspector General, whichever is applicable
to the entity, and provided that the Federal student aid functions performed by
that entity are covered in the submission. As part of these financial
statements, the institution must include a detailed description of related
entities based on the definition of a related entity as set forth in Accounting
Standards Codification (ASC) 850. The disclosure requirements under this
provision extend beyond those of ASC 850 to include all related parties and a
level of detail that would enable the Department to readily identify the related
party. Such information must include, but is not limited to, the name, location
and a description of the related entity including the nature and amount of any
Start Printed Page 32496 transactions between the related party and the
institution, financial or otherwise, regardless of when they occurred.
(2) Submission of additional information. (i) In determining whether an
institution is financially responsible, the Department may also require the
submission of audited consolidated financial statements, audited full
consolidating financial statements, audited combined financial statements, or
the audited financial statements of one or more related parties that have the
ability, either individually or collectively, to significantly influence or
control the institution, as determined by the Department.
(ii) For a domestic or foreign institution that is owned directly or indirectly
by any foreign entity holding at least a 50 percent voting or equity interest in
the institution, the institution must provide documentation of the entity's
status under the law of the jurisdiction under which the entity is organized,
including, at a minimum, the date of organization, a current certificate of good
standing, and a copy of the authorizing statute for such entity status. The
institution must also provide documentation that is equivalent to articles of
organization and bylaws and any current operating or shareholders' agreements.
The Department may also require the submission of additional documents related
to the entity's status under the foreign jurisdiction as needed to assess the
entity's financial status. Documents must be translated into English.
* * * * *
(5) Disclosure of amounts spent on recruiting activities, advertising, and other
pre-enrollment expenditures. An institution must disclose in a footnote to its
financial statement audit the dollar amounts it has spent in the preceding
fiscal year on recruiting activities, advertising, and other pre-enrollment
expenditures.
* * * * *
Start Amendment Part
11. Section 668.32, amended October 28, 2022 at 87 FR 65426, is further amended
by revising paragraphs (e)(2), (e)(3), and (e)(5) to read as follows:
End Amendment Part
§ 668.32
Student eligibility.
* * * * *
(e) * * *
(2) Has obtained a passing score specified by the Secretary on an independently
administered test in accordance with subpart J of this part, and either—
(i) Was first enrolled in an eligible program before July 1, 2012; or
(ii) Is enrolled in an eligible career pathway program as defined in § 668.2;
(3) Is enrolled in an eligible institution that participates in a State process
approved by the Secretary under subpart J of this part, and either—
(i) Was first enrolled in an eligible program before July 1, 2012; or
(ii) Is enrolled in an eligible career pathway program as defined in § 668.2;
* * * * *
(5) Has been determined by the institution to have the ability to benefit from
the education or training offered by the institution based on the satisfactory
completion of 6 semester hours, 6 trimester hours, 6 quarter hours, or 225 clock
hours that are applicable toward a degree or certificate offered by the
institution, and either—
(i) Was first enrolled in an eligible program before July 1, 2012; or
(ii) Is enrolled in an eligible career pathway program as defined in § 668.2.
* * * * *
Start Amendment Part
12. Section 668.43, amended October 28, 2022 at 87 FR 65426, is further amended
by:
End Amendment Part Start Amendment Part
a. Revising the section heading.
End Amendment Part Start Amendment Part
b. Revising paragraph (a)(5)(v).
End Amendment Part Start Amendment Part
c. Adding paragraph (d).
End Amendment Part
The revisions and addition read as follows:
§ 668.43
Institutional and programmatic information.
(a) * * *
(5) * * *
(v) If an educational program is designed to meet educational requirements for a
specific professional license or certification that is required for employment
in an occupation, or is advertised as meeting such requirements, a list of all
States where the institution is aware that the program does and does not meet
such requirements;
* * * * *
(d)(1) Disclosure website. An institution must provide such information about
the institution and educational programs it offers as the Secretary prescribes
through a notice published in the Federal Register for disclosure to prospective
students and enrolled students through a website established and maintained by
the Secretary. The Secretary may conduct consumer testing to inform the design
of the website. The Secretary may include on the website the following items,
among others:
(i) The primary occupations (by name, SOC code, or both) that the program
prepares students to enter, along with links to occupational profiles on O*NET (
www.onetonline.org) or its successor site.
(ii) As reported to or calculated by the Secretary, the program's or
institution's completion rates and withdrawal rates for full-time and
less-than-full-time students.
(iii) The published length of the program in calendar time ( i.e., weeks,
months, years).
(iv) The total number of individuals enrolled in the program during the most
recently completed award year.
(v) As calculated by the Secretary, the program's debt-to-earnings rates;
(vi) As calculated by the Secretary, the program's earnings premium measure.
(vii) As calculated by the Secretary, the loan repayment rate for students or
graduates who entered repayment on title IV loans during a period determined by
the Secretary.
(viii) The total cost of tuition and fees, and the total cost of books,
supplies, and equipment, that a student would incur for completing the program
within the published length of the program.
(ix) Of the individuals enrolled in the program during the most recently
completed award year, the percentage who received a title IV loan, a private
loan, or both for enrollment in the program.
(x) As calculated by the Secretary, the median loan debt of students who
completed the program during the most recently completed award year or for all
students who completed or withdrew from the program during that award year.
(xi) As provided by the Secretary, the median earnings of students who completed
the program or of all students who completed or withdrew from the program,
during a period determined by the Secretary.
(xii) Whether the program is programmatically accredited and the name of the
accrediting agency, as reported to the Secretary.
(xiii) The supplementary performance measures in § 668.13(e).
(xiv) A link to the U.S. Department of Education's College Navigator website, or
its successor site, or other similar Federal resource.
(2) Program web pages. The institution must provide a prominent link to, and any
other needed information to access, the website maintained by the Secretary on
any web page containing academic, cost, financial aid, or admissions information
about the program or institution. The Secretary may require the institution to
modify a web page if the information is not sufficiently prominent, readily
accessible, clear, conspicuous, or direct.
(3) Distribution to prospective students. The institution must provide the
relevant information to access the website maintained by the Secretary to Start
Printed Page 32497 any prospective student, or a third party acting on behalf of
the prospective student, before the prospective student signs an enrollment
agreement, completes registration, or makes a financial commitment to the
institution.
(4) Distribution to enrolled students. The institution must provide the relevant
information to access the website maintained by the Secretary to any enrolled
title IV, HEA recipient prior to the start date of the first payment period
associated with each subsequent award year in which the student continues
enrollment at the institution.
* * * * *
Start Amendment Part
13. Section 668.91 is amended by:
End Amendment Part Start Amendment Part
a. In paragraph (a)(3)(v)(B)( 2) removing the period at the end of the paragraph
and adding, in its place, “; and”.
End Amendment Part Start Amendment Part
b. Adding paragraph (a)(3)(vi).
End Amendment Part
The addition reads as follows:
§ 668.91
Initial and final decisions.
(a) * * *
(3) * * *
(vi) In a termination action against a GE program based upon the program's
failure to meet the requirements in § 668.403 or § 668.404, the hearing official
must terminate the program's eligibility unless the hearing official concludes
that the Secretary erred in the applicable calculation.
* * * * *
Start Amendment Part
14. Revise § 668.156 to read as follows:
End Amendment Part
§ 668.156
Approved State process.
(a)(1) A State that wishes the Secretary to consider its State process as an
alternative to achieving a passing score on an approved, independently
administered test or satisfactory completion of at least six credit hours or its
recognized equivalent coursework for the purpose of determining a student's
eligibility for title IV, HEA program funds must apply to the Secretary for
approval of that process.
(2) A State's application for approval of its State process must include—
(i) The institutions located in the State included in the proposed process,
which need not be all of the institutions located in the State;
(ii) The requirements that participating institutions must meet to offer
eligible career pathway programs through the State process;
(iii) A certification that, as of the date of the application, each proposed
career pathway program intended for use through the State process constitutes an
“eligible career pathway program” as defined in § 668.2 and as documented
pursuant to § 668.157;
(iv) The criteria used to determine student eligibility for participation in the
State process; and
(v) For an institution listed for the first time on the application, an
assurance that not more than 33 percent of the institution's undergraduate
regular students withdrew from the institution during the institution's latest
completed award year. For purposes of calculating this rate, the institution
must count all regular students who were enrolled during the latest completed
award year, except those students who, during that period—
(A) Withdrew from, dropped out of, or were expelled from the institution; and
(B) Were entitled to and actually received in a timely manner, a refund of 100
percent of their tuition and fees.
(3) Before approving the State process, the Secretary will verify that a sample
of the proposed eligible career pathway programs constitute an “eligible career
pathway program” as defined in § 668.2 and as documented pursuant to § 668.157.
(b) For a State applying for approval for the first time, the Secretary may
approve the State process for a two-year initial period if—
(1) The State's process satisfies the requirements contained in paragraphs (a),
(c), and (d) of this section; and
(2) The State agrees that the total number of students who enroll through the
State process during the initial period will total no more than the greater of
25 students or 1.0 percent of enrollment at each institution participating in
the State process.
(c) A State process must—
(1) Allow the participation of only those students eligible under
§ 668.32(e)(3);
(2) Monitor on an annual basis each participating institution's compliance with
the requirements and standards contained in the State's process, including the
success rate as calculated in paragraph (f) of this section;
(3) Require corrective action if an institution is found to be in noncompliance
with the State process requirements;
(4) Provide a participating institution that has failed to achieve the success
rate required under paragraphs (e)(1) and (f) up to three years to achieve
compliance;
(5) Terminate an institution from the State process if the institution refuses
or fails to comply with the State process requirements, including exceeding the
total number of students referenced in paragraph (b)(2) of this section; and
(6) Prohibit an institution from participating in the State process for at least
five years after termination.
(d)(1) The Secretary responds to a State's request for approval of its State
process within six months after the Secretary's receipt of that request. If the
Secretary does not respond by the end of six months, the State's process is
deemed to be approved.
(2) An approved State process becomes effective for purposes of determining
student eligibility for title IV, HEA program funds under this subpart—
(i) On the date the Secretary approves the process; or
(ii) Six months after the date on which the State submits the process to the
Secretary for approval, if the Secretary neither approves nor disapproves the
process during that six-month period.
(e) After the initial two-year period described in paragraph (b) of this
section, the State must reapply for continued participation and, in its
application—
(1) Demonstrate that the students it admits under that process at each
participating institution have a success rate as determined under paragraph (f)
of this section that is within 85 percent of the success rate of students with
high school diplomas;
(2) Demonstrate that the State's process continues to satisfy the requirements
in paragraphs (a), (c), and (d) of this section; and
(3) Report information to the Department on the enrollment and success of
participating students by eligible career pathway program and by race, gender,
age, economic circumstances, and educational attainment, to the extent
available.
(f) The State must calculate the success rate for each participating institution
as referenced in paragraph (e)(1) of this section by—
(1) Determining the number of students with high school diplomas or equivalent
who, during the applicable award year described in paragraph (g)(1) of this
section, enrolled in the same programs as students participating in the State
process at each participating institution and—
(i) Successfully completed education or training programs;
(ii) Remained enrolled in education or training programs at the end of that
award year; or
(iii) Successfully transferred to and remained enrolled in another institution
at the end of that award year;
(2) Determining the number of students with high school diplomas or equivalent
who, during the applicable award year described in paragraph (g)(1) of this
section, enrolled in the same programs as students participating in Start
Printed Page 32498 the State process at each participating institution;
(3) Determining the number of students calculated in paragraph (f)(2) of this
section who remained enrolled after subtracting the number of students who
subsequently withdrew or were expelled from each participating institution and
received a 100 percent refund of their tuition under the institution's refund
policies;
(4) Dividing the number of students determined under paragraph (f)(1) of this
section by the number of students determined under paragraph (f)(3) of this
section; and
(5) Making the calculations described in paragraphs (f)(1) through (f)(4) of
this section for students who enrolled through a State process in each
participating institution.
(g)(1) For purposes of paragraph (f) of this section, the applicable award year
is the latest complete award year for which information is available.
(2) If no students are enrolled in an eligible career pathway program through a
State process, then the State will receive a one-year extension to its initial
approval of its State process.
(h) A State must submit reports on its State process, in accordance with
deadlines and procedures established and published by the Secretary in the
Federal Register , with such information as the Secretary requires.
(i) The Secretary approves a State process as described in paragraph (e) of this
section for a period not to exceed five years.
(j)(1) The Secretary withdraws approval of a State process if the Secretary
determines that the State process violated any terms of this section or that the
information that the State submitted as a basis for approval of the State
process was inaccurate.
(i) If a State has not terminated an institution from the State process under
paragraph (c)(5) of this section for failure to meet the success rate, then the
Secretary withdraws approval of the State process, except in accordance with
paragraph (j)(1)(ii) of this section.
(ii) At the Secretary's discretion, under exceptional circumstances, the State
process may be approved once for a two-year period.
(iii) If 50 percent or more participating institutions across all States do not
meet the success rate in a given year, then the Secretary may lower the success
rate to no less than 75 percent for two years.
(2) The Secretary provides a State with the opportunity to contest a finding
that the State process violated any terms of this section or that the
information that the State submitted as a basis for approval of the State
process was inaccurate.
(3) If the Secretary upholds the withdrawal of approval of a State process, then
the State cannot reapply to the Secretary for a period of five years.
(Approved by the Office of Management and Budget under control number 1845–0049)
(Authority: 20 U.S.C. 1091(d))
Start Amendment Part
15. Adding § 668.157 to subpart J to read as follows:
End Amendment Part
§ 668.157
Eligible career pathway program.
(a) An institution demonstrates to the Secretary that a student is enrolled in
an eligible career pathway program by documenting that—
(1) The student has enrolled in or is receiving all three of the following
elements simultaneously—
(i) An eligible postsecondary program as defined in § 668.8;
(ii) Adult education and literacy activities under the Workforce Innovation and
Opportunity Act as described in 34 CFR 463.30 that assist adults in attaining a
secondary school diploma or its recognized equivalent and in the transition to
postsecondary education and training; and
(iii) Workforce preparation activities as described in 34 CFR 463.34;
(2) The program aligns with the skill needs of industries in the State or
regional labor market in which the institution is located, based on research the
institution has conducted, including—
(i) Government reports identifying in-demand occupations in the State or
regional labor market;
(ii) Surveys, interviews, meetings, or other information obtained by the
institution regarding the hiring needs of employers in the State or regional
labor market; and
(iii) Documentation that demonstrates direct engagement with industry;
(3) The skill needs described in paragraph (a)(2) of this section align with the
specific coursework and postsecondary credential provided by the postsecondary
program or other required training;
(4) The program provides academic and career counseling services that assist
students in pursuing their credential and obtaining jobs aligned with skill
needs described in paragraph (a)(2) of this section, and identifies the
individuals providing the career counseling services;
(5) The appropriate education is offered, concurrently with and in the same
context as workforce preparation activities and training for a specific
occupation or occupational cluster through an agreement, memorandum of
understanding, or some other evidence of alignment of postsecondary and adult
education providers that ensures the secondary education is aligned with the
students' career objectives; and
(6) The program is designed to lead to a valid high school diploma as defined in
§ 668.16(p) or its recognized equivalent.
(b) For career pathway programs that do not enroll students through a State
process as defined in § 668.156, the Secretary will verify the eligibility of
eligible career pathway programs for title IV, HEA program purposes pursuant to
paragraph (a) of this section. The Secretary provides an institution with the
opportunity to appeal any adverse eligibility decision.
Start Amendment Part
16. Section 668.171, as amended October 28, 2022 at 87 FR 65495, is further
amended by revising paragraph (b) introductory text, paragraphs (b)(3), and (c)
through (i) to read as follows:
End Amendment Part
§ 668.171
General
* * * * *
(b) General standards of financial responsibility. Except as provided in
paragraph (h) of this section, the Department considers an institution to be
financially responsible if the Department determines that—
* * * * *
(3) The institution is able to meet all of its financial obligations and provide
the administrative resources necessary to comply with title IV, HEA program
requirements. An institution is not deemed able to meet its financial or
administrative obligations if—
(i) It fails to make refunds under its refund policy, return title IV, HEA
program funds for which it is responsible under § 668.22, or pay title IV, HEA
credit balances as required under § 668.164(h)(2);
(ii) It fails to make repayments to the Department for any debt or liability
arising from the institution's participation in the title IV, HEA programs;
(iii) It fails to make a payment in accordance with an existing undisputed
financial obligation for more than 90 days;
(iv) It fails to satisfy payroll obligations in accordance with its published
payroll schedule;
(v) It borrows funds from retirement plans or restricted funds without
authorization; or
(vi) It is subject to an action or event described in paragraph (c) of this
section (mandatory triggering events), or an action or event that the Department
has determined to have a material adverse effect on the financial condition
Start Printed Page 32499 of the institution under paragraph (d) of this section
(discretionary triggering events); and
* * * * *
(c) Mandatory triggering events. (1) Except for the mandatory triggers that
require a recalculation of the institution's composite score, the mandatory
triggers in this paragraph (c) constitute automatic failures of financial
responsibility. For any mandatory triggers under this paragraph (c) that result
in a recalculated composite score of less than 1.0, and for those mandatory
triggers that constitute automatic failures of financial responsibility, the
Department will require the institution to provide financial protection as set
forth in this subpart. The financial protection required under this paragraph is
not less than 10 percent of the total title IV, HEA funding in the prior fiscal
year. If the Department requires financial protection as a result of more than
one mandatory or discretionary trigger, the Department will require separate
financial protection for each individual trigger. The Department will consider
whether the financial protection can be released following the institution's
submission of two full fiscal years of audited financial statements following
the Department's notice that requires the posting of the financial protection.
In making this determination, the Department considers whether the
administrative or financial risk caused by the event has ceased or been
resolved, including full payment of all damages, fines, penalties, liabilities,
or other financial relief.
(2) The following are mandatory triggers:
(i) Debts, liabilities, and losses. (A) For an institution or entity with a
composite score of less than 1.5, other than a composite score calculated under
34 CFR 600.20(g) and § 668.176, that is required to pay a debt or incurs a
liability from a settlement, arbitration proceeding, or a final judgment in a
judicial proceeding, and as a result of the debt or liability, the recalculated
composite score for the institution or entity is less than 1.0, as determined by
the Department under paragraph (e) of this section;
(B) The institution or any entity whose financial statements were submitted in
the prior fiscal year to meet the requirements of 34 CFR 600.20(g) or this
subpart, is sued by a Federal or State authority to impose an injunction,
establish fines or penalties, or to obtain financial relief such as damages, or
through a qui tam lawsuit in which the Federal government has intervened, and
the action was brought on or after July 1, 2024, and the action has been pending
for 120 days, or a qui tam has been pending for 120 days following intervention,
and no motion to dismiss has been filed, or if a motion to dismiss has been
filed within 120 days and denied, upon such denial.
(C) The Department has initiated action to recover from the institution the cost
of adjudicated claims in favor of borrowers under the loan discharge provisions
in 34 CFR part 685 and, the recalculated composite score for the institution or
entity as a result of the adjudicated claims is less than 1.0, as determined by
the Department under paragraph (e) of this section; or
(D) For an institution or entity that has submitted an application for a change
in ownership under 34 CFR 600.20 that is required to pay a debt or incurs a
liability from a settlement, arbitration proceeding, final judgment in a
judicial proceeding, or a determination arising from an administrative
proceeding described in paragraph (c)(2)(i)(B) or (C) of this section, at any
point through the end of the second full fiscal year after the change in
ownership has occurred.
(ii) Withdrawal of owner's equity. (A) For a proprietary institution whose
composite score is less than 1.5, or for any proprietary institution through the
end of the first full fiscal year following a change in ownership, and there is
a withdrawal of owner's equity by any means, including by declaring a dividend,
unless the withdrawal is a transfer to an entity included in the affiliated
entity group on whose basis the institution's composite score was calculated; or
is the equivalent of wages in a sole proprietorship or general partnership or a
required dividend or return of capital; and
(B) As a result of that withdrawal, the institution's recalculated composite
score for the entity whose financial statements were submitted to meet the
requirements of § 668.23 for the annual submission, or § 600.20(g) or (h) for a
change in ownership, is less than 1.0, as determined by the Department under
paragraph (e) of this section.
(iii) Gainful employment. As determined annually by the Department, the
institution received at least 50 percent of its title IV, HEA program funds in
its most recently completed fiscal year from gainful employment (GE) programs
that are “failing” under subpart S of this part.
(iv) Teach-out plans. The institution is required to submit a teach-out plan or
agreement, by a State or Federal agency, an accrediting agency or other
oversight body.
(v) State actions. The institution is cited by a State licensing or authorizing
agency for failing to meet State or agency requirements and the agency provides
notice that it will withdraw or terminate the institution's licensure or
authorization if the institution does not take the steps necessary to come into
compliance with that requirement.
(vi) Publicly listed entities. For an institution that is directly or indirectly
owned at least 50 percent by an entity whose securities are listed on a domestic
or foreign exchange, the entity is subject to one or more of the following
actions or events:
(A) SEC actions. The U.S. Securities and Exchange Commission (SEC) issues an
order suspending or revoking the registration of any of the entity's securities
pursuant to section 12(j) of the Securities Exchange Act of 1934 (the “Exchange
Act”) or suspends trading of the entity's securities pursuant to section 12(k)
of the Exchange Act.
(B) Other SEC actions. The SEC files an action against the entity in district
court or issues an order instituting proceedings pursuant to section 12(j) of
the Exchange Act.
(C) Exchange actions. The exchange on which the entity's securities are listed
notifies the entity that it is not in compliance with the exchange's listing
requirements, or its securities are delisted.
(D) SEC reports. The entity failed to file a required annual or quarterly report
with the SEC within the time period prescribed for that report or by any
extended due date under 17 CFR 240.12b–25.
(E) Foreign exchanges or Oversight Authority. The entity is subject to an event,
notification, or condition by a foreign exchange or oversight authority that the
Department determines is equivalent to those identified in paragraphs
(c)(2)(vi)(A)–(D) of this section.
(vii) Non-Federal educational assistance funds. For its most recently completed
fiscal year, a proprietary institution did not receive at least 10 percent of
its revenue from sources other than Federal educational assistance, as provided
under § 668.28(c). The financial protection provided under this requirement will
remain in place until the institution passes the 90/10 revenue requirement for
two consecutive years.
(viii) Cohort default rates. The institution's two most recent official cohort
default rates are 30 percent or greater, as determined under subpart N of this
part, unless—
(A) The institution files a challenge, request for adjustment, or appeal under
Start Printed Page 32500 subpart N of this part with respect to its rates for
one or both of those fiscal years; and
(B) That challenge, request, or appeal remains pending, results in reducing
below 30 percent the official cohort default rate for either or both of those
years or precludes the rates from either or both years from resulting in a loss
of eligibility or provisional certification.
(ix) Loss of eligibility. The institution has lost eligibility to participate in
another Federal educational assistance program due to an administrative action
against the school.
(x) Contributions and distributions. (A) An institution's financial statements
required to be submitted under § 668.23 reflect a contribution in the last
quarter of the fiscal year, and the institution then made a distribution during
the first two quarters of the next fiscal year; and
(B) The offset of such distribution against the contribution results in a
recalculated composite score of less than 1.0, as determined by the Department
under paragraph (e) of this section.
(xi) Creditor events. As a result of an action taken by the Department, the
institution or any entity included in the financial statements submitted in the
current or prior fiscal year under 34 CFR 600.20(g) or (h), § 668.23, or this
subpart is subject to a default or other adverse condition under a line of
credit, loan agreement, security agreement, or other financing arrangement.
(xii) Declaration of financial exigency. The institution declares a state of
financial exigency to a Federal, State, Tribal or foreign governmental agency or
its accrediting agency.
(xiii) Receivership. The institution, or an owner or affiliate of the
institution that has the power, by contract or ownership interest, to direct or
cause the direction of the management of policies of the institution, files for
a State or Federal receivership, or an equivalent proceeding under foreign law,
or has entered against it an order appointing a receiver or appointing a person
of similar status under foreign law.
(d) Discretionary triggering events. The Department may determine that an
institution is not able to meet its financial or administrative obligations if
the Department determines that a discretionary triggering event is likely to
have a significant adverse effect on the financial condition of the institution.
For those discretionary triggers that the Department determines will have a
significant adverse effect on the financial condition of the institution, the
Department will require the institution to provide financial protection as set
forth in this subpart. The financial protection required under this paragraph is
not less than 10 percent of the total title IV, HEA funding in the prior fiscal
year. If the Department requires financial protection as a result of more than
one mandatory or discretionary trigger, the Department will require separate
financial protection for each individual trigger. The Department will consider
whether the financial protection can be released following the institution's
submission of two full fiscal years of audited financial statements following
the Department's notice that requires the posting of the financial protection.
In making this determination, the Department considers whether the
administrative or financial risk caused by the event has ceased or been
resolved, including full payment of all damages, fines, penalties, liabilities,
or other financial relief. The discretionary triggers include, but are not
limited to, the following events:
(1) Accrediting agency and government agency actions. The institution's
accrediting agency or a Federal, State, local or Tribal authority places the
institution on probation or issues a show-cause order or places the institution
in a comparable status that poses an equivalent or greater risk to its
accreditation, authorization or eligibility.
(2) Other defaults, delinquencies, creditor events, and judgments.
(i) Except as provided in paragraph (c)(2)(xi) of this section, the institution
or any entity included in the financial statements submitted in the current or
prior fiscal year under 34 CFR 600.20(g) or (h), § 668.23, or this subpart is
subject to a default or other condition under a line of credit, loan agreement,
security agreement, or other financing arrangement;
(ii) Under that line of credit, loan agreement, security agreement, or other
financing arrangement, a monetary or nonmonetary default or delinquency or other
event occurs that allows the creditor to require or impose on the institution or
any entity included in the financial statements submitted in the current or
prior fiscal year under 34 CFR 600.20(g) or (h), § 668.23, or this subpart, an
increase in collateral, a change in contractual obligations, an increase in
interest rates or payments, or other sanctions, penalties, or fees;
(iii) Any creditor of the institution or any entity included in the financial
statements submitted in the current or prior fiscal year under 34 CFR 600.20(g)
or (h), § 668.23, or this subpart takes action to terminate, withdraw, limit, or
suspend a loan agreement or other financing arrangement or calls due a balance
on a line of credit with an outstanding balance;
(iv) The institution or any entity included in the financial statements
submitted in the current or prior fiscal year under 34 CFR 600.20(g) or (h),
§ 668.23, or this subpart enters into a line of credit, loan agreement, security
agreement, or other financing arrangement whereby the institution or entity may
be subject to a default or other adverse condition as a result of any action
taken by the Department; or
(v) The institution or any entity included in the financial statements submitted
in the current or prior fiscal year under 34 CFR 600.20(g) or (h), § 668.23, or
this subpart has a judgment awarding monetary relief entered against it that is
subject to appeal or under appeal.
(3) Fluctuations in Title IV volume. There is a significant fluctuation between
consecutive award years, or a period of award years, in the amount of Direct
Loan or Pell Grant funds, or a combination of those funds, received by the
institution that cannot be accounted for by changes in those programs.
(4) High annual dropout rates. As calculated by the Department, the institution
has high annual dropout rates.
(5) Interim reporting. For an institution required to provide additional
financial reporting to the Department due to a failure to meet the financial
responsibility standards in this subpart or due to a change in ownership, there
are negative cash flows, failure of other liquidation ratios, cash flows that
significantly miss the projections submitted to the Department, withdrawal rates
that increase significantly, or other indicators of a material change in the
financial condition of the institution.
(6) Pending borrower defense claims. There are pending claims for borrower
relief discharge under 34 CFR 685.400 from students or former students of the
institution and the Department has formed a group process to consider claims
under 34 CFR 685.402 and, if approved, those claims could be subject to
recoupment.
(7) Discontinuation of programs. The institution discontinues academic programs,
that affect more than 25 percent of enrolled students.
(8) Closure of locations. The institution closes more than 50 percent of its
locations or closes locations that enroll more than 25 percent of its students.
(9) State citations. The institution is cited by a State licensing or
authorizing Start Printed Page 32501 agency for failing to meet State or agency
requirements.
(10) Loss of program eligibility. One or more programs at the institution has
lost eligibility to participate in another Federal educational assistance
program due to an administrative action against the school or its programs.
(11) Exchange disclosures. If an institution is directly or indirectly owned at
least 50 percent by an entity whose securities are listed on a domestic or
foreign exchange, the entity discloses in a public filing that it is under
investigation for possible violations of State, Federal or foreign law.
(12) Actions by another Federal agency. The institution is cited and faces loss
of education assistance funds from another Federal agency if it does not comply
with the agency's requirements.
(e) Recalculating the composite score. When a recalculation of an institution's
most recent composite score is required by the mandatory triggering events
described in paragraph (c) of this section, the Department makes the
recalculation as follows:
(1) For a proprietary institution, debts, liabilities, and losses (including
cumulative debts, liabilities, and losses for all triggering events) since the
end of the prior fiscal year incurred by the entity whose financial statements
were submitted in the prior fiscal year to meet the requirements of § 668.23 or
this subpart, and debts, liabilities, and losses (including cumulative debts,
liabilities, and losses for all triggering events) through the end of the first
full fiscal year following a change in ownership incurred by the entity whose
financial statements were submitted for 34 CFR 600.20(g) or (h), will be
adjusted as follows:
(i) For the primary reserve ratio, increasing expenses and decreasing adjusted
equity by that amount.
(ii) For the equity ratio, decreasing modified equity by that amount.
(iii) For the net income ratio, decreasing income before taxes by that amount.
(2) For a nonprofit institution, debts, liabilities, and losses (including
cumulative debts, liabilities, and losses for all triggering events) since the
end of the prior fiscal year incurred by the entity whose financial statements
were submitted in the prior fiscal year to meet the requirements of § 668.23 or
this subpart, and debts, liabilities, and losses (including cumulative debts,
liabilities, and losses for all triggering events) through the end of the first
full fiscal year following a change in ownership incurred by the entity whose
financial statements were submitted for 34 CFR 600.20(g) or (h), will be
adjusted as follows:
(i) For the primary reserve ratio, increasing expenses and decreasing expendable
net assets by that amount.
(ii) For the equity ratio, decreasing modified net assets by that amount.
(iii) For the net income ratio, decreasing change in net assets without donor
restrictions by that amount.
(3) For a proprietary institution, the withdrawal of equity (including
cumulative withdrawals of equity) since the end of the prior fiscal year from
the entity whose financial statements were submitted in the prior fiscal year to
meet the requirements of § 668.23 or this subpart, and the withdrawal of equity
(including cumulative withdrawals of equity) through the end of the first full
fiscal year following a change in ownership from the entity whose financial
statements were submitted for 34 CFR 600.20(g) or (h), will be adjusted as
follows:
(i) For the primary reserve ratio, decreasing adjusted equity by that amount.
(ii) For the equity ratio, decreasing modified equity by that amount.
(4) For a proprietary institution, a contribution and distribution in the entity
whose financial statements were submitted in the prior fiscal year to meet the
requirements of § 668.23, this subpart, or 34 CFR 600.20(g) will be adjusted as
follows:
(i) For the primary reserve ratio, decreasing adjusted equity by the amount of
the distribution.
(ii) For the equity ratio, decreasing modified equity by the amount of the
distribution.
(f) Reporting requirements. (1) In accordance with procedures established by the
Department, an institution must timely notify the Department of the following
actions or events:
(i) For a liability incurred under paragraph (c)(2)(i)(A) of this section, no
later than 10 days after the date of written notification to the institution or
entity of the final judgment or determination.
(ii) For a lawsuit described in paragraph (c)(2)(i)(B) of this section, no later
than 10 days after the institution or entity is served with the complaint, and
an updated notice must be provided 10 days after the suit has been pending for
120 days.
(iii) No later than 10 days after the institution receives a civil investigative
demand, subpoena, request for documents or information, or other formal or
informal inquiry from any local, State, Tribal, Federal, or foreign government
or government entity.
(iv) For a withdrawal of owner's equity described in paragraph (c)(2)(ii) of
this section—
(A) For a capital distribution that is the equivalent of wages in a sole
proprietorship or general partnership, no later than 10 days after the date the
Department notifies the institution that its composite score is less than 1.5.
In response to that notice, the institution must report the total amount of the
wage-equivalent distributions it made during its prior fiscal year and any
distributions that were made to pay any taxes related to the operation of the
institution. During its current fiscal year and the first six months of its
subsequent fiscal year (18-month period), the institution is not required to
report any distributions to the Department, provided that the institution does
not make wage-equivalent distributions that exceed 150 percent of the total
amount of wage-equivalent distributions it made during its prior fiscal year,
less any distributions that were made to pay any taxes related to the operation
of the institution. However, if the institution makes wage-equivalent
distributions that exceed 150 percent of the total amount of wage-equivalent
distributions it made during its prior fiscal year less any distributions that
were made to pay any taxes related to the operation of the institution at any
time during the 18-month period, it must report each of those distributions no
later than 10 days after they are made, and the Department recalculates the
institution's composite score based on the cumulative amount of the
distributions made at that time;
(B) For a distribution of dividends or return of capital, no later than 10 days
after the dividends are declared or the amount of return of capital is approved;
or
(C) For a related party receivable/other assets, no later than 10 days after
that receivable/other assets are booked or occur.
(v) For a contribution and distribution described in paragraph (c)(2)(x) of this
section, no later than 10 days following each transaction.
(vi) For the provisions relating to a publicly listed entity under paragraph
(c)(2)(vi) or (d)(11) of this section, no later than 10 days after the date that
such event occurs.
(vii) For any action by an accrediting agency, Federal, State, local or Tribal
authority that is either a mandatory or discretionary trigger, no later than 10
days after the date on which the institution is notified of the action.
(viii) For the creditor events described in paragraph (c)(2)(xi) of this
section, no later than 10 days after the date on Start Printed Page 32502 which
the institution is notified of the action by its creditor.
(ix) For the other defaults, delinquencies, or creditor events described in
paragraph (d)(2)(i), (ii), (iii), and (iv) of this section, no later than 10
days after the event occurs, with an update no later than 10 days after the
creditor waives the violation, or the creditor imposes sanctions or penalties,
including sanctions or penalties imposed in exchange for or as a result of
granting the waiver. For a monetary judgment subject to appeal or under appeal
described in paragraph (d)(2)(v), no later than 10 days after the court enters
the judgment, with an update no later than 10 days after the appeal is filed or
the period for appeal expires without a notice of appeal being filed. If an
appeal is filed, no later than 10 days after the decision on the appeal is
issued.
(x) For the non-Federal educational assistance funds provision in paragraph
(c)(2)(vii) of this section, no later than 45 days after the end of the
institution's fiscal year, as provided in § 668.28(c)(3).
(xi) For an institution or entity that has submitted an application for a change
in ownership under 34 CFR 600.20 that is required to pay a debt or incurs a
liability from a settlement, arbitration proceeding, final judgment in a
judicial proceeding, or a determination arising from an administrative
proceeding described in paragraph (c)(2)(i)(B) or (C) of this section, the
institution must report this no later than ten days after the action. This
reporting requirement is applicable to any action described herein occurring
through the end of the second full fiscal year after the change in ownership has
occurred.
(xii) For a discontinuation of academic programs described in paragraph (d)(7)
of this section, no later than 10 days after the discontinuation of programs.
(xiii) For a failure to meet any of the standards in paragraph (b) of this
section, no later than 10 days after the institution ceases to meet the
standard.
(xiv) For a declaration of financial exigency, no later than 10 days after the
institution communicates its declaration to a Federal, State, Tribal or foreign
governmental agency or its accrediting agency.
(xv) If the institution, or an owner or affiliate of the institution that has
the power, by contract or ownership interest, to direct or cause the direction
of the management of policies of the institution, files for a State or Federal
receivership, or an equivalent proceeding under foreign law, or has entered
against it an order appointing a receiver or appointing a person of similar
status under foreign law, no later than 10 days after either the filing for
receivership or the order appointing a receiver or appointing a person of
similar status under foreign law, as applicable.
(xvi) The institution closes more than 50 percent of its locations or closes
locations that enroll more than 25 percent of its students no later than 10 days
after the closure that meets or exceeds these thresholds.
(xvii) If the institution is directly or indirectly owned at least 50 percent by
an entity whose securities are listed on a domestic or foreign exchange, and the
entity discloses in a public filing that it is under investigation for possible
violations of State, Federal or foreign law, no later than ten days after the
public filing.
(2) The Department may take an administrative action under paragraph (i) of this
section against an institution, or determine that the institution is not
financially responsible, if it fails to provide timely notice to the Department
as provided under paragraph (f)(1) of this section, or fails to respond, within
the timeframe specified by the Department, to any determination made, or request
for information, by the Department under paragraph (f)(3) of this section.
(3)(i) In its notice to the Department under this paragraph, or in its response
to a preliminary determination by the Department that the institution is not
financially responsible because of a triggering event under paragraph (c) or (d)
of this section, in accordance with procedures established by the Department,
the institution may—
(A) Show that the creditor waived a violation of a loan agreement under
paragraph (d)(2) of this section. However, if the creditor imposes additional
constraints or requirements as a condition of waiving the violation, or imposes
penalties or requirements under paragraph (d)(2)(ii) of this section, the
institution must identify and describe those penalties, constraints, or
requirements and demonstrate that complying with those actions will not
significantly affect the institution's ability to meet its financial
obligations;
(B) Show that the triggering event has been resolved, or demonstrate that the
institution has insurance that will cover all or part of the liabilities that
arise under paragraph (c)(2)(i)(A) of this section; or
(C) Explain or provide information about the conditions or circumstances that
precipitated a triggering event under paragraph (c) or (d) of this section that
demonstrates that the triggering event has not had, or will not have, a material
adverse effect on the financial condition of the institution.
(ii) The Department will consider the information provided by the institution in
determining whether to issue a final determination that the institution is not
financially responsible.
(g) Public institutions. (1) The Department considers a domestic public
institution to be financially responsible if the institution—
(i) Notifies the Department that it is designated as a public institution by the
State, local, or municipal government entity, Tribal authority, or other
government entity that has the legal authority to make that designation; and
(ii) Provides a letter or other documentation acceptable to the Department and
signed by an official of that government entity confirming that the institution
is a public institution and is backed by the full faith and credit of the
government entity. This letter must be submitted before the institution's
initial certification, upon a change in ownership and request to be recognized
as a public institution, and for the first re-certification of a public
institution after the effective date of these regulations. Thereafter, the
letter must be submitted—
(A) When the institution submits an application for re-certification following
any period of provisional certification;
(B) Within 10 business days following a change in the governmental status of the
institution whereby the institution is no longer backed by the full faith and
credit of the government entity; or
(C) Upon request by the Department;
(iii) Is not subject to a condition of past performance under § 668.174; and
(iv) Is not subject to an automatic mandatory triggering event as described in
paragraph (c) of this section or a discretionary triggering event as described
in paragraph (d) of this section that the Department determines will have a
significant adverse effect on the financial condition of the institution.
(2) The Department considers a foreign public institution to be financially
responsible if the institution—
(i) Notifies the Department that it is designated as a public institution by the
country or other government entity that has the legal authority to make that
designation; and
(ii) Provides a letter or other documentation acceptable to the Department and
signed by an official of that country or other government entity confirming that
the institution is a public institution and is backed by the Start Printed Page
32503 full faith and credit of the country or other government entity. This
letter must be submitted before the institution's initial certification, upon a
change in ownership and request to be recognized as a public institution, and
for the first re-certification of a public institution after the effective date
of these regulations. Thereafter, the letter must be submitted in the following
circumstances—
(A) When the institution submits an application for re-certification following
any period of provisional certification;
(B) Within 10 business days following a change in the governmental status of the
institution whereby the institution is no longer backed by the full faith and
credit of the government entity; or
(C) Upon request by the Department;
(iii) Is not subject to a condition of past performance under § 668.174 and
(iv) Is not subject to an automatic mandatory triggering event as described in
paragraph (c) of this section or a discretionary triggering event as described
in paragraph (d) of this section that the Department determines will have a
significant adverse effect on the financial condition of the institution.
(h) Audit opinions and disclosures. Even if an institution satisfies all of the
general standards of financial responsibility under paragraph (b) of this
section, the Department does not consider the institution to be financially
responsible if the institution's audited financial statements—
(1) Include an opinion expressed by the auditor that was an adverse, qualified,
or disclaimed opinion, unless the Department determines that the adverse,
qualified, or disclaimed opinion does not have a significant bearing on the
institution's financial condition; or
(2) Include a disclosure in the notes to the institution's or entity's audited
financial statements about the institution's or entity's diminished liquidity,
ability to continue operations, or ability to continue as a going concern,
unless the Department determines that the diminished liquidity, ability to
continue operations, or ability to continue as a going concern has been
alleviated. The Department may conclude that diminished liquidity, ability to
continue operations, or ability to continue as a going concern has not been
alleviated even if the disclosure provides that those concerns have been
alleviated.
(i) Administrative actions. If the Department determines that an institution is
not financially responsible under the standards and provisions of this section
or under an alternative standard in § 668.175, or the institution does not
submit its financial statements and compliance audits by the date and in the
manner required under § 668.23, the Department may—
(1) Initiate an action under subpart G of this part to fine the institution, or
limit, suspend, or terminate the institution's participation in the title IV,
HEA programs;
(2) For an institution that is provisionally certified, take an action against
the institution under the procedures established in § 668.13(d); or
(3) Deny the institution's application for certification or recertification to
participate in the title IV, HEA programs.
Start Amendment Part
17. Section 668.174 is amended by:
End Amendment Part Start Amendment Part
a. Revising paragraphs (a)(2) and (b)(2)(i);
End Amendment Part Start Amendment Part
b. Adding paragraph (b)(3); and
End Amendment Part Start Amendment Part
c. Revising paragraph (c)(1).
End Amendment Part
The revisions and addition read as follows:
§ 668.174
Past performance
(a) * * *
(2) In either of its two most recently submitted compliance audits had a final
audit determination or in a Departmentally issued report, including a final
program review determination report, issued in its current fiscal year or either
of its preceding two fiscal years, had a program review finding that resulted in
the institution's being required to repay an amount greater than five percent of
the funds that the institution received under the title IV, HEA programs during
the year covered by that audit or program review;
* * * * *
(b) * * *
(2) * * *
(i) The institution notifies the Department, within the time permitted and as
provided under 34 CFR 600.21, that the person or entity referenced in paragraph
(b)(1) of this section exercises substantial control over the institution; and
* * * * *
(3) An institution is not financially responsible if an owner who exercises
substantial control, or the owner's spouse, has been in default on a Federal
student loan, including parent PLUS loans, in the preceding five years, unless—
(i) The defaulted Federal student loan has been fully repaid and five years have
elapsed since the repayment in full;
(ii) The defaulted Federal student loan has been approved for, and the borrower
is in compliance with, a rehabilitation agreement and has been current for five
consecutive years; or
(iii) The defaulted Federal student loan has been discharged, canceled or
forgiven by the Department.
(c) * * *
(1) An ownership interest is defined in 34 CFR 600.31(b).
* * * * *
Start Amendment Part
18. Section 668.175 is amended by revising paragraphs (b), (c), (d), (f)(1) and
(2) to read as follows:
End Amendment Part
§ 668.175
Alternative standard and requirements.
* * * * *
(b) Letter of credit or cash escrow alternative for new institutions. A new
institution that is not financially responsible solely because the Department
determines that its composite score is less than 1.5, qualifies as a financially
responsible institution by submitting an irrevocable letter of credit that is
acceptable and payable to the Department, or providing other surety described
under paragraph (h)(2)(i) of this section, for an amount equal to at least
one-half of the amount of title IV, HEA program funds that the Department
determines the institution will receive during its initial year of
participation. A new institution is an institution that seeks to participate for
the first time in the title IV, HEA programs.
(c) Financial protection alternative for participating institutions. A
participating institution that is not financially responsible, either because it
does not satisfy one or more of the standards of financial responsibility under
§ 668.171(b), (c), or (d), or because of an audit opinion or disclosure about
the institution's liquidity, ability to continue operations, or ability to
continue as a going concern described under § 668.171(h), qualifies as a
financially responsible institution by submitting an irrevocable letter of
credit that is acceptable and payable to the Department, or providing other
financial protection described under paragraph (h)(2)(i) of this section, for an
amount determined by the Department that is not less than one-half of the title
IV, HEA program funds received by the institution during its most recently
completed fiscal year, except that this requirement does not apply to a public
institution. For purposes of a failure under § 668.171(b)(2) or (3), the
institution must also remedy the issue(s) that gave rise to the failure to the
Department's satisfaction.
(d) Zone alternative. (1) A participating institution that is not financially
responsible solely because the Department determines that its composite score
under § 668.172 is less than 1.5 may participate in the title IV, Start Printed
Page 32504 HEA programs as a financially responsible institution for no more
than three consecutive years, beginning with the year in which the Department
determines that the institution qualifies under this alternative.
(i)(A) An institution qualifies initially under this alternative if, based on
the institution's audited financial statements for its most recently completed
fiscal year, the Department determines that its composite score is in the range
from 1.0 to 1.4; and
(B) An institution continues to qualify under this alternative if, based on the
institution's audited financial statements for each of its subsequent two fiscal
years, the Department determines that the institution's composite score is in
the range from 1.0 to 1.4.
(ii) An institution that qualified under this alternative for three consecutive
years, or for one of those years, may not seek to qualify again under this
alternative until the year after the institution achieves a composite score of
at least 1.5, as determined by the Department.
(2) Under the zone alternative, the Department—
(i) Requires the institution to make disbursements to eligible students and
parents, and to otherwise comply with the provisions, under either the
heightened cash monitoring or reimbursement payment method described in
§ 668.162;
(ii) Requires the institution to provide timely information regarding any of the
following oversight and financial events—
(A) Any event that causes the institution, or related entity as defined in
Accounting Standards Codification (ASC) 850, to realize any liability that was
noted as a contingent liability in the institution's or related entity's most
recent audited financial statements; or
(B) Any losses that are unusual in nature or infrequently occur, or both, as
defined in accordance with Accounting Standards Update (ASU) No. 2015–01 and ASC
225;
(iii) May require the institution to submit its financial statement and
compliance audits earlier than the time specified under § 668.23(a)(4); and
(iv) May require the institution to provide information about its current
operations and future plans.
(3) Under the zone alternative, the institution must—
(i) For any oversight or financial event described in paragraph (d)(2)(ii) of
this section for which the institution is required to provide information, in
accordance with procedures established by the Department, notify the Department
no later than 10 days after that event occurs; and
(ii) As part of its compliance audit, require its auditor to express an opinion
on the institution's compliance with the requirements under the zone
alternative, including the institution's administration of the payment method
under which the institution received and disbursed title IV, HEA program funds.
(4) If an institution fails to comply with the requirements under paragraph
(d)(2) or (3) of this section, the Department may determine that the institution
no longer qualifies under this alternative.
* * * * *
(f) Provisional certification alternative. (1) The Department may permit an
institution that is not financially responsible to participate in the title IV,
HEA programs under a provisional certification for no more than three
consecutive years if—
(i) The institution is not financially responsible because it does not satisfy
the general standards under § 668.171(b), its recalculated composite score under
§ 668.171(e) is less than 1.0, it is subject to an action or event under
§ 668.171(c), or an action or event under paragraph (d) has an adverse material
effect on the institution as determined by the Department, or because of an
audit opinion or going concern disclosure described in § 668.171(h); or
(ii) The institution is not financially responsible because of a condition of
past performance, as provided under § 668.174(a), and the institution
demonstrates to the Department that it has satisfied or resolved that condition;
and
(2) Under this alternative, the institution must—
(i) Provide to the Department an irrevocable letter of credit that is acceptable
and payable to the Department, or provide other financial protection described
under paragraph (h) of this section, for an amount determined by the Department
that is not less than 10 percent of the title IV, HEA program funds received by
the institution during its most recently completed fiscal year, except that this
requirement does not apply to a public institution that the Department
determines is backed by the full faith and credit of the State or equivalent
governmental entity;
(ii) Remedy the issue(s) that gave rise to its failure under § 668.171(b)(2) or
(3) to the Department's satisfaction; and
(iii) Comply with the provisions under the zone alternative, as provided under
paragraph (d)(2) and (3) of this section.
* * * * *
§ 668.176
[Redesignated]
Start Amendment Part
19. Redsignate § 668.176 as § 668.177.
End Amendment Part Start Amendment Part
20. Add § 668.176 to read as follows:
End Amendment Part
§ 668.176
Change in Ownership.
(a) Purpose. To continue participation in the title IV, HEA programs during and
following a change in ownership, institutions must meet the financial
responsibility requirements in this section.
(b) Materially complete application. To meet the requirements of a materially
complete application under 34 CFR 600.20(g)(3)(iii) and (iv)—
(1) An institution undergoing a change of ownership and control as provided
under 34 CFR 600.31 must submit audited financial statements of its two most
recently completed fiscal years prior to the change in ownership, at the level
of the change in ownership or the level of financial statements required by the
Department, that are prepared and audited in accordance with the requirements of
§ 668.23(d);
(2) The institution must submit audited financial statements of the
institution's new owner's two most recently completed fiscal years prior to the
change in ownership that are prepared and audited in accordance with the
requirements of § 668.23 at the highest level of unfractured ownership or at the
level required by the Department.
(i) If the institution's new owner does not have two years of acceptable audited
financial statements, the institution must provide financial protection in the
form of a letter of credit or cash to the Department in the amount of 25 percent
of the title IV, HEA program funds received by the institution during its most
recently completed fiscal year;
(ii) If the institution's new owner only has one year of acceptable financial
statements, the institution must provide financial protection in the form of a
letter of credit or cash to the Department in the amount of 10 percent of the
title IV, HEA program funds received by the institution during its most recently
completed fiscal year; or
(iii) For an entity where no individual new owner obtains control, but the
combined ownership of the new owners is equal to or exceeds the ownership share
of the existing ownership, financial protection in the form of a letter of
credit or cash to the Department in the amount of 25 percent of the title IV,
HEA program funds received by the institution during its most recently completed
fiscal year, based on the Start Printed Page 32505 combined ownership share of
the new owners, except for any new owner that submits two years or one year of
acceptable audited financial statements as described in paragraphs (b)(2)(i) and
(ii) of this section.
(3) The institution must meet the financial responsibility requirements. In
general, the Department considers an institution to be financially responsible
only if it—
(i) For a for-profit institution evaluated at the ownership level required by
the Department for the new owner—
(A) Has not had operating losses in either or both of its two latest fiscal
years that in sum result in a decrease in tangible net worth in excess of 10
percent of the institution's tangible net worth at the beginning of the first
year of the two-year period. The Department may calculate an operating loss for
an institution by excluding prior period adjustment and the cumulative effect of
changes in accounting principle. For purposes of this section, the calculation
of tangible net worth must exclude all related party accounts receivable/other
assets and all assets defined as intangible in accordance with the composite
score;
(B) Has, for its two most recent fiscal years, a positive tangible net worth. In
applying this standard, a positive tangible net worth occurs when the
institution's tangible assets exceed its liabilities. The calculation of
tangible net worth excludes all related party accounts receivable/other assets
and all assets classified as intangible in accordance with the composite score;
and
(C) Has a passing composite score and meets the other financial requirements of
this subpart for its most recently completed fiscal year.
(ii) For a nonprofit institution evaluated at the ownership level required by
the Department for the new owner—
(A) Has, at the end of its two most recent fiscal years, positive net assets
without donor restrictions. The Department will exclude all related party
receivables/other assets from net assets without donor restrictions and all
assets classified as intangibles in accordance with the composite score;
(B) Has not had an excess of net assets without donor restriction expenditures
over net assets without donor restriction revenues over both of its two latest
fiscal years that results in a decrease exceeding 10 percent in either the net
assets without donor restrictions from the start to the end of the two-year
period or the net assets without donor restriction in either one of the two
years. The Department may exclude from net changes in fund balances for the
operating loss calculation prior period adjustment and the cumulative effect of
changes in accounting principle. In calculating the net assets without donor
restriction, the Department will exclude all related party accounts
receivable/other assets and all assets classified as intangible in accordance
with the composite score; and
(C) Has a passing composite score and meets the other financial requirements of
this subpart for its most recently completed fiscal year.
(iii) For a public institution, has its liabilities backed by the full faith and
credit of a State or equivalent governmental entity.
(4) For a for-profit or nonprofit institution that is not financially
responsible under paragraph (b)(3) of this section, provide financial protection
in the form of a letter of credit or cash in an amount that is not less than 10
percent of the prior year title IV, HEA funding or an amount determined by the
Department, and follow the zone requirements in § 668.175(d).
(c) Acquisition debt. (1) Notwithstanding any other provision in this section,
the Department may determine that the institution is not financially responsible
following a change in ownership if the amount of debt assumed to complete the
change in ownership requires payments (either periodic or balloon) that are
inconsistent with available cash to service those payments based on enrollments
for the period prior to when the payment is or will be due.
(2) For a for-profit or nonprofit institution that is not financially
responsible under this provision, provide financial protection in the form of a
letter of credit or cash in an amount that is not less than 10 percent of the
prior year title IV, HEA funding or an amount determined by the Department, and
follow the zone requirements in § 668.175(d).
(d) Terms of the extension. To meet the requirements for a temporary provisional
program participation agreement following a change in ownership, as described in
34 CFR 600.20(h)(3)(i), an institution must meet the following requirements:
(1) For a proprietary institution or a nonprofit institution—
(i) The institution must provide the Department a same-day balance sheet for a
proprietary institution or a statement of financial position for a nonprofit
institution that shows the financial position of the institution under its new
owner, as of the day after the change in ownership, and that meets the following
requirements:
(A) The same-day balance sheet or statement of financial position must be
prepared in accordance with Generally Accepted Accounting Principles (GAAP)
published by the Financial Accounting Standards Board and audited in accordance
with Generally Accepted Government Auditing Standards (GAGAS) published by the
U.S. Government Accountability Office (GAO);
(B) As part of the same-day balance sheet or statement of financial position,
the institution must include a disclosure that includes all related-party
transactions, and such details as would enable the Department to identify the
related party in accordance with the requirements of § 668.23(d). Such
information must include, but is not limited to, the name, location, and
description of the related entity, including the nature and amount of any
transaction between the related party and the institution, financial or
otherwise, regardless of when it occurred;
(C) Such balance sheet or statement of financial position must be a consolidated
same-day financial statement at the level of highest unfractured ownership or at
a level determined by the Department for an ownership of less than 100 percent;
(D) The same-day balance sheet or statement of financial position must
demonstrate an acid test ratio of at least 1:1. The acid test ratio must be
calculated by adding cash and cash equivalents to current accounts receivable
and dividing the sum by total current liabilities. The calculation of the acid
test ratio must exclude all related party receivables/other assets and all
assets classified as intangibles in accordance with the composite score;
(E) A proprietary institution's same-day balance sheet must demonstrate a
positive tangible net worth the day after the change in ownership. A positive
tangible net worth occurs when the tangible assets exceed liabilities. The
calculation of tangible net worth must exclude all related party accounts
receivable/other assets and all assets classified as intangible in accordance
with the composite score; and
(F) A nonprofit institution's statement of financial position must have positive
net assets without donor restriction the day after the change in ownership. The
calculation of net assets without donor restriction must exclude all related
party accounts receivable/other assets and all assets classified as intangible
in accordance with the composite score. Start Printed Page 32506
(ii) If the institution fails to meet the requirements in paragraphs (d)(1)(i)
of this section, the institution must provide financial protection in the form
of a letter of credit or cash to the Department in the amount of at least 25
percent of the title IV, HEA program funds received by the institution during
its most recently completed fiscal year, or an amount determined by the
Department, and must follow the zone requirements of § 668.175(d); and
(2) For a public institution, the institution must have its liabilities backed
by the full faith and credit of a State, or by an equivalent governmental
entity, or must follow the requirements of this section for a proprietary or
nonprofit institution.
Start Amendment Part
21. Add subpart Q to part 668 to read as follows:
End Amendment Part
Subpart Q—Financial Value Transparency 668.401 Financial value transparency
scope and purpose. 668.402 Financial value transparency framework. 668.403
Calculating D/E rates. 668.404 Calculating earnings premium measure. 668.405
Process for obtaining data and calculating D/E rates and earnings premium
measure. 668.406 Determination of the D/E rates and earnings premium measure.
668.407 Student disclosure acknowledgements. 668.408 Reporting requirements.
668.409 Severability.
SUBPART Q—FINANCIAL VALUE TRANSPARENCY
§ 668.401
Financial value transparency scope and purpose.
This subpart applies to a GE program or eligible non-GE program offered by an
eligible institution, and establishes the rules and procedures under which—
(a) An institution reports information about the program to the Secretary; and
(b) The Secretary assesses the program's debt and earnings outcomes.
§ 668.402
Financial value transparency framework.
(a) General. The Secretary assesses the program's debt and earnings outcomes
using debt-to-earnings rates (D/E rates) and an earnings premium measure.
(b) Debt-to-earnings rates. The Secretary calculates for each award year two D/E
rates for an eligible program, the discretionary debt-to-earnings rate and the
annual debt-to-earnings rate, using the procedures in §§ 668.403 and 668.405.
(c) Outcomes of the D/E rates. (1) A program passes the D/E rates if—
(i) Its discretionary debt-to-earnings rate is less than or equal to 20 percent;
(ii) Its annual debt-to-earnings rate is less than or equal to 8 percent; or
(iii) The denominator (median annual or discretionary earnings) of either rate
is zero and the numerator (median debt payments) is zero.
(2) A program fails the D/E rates if—
(i) Its discretionary debt-to-earnings rate is greater than 20 percent or the
income for the denominator of the rate (median discretionary earnings) is
negative or zero and the numerator (median debt payments) is positive; and
(ii) Its annual debt-to-earnings rate is greater than 8 percent or the
denominator of the rate (median annual earnings) is zero and the numerator
(median debt payments) is positive.
(d) Earnings premium measure. For each award year, the Secretary calculates the
earnings premium measure for an eligible program, using the procedures in
§ 668.404 and 668.405.
(e) Outcomes of the earnings premium measure. (1) A program passes the earnings
premium measure if the median annual earnings of the students who completed the
program exceed the earnings threshold.
(2) A program fails the earnings premium measure if the median annual earnings
of the students who completed the program are equal to or less than the earnings
threshold.
§ 668.403
Calculating D/E rates.
(a) General. Except as provided under paragraph (f) of this section, for each
award year, the Secretary calculates D/E rates for a program as follows:
(1) Discretionary debt-to-earnings rate = annual loan payment/(the median annual
earnings−(1.5 × Poverty Guideline)). For the purposes of this paragraph, the
Secretary applies the Poverty Guideline for the most recent calendar year for
which annual earnings are obtained under paragraph (c) of this section.
(2) Annual debt-to-earnings rate = annual loan payment/the median annual
earnings.
(b) Annual loan payment. The Secretary calculates the annual loan payment for a
program by—
(1)(i) Determining the median loan debt of the students who completed the
program during the cohort period, based on the lesser of the loan debt incurred
by each student as determined under paragraph (d) of this section or the total
amount for tuition and fees and books, equipment, and supplies for each student,
less the amount of institutional grant or scholarship funds provided to that
student;
(ii) Removing, if applicable, the appropriate number of largest loan debts as
described in § 668.405(d)(2); and
(iii) Calculating the median of the remaining amounts;
(2) Amortizing the median loan debt—
(i)(A) Over a 10-year repayment period for a program that leads to an
undergraduate certificate, a post-baccalaureate certificate, an associate
degree, or a graduate certificate;
(B) Over a 15-year repayment period for a program that leads to a bachelor's
degree or a master's degree; or
(C) Over a 20-year repayment period for any other program; and
(ii) Using an annual interest rate that is the average of the annual statutory
interest rates on Federal Direct Unsubsidized Loans that were in effect during—
(A) The three consecutive award years, ending in the final year of the cohort
period, for undergraduate certificate programs, post-baccalaureate certificate
programs, and associate degree programs. For these programs, the Secretary uses
the Federal Direct Unsubsidized Loan interest rate applicable to undergraduate
students;
(B) The three consecutive award years, ending in the final year of the cohort
period, for graduate certificate programs and master's degree programs. For
these programs, the Secretary uses the Federal Direct Unsubsidized Loan interest
rate applicable to graduate students;
(C) The six consecutive award years, ending in the final year of the cohort
period, for bachelor's degree programs. For these programs, the Secretary uses
the Federal Direct Unsubsidized Loan interest rate applicable to undergraduate
students; and
(D) The six consecutive award years, ending in the final year of the cohort
period, for doctoral programs and first professional degree programs. For these
programs, the Secretary uses the Federal Direct Unsubsidized Loan interest rate
applicable to graduate students.
(c) Annual earnings. (1) The Secretary obtains from a Federal agency with
earnings data, under § 668.405, the most currently available median annual
earnings of the students who completed the program during the cohort period and
who are not excluded under paragraph (e) of this section; and
(2) The Secretary uses the median annual earnings to calculate the D/E rates.
(d) Loan debt and assessed charges. (1) In determining the loan debt for a
student, the Secretary includes—
(i) The amount of title IV loans that the student borrowed (total amount
disbursed less any cancellations or adjustments except for those related to
false certification, borrower defense Start Printed Page 32507 discharges, or
debt relief initiated by the Secretary as a result of a national emergency) for
enrollment in the program, excluding Direct PLUS Loans made to parents of
dependent students and Direct Unsubsidized Loans that were converted from TEACH
Grants;
(ii) Any private education loans as defined in 34 CFR 601.2, including private
education loans made by the institution, that the student borrowed for
enrollment in the program and that are required to be reported by the
institution under § 668.408; and
(iii) The amount outstanding, as of the date the student completes the program,
on any other credit (including any unpaid charges) extended by or on behalf of
the institution for enrollment in any program attended at the institution that
the student is obligated to repay after completing the program, including
extensions of credit described in clauses (1) and (2) of the definition of, and
excluded from, the term “private education loan” in 34 CFR 601.2;
(2) The Secretary attributes all the loan debt incurred by the student for
enrollment in any—
(i) Undergraduate program at the institution to the highest credentialed
undergraduate program subsequently completed by the student at the institution
as of the end of the most recently completed award year prior to the calculation
of the D/E rates under this section; and
(ii) Graduate program at the institution to the highest credentialed graduate
program completed by the student at the institution as of the end of the most
recently completed award year prior to the calculation of the D/E rates under
this section; and
(3) The Secretary excludes any loan debt incurred by the student for enrollment
in any program at any other institution. However, the Secretary may include loan
debt incurred by the student for enrollment in programs at other institutions if
the institution and the other institutions are under common ownership or
control, as determined by the Secretary in accordance with 34 CFR 600.31.
(e) Exclusions. The Secretary excludes a student from both the numerator and the
denominator of the D/E rates calculation if the Secretary determines that—
(1) One or more of the student's title IV loans are under consideration by the
Secretary, or have been approved, for a discharge on the basis of the student's
total and permanent disability, under 34 CFR 674.61, 682.402, or 685.212;
(2) The student was enrolled full time in any other eligible program at the
institution or at another institution during the calendar year for which the
Secretary obtains earnings information under paragraph (c) of this section;
(3) For undergraduate programs, the student completed a higher credentialed
undergraduate program at the institution subsequent to completing the program as
of the end of the most recently completed award year prior to the calculation of
the D/E rates under this section;
(4) For graduate programs, the student completed a higher credentialed graduate
program at the institution subsequent to completing the program as of the end of
the most recently completed award year prior to the calculation of the D/E rates
under this section;
(5) The student is enrolled in an approved prison education program;
(6) The student is enrolled in a comprehensive transition and postsecondary
program; or
(7) The student died.
(f) D/E rates not issued. The Secretary does not issue D/E rates for a program
under § 668.406 if—
(1) After applying the exclusions in paragraph (e) of this section, fewer than
30 students completed the program during the two-year or four-year cohort
period; or
(2) The Federal agency with earnings data does not provide the median earnings
for the program as provided under paragraph (c) of this section.
§ 668.404
Calculating earnings premium measure.
(a) General. Except as provided under paragraph (d) of this section, for each
award year, the Secretary calculates the earnings premium measure for a program
by determining whether the median annual earnings of the title IV, HEA
recipients who completed the program exceed the earnings threshold.
(b) Median annual earnings; earnings threshold. (1) The Secretary obtains from a
Federal agency with earnings data, under § 668.405, the most currently available
median annual earnings of the students who completed the program during the
cohort period and who are not excluded under paragraph (c) of this section; and
(2) The Secretary uses the median annual earnings of students with a high school
diploma or GED using data from the Census Bureau to calculate the earnings
threshold described in § 668.2.
(3) The Secretary determines the earnings thresholds and publishes the
thresholds annually through a notice in the Federal Register .
(c) Exclusions. The Secretary excludes a student from the earnings premium
measure calculation if the Secretary determines that—
(1) One or more of the student's title IV loans are under consideration by the
Secretary, or have been approved, for a discharge on the basis of the student's
total and permanent disability, under 34 CFR 674.61, 682.402, or 685.212;
(2) The student was enrolled full-time in any other eligible program at the
institution or at another institution during the calendar year for which the
Secretary obtains earnings information under paragraph (b)(1) of this section;
(3) For undergraduate programs, the student completed a higher credentialed
undergraduate program at the institution subsequent to completing the program as
of the end of the most recently completed award year prior to the calculation of
the earnings premium measure under this section;
(4) For graduate programs, the student completed a higher credentialed graduate
program at the institution subsequent to completing the program as of the end of
the most recently completed award year prior to the calculation of the earnings
premium measure under this section;
(5) The student is enrolled in an approved prison education program;
(6) The student is enrolled in a comprehensive transition and postsecondary
program; or
(7) The student died.
(d) Earnings premium measures not issued. The Secretary does not issue the
earnings premium measure for a program under § 668.406 if—
(1) After applying the exclusions in paragraph (c) of this section, fewer than
30 students completed the program during the two-year or four-year cohort
period; or
(2) The Federal agency with earnings data does not provide the median earnings
for the program as provided under paragraph (b) of this section.
§ 668.405
Process for obtaining data and calculating D/E rates and earnings premium
measure.
(a) Administrative data. In calculating the D/E rates and earnings premium
measure for a program, the Secretary uses student enrollment, disbursement, and
program data, or other data the institution is required to report to the
Secretary to support its administration of, or participation in, the title IV,
HEA programs. In accordance with procedures established by the Secretary, the
institution must update or otherwise correct any reported data no later than 60
days after the end of an award year.
(b) Process overview. The Secretary uses the administrative data to—
(1) Compile a list of students who completed each program during the cohort
period. The Secretary— Start Printed Page 32508
(i) Removes from those lists students who are excluded under §§ 668.403(e) or
668.404(c);
(ii) Provides the list to institutions; and
(iii) Allows the institution to correct the information about the students on
the list, as provided in paragraph (a) of this section;
(2) Obtain from a Federal agency with earnings data the median annual earnings
of the students on each list, as provided in paragraph (c) of this section; and
(3) Calculate the D/E rates and the earnings premium measure and provide them to
the institution.
(c) Obtaining earnings data. For each list submitted to the Federal agency with
earnings data, the agency returns to the Secretary—
(1) The median annual earnings of the students on the list whom the Federal
agency with earnings data has matched to earnings data, in aggregate and not in
individual form; and
(2) The number, but not the identities, of students on the list that the Federal
agency with earnings data could not match.
(d) Calculating D/E rates and earnings premium measure. (1) If the Federal
agency with earnings data includes reports from records of earnings on at least
30 students, the Secretary uses the median annual earnings provided by the
Federal agency with earnings data to calculate the D/E rates and earnings
premium measure for each program.
(2) If the Federal agency with earnings data reports that it was unable to match
one or more of the students on the final list, the Secretary does not include in
the calculation of the median loan debt for D/E rates the same number of
students with the highest loan debts as the number of students whose earnings
the Federal agency with earnings data did not match. For example, if the Federal
agency with earnings data is unable to match three students out of 100 students,
the Secretary orders by amount the debts of the 100 listed students and excludes
from the D/E rates calculation the three largest loan debts.
§ 668.406
Determination of the D/E rates and earnings premium measure.
(a) Notice of determination. For each award year for which the Secretary
calculates D/E rates and the earnings premium measure for a program, the
Secretary issues a notice of determination.
(b) The notice of determination informs the institution of the following:
(1) The D/E rates for each program as determined under § 668.403.
(2) The earnings premium measure for each program as determined under § 668.404.
(3) The determination by the Secretary of whether each program is passing or
failing, as described in § 668.402, and the consequences of that determination.
(4) For non-GE programs, whether the student acknowledgement is required under
§ 668.407.
(5) For GE programs, whether the institution is required to provide the student
warning under § 668.605.
(6) For GE programs, whether the program could become ineligible under subpart S
of this part based on its final D/E rates or earnings premium measure for the
next award year for which D/E rates or the earnings premium measure are
calculated for the program.
§ 668.407
Student disclosure acknowledgments.
(a) Events requiring an acknowledgment from students.
(1) Eligible non-GE programs. The student must provide an acknowledgment with
respect to an eligible non-GE program in the manner specified in this section
for any year for which the Secretary notifies an institution that the eligible
non-GE program has failed the D/E rates for the year in which the D/E rates were
most recently calculated by the Department.
(2) GE Programs. Warnings and acknowledgments with respect to GE programs are
required under the conditions and in the manner specified in § 668.605.
(b) Content and mechanism of acknowledgment.
(1) The student must acknowledge having seen the information about the program
provided through the disclosure website established and maintained by the
Secretary described in § 668.43(d).
(2) The Department will administer and collect the acknowledgment through the
disclosure website established and maintained by the Secretary described in
§ 668.43(d).
(c) An institution may not disburse title IV, HEA funds to the student until the
student provides the acknowledgment required in paragraph (a)(1) of this
section.
(d) The acknowledgment required in paragraph (a)(1) of this section does not
mitigate the institution's responsibility to provide accurate information to
students concerning program status, nor will it be considered as evidence
against a student's claim if applying for a loan discharge.
§ 668.408
Reporting requirements.
(a) General. In accordance with procedures established by the Secretary, an
institution must report to the Department—
(1) For each GE program and eligible non-GE program—
(i) The name, CIP code, credential level, and length of the program;
(ii) Whether the program is programmatically accredited and, if so, the name of
the accrediting agency;
(iii) Whether the program meets licensure requirements or prepares students to
sit for a licensure examination in a particular occupation for each State in the
institution's metropolitan statistical area;
(iv) The total number of students enrolled in the program during the most
recently completed award year, including both recipients and non-recipients of
title IV, HEA funds; and
(v) Whether the program is a medical or dental program whose students are
required to complete an internship or residency, as described in the definition
of “cohort period” under § 668.2.
(2) For each student—
(i) Information needed to identify the student and the institution;
(ii) The date the student initially enrolled in the program;
(iii) The student's attendance dates and attendance status ( e.g., enrolled,
withdrawn, or completed) in the program during the award year; and
(iv) The student's enrollment status ( e.g., full time, three quarter time, half
time, less than half time) as of the first day of the student's enrollment in
the program;
(v) The student's total annual cost of attendance;
(vi) The total tuition and fees assessed to the student for the award year;
(vii) The student's residency tuition status by State or district;
(viii) The student's total annual allowance for books, supplies, and equipment
from their cost of attendance under HEA section 472;
(ix) The student's total annual allowance for housing and food from their cost
of attendance under HEA section 472;
(x) The amount of institutional grants and scholarships disbursed to the
student;
(xi) The amount of other State, Tribal, or private grants disbursed to the
student; and
(xii) The amount of any private education loans disbursed, including private
education loans made by the institution;
(3) If the student completed or withdrew from the program during the award year—
Start Printed Page 32509
(i) The date the student completed or withdrew from the program;
(ii) The total amount the student received from private education loans, as
described in § 668.403(d)(1)(ii), for enrollment in the program that the
institution is, or should reasonably be, aware of;
(iii) The total amount of institutional debt, as described in
§ 668.403(d)(1)(iii), the student owes any party after completing or withdrawing
from the program;
(iv) The total amount of tuition and fees assessed the student for the student's
entire enrollment in the program;
(v) The total amount of the allowances for books, supplies, and equipment
included in the student's title IV Cost of Attendance (COA) for each award year
in which the student was enrolled in the program, or a higher amount if assessed
the student by the institution for such expenses; and
(vi) The total amount of institutional grants and scholarships provided for the
student's entire enrollment in the program; and
(4) As described in a notice published by the Secretary in the Federal Register
, any other information the Secretary requires the institution to report.
(b)(1) Reporting deadlines. Except as provided under paragraph (c) of this
section, an institution must report the information required under paragraph (a)
of this section no later than—
(i) For programs other than medical and dental programs that require an
internship or residency, July 31, following the date these regulations take
effect, for the second through seventh award years prior to that date;
(ii) For medical and dental programs that require an internship or residency,
July 31, following the date these regulations take effect, for the second
through eighth award years prior to that date; and
(iii) For subsequent award years, October 1, following the end of the award
year, unless the Secretary establishes different dates in a notice published in
the Federal Register .
(2) For any award year, if an institution fails to provide all or some of the
information required under paragraph (a) of this section, the institution must
provide to the Secretary an explanation, acceptable to the Secretary, of why the
institution failed to comply with any of the reporting requirements.
(c) Transitional reporting period and metrics.
(1) For the initial award year for which D/E rates and the earnings premium are
calculated under this part, institutions may opt to report the information
required under paragraph (a) of this section for its eligible programs that are
not GE programs either—
(i) For the time periods described in paragraph (b)(1)(i) and (ii) of this
section; or
(ii) For only the two most recently completed award years.
(2) If an institution provides transitional reporting under paragraph (c)(1)(ii)
of this section, the Department will calculate transitional D/E rates and
earnings premium measures based on the period reported.
§ 668.409
Severability.
If any provision of this subpart or its application to any person, act, or
practice is held invalid, the remainder of the part and this subpart, and the
application of this subpart's provisions to any other person, act, or practice,
will not be affected thereby.
Start Amendment Part
22. Add subpart S to part 668 to read as follows:
End Amendment Part
Subpart S—Gainful Employment (GE) 668.601 Gainful employment (GE) scope and
purpose. 668.602 Gainful employment criteria. 668.603 Ineligible GE programs.
668.604 Certification requirements for GE programs. 668.605 Student warnings and
acknowledgments 668.606 Severability.
SUBPART S—GAINFUL EMPLOYMENT
§ 668.601
Gainful employment (GE) scope and purpose.
This subpart applies to an educational program offered by an eligible
institution that prepares students for gainful employment in a recognized
occupation and establishes rules and procedures under which the Secretary
determines that the program is eligible for title IV, HEA program funds.
§ 668.602
Gainful employment criteria.
(a) A GE program provides training that prepares students for gainful employment
in a recognized occupation if the program—
(1) Satisfies the applicable certification requirements in § 668.604;
(2) Is not a failing program under the D/E rates measure in § 668.402 in two out
of any three consecutive award years for which the program's D/E rates are
calculated; and
(3) Is not a failing program under the earnings premium measure in § 668.402 in
two out of any three consecutive award years for which the program's earnings
premium measure is calculated.
(b) If the Secretary does not calculate or issue D/E rates for a program for an
award year, the program receives no result under the D/E rates for that award
year and remains in the same status under the D/E rates as the previous award
year.
(c) If the Secretary does not calculate D/E rates for the program for four or
more consecutive award years, the Secretary disregards the program's D/E rates
for any award year prior to the four-year period in determining the program's
eligibility.
(d) If the Secretary does not calculate or issue earnings premium measures for a
program for an award year, the program receives no result under the earnings
premium measure for that award year and remains in the same status under the
earnings premium measure as the previous award year.
(e) If the Secretary does not calculate the earnings premium measure for the
program for four or more consecutive award years, the Secretary disregards the
program's earnings premium for any award year prior to the four-year period in
determining the program's eligibility.
§ 668.603
Ineligible GE programs.
(a) Ineligible programs. If a GE program is a failing program under the D/E
rates measure in § 668.402 in two out of any three consecutive award years for
which the program's D/E rates are calculated, or the earnings premium measure in
§ 668.402 in two out of any three consecutive award years for which the
program's earnings premium measure is calculated, the program becomes ineligible
and its participation in the title IV, HEA programs ends upon the earliest of—
(1) The issuance of a new Eligibility and Certification Approval Report that
does not include that program;
(2) The completion of a termination action of program eligibility, if an action
is initiated under subpart G of this part; or
(3) A revocation of program eligibility, if the institution is provisionally
certified.
(b) Basis for appeal. If the Secretary initiates an action under paragraph
(a)(2) of this section, the institution may initiate an appeal under subpart G
of this part if it believes the Secretary erred in the calculation of the
program's D/E rates under § 668.403 or the earnings premium measure under
§ 668.404. Institutions may not dispute a program's ineligibility based upon its
D/E rates or the earnings premium measure except as described in this paragraph
(b).
(c) Restrictions —(1) Ineligible program. Except as provided in § 668.26(d), an
institution may not Start Printed Page 32510 disburse title IV, HEA program
funds to students enrolled in an ineligible program.
(2) Period of ineligibility. An institution may not seek to reestablish the
eligibility of a failing GE program that it discontinued voluntarily either
before or after D/E rates or the earnings premium measure are issued for that
program, or reestablish the eligibility of a program that is ineligible under
the D/E rates or the earnings premium measure, until three years following the
earlier of the date the program loses eligibility under paragraph (a) of this
section or the date the institution voluntarily discontinued the failing
program.
(3) Restoring eligibility. An ineligible program, or a failing program that an
institution voluntarily discontinues, remains ineligible until the institution
establishes the eligibility of that program under § 668.604(c).
§ 668.604
Certification requirements for GE programs.
(a) Transitional certification for existing programs. (1) Except as provided in
paragraph (a)(2) of this section, an institution must provide to the Secretary
no later than December 31 of the year in which this regulation takes effect, in
accordance with procedures established by the Secretary, a certification signed
by its most senior executive officer that each of its currently eligible GE
programs included on its Eligibility and Certification Approval Report meets the
requirements of paragraph (d) of this section. The Secretary accepts the
certification as an addendum to the institution's program participation
agreement with the Secretary under § 668.14.
(2) If an institution makes the certification in its program participation
agreement pursuant to paragraph (b) of this section between July 1 and December
31 of the year in which this regulation takes effect, it is not required to
provide the transitional certification under this paragraph.
(b) Program participation agreement certification. As a condition of its
continued participation in the title IV, HEA programs, an institution must
certify in its program participation agreement with the Secretary under § 668.14
that each of its currently eligible GE programs included on its Eligibility and
Certification Approval Report meets the requirements of paragraph (d) of this
section. An institution must update the certification within 10 days if there
are any changes in the approvals for a program, or other changes for a program
that render an existing certification no longer accurate.
(c) Establishing eligibility and disbursing funds. (1) An institution
establishes a GE program's eligibility for title IV, HEA program funds by
updating the list of the institution's eligible programs maintained by the
Department to include that program, as provided under 34 CFR 600.21(a)(11)(i).
By updating the list of the institution's eligible programs, the institution
affirms that the program satisfies the certification requirements in paragraph
(d) of this section. Except as provided in paragraph (c)(2) of this section,
after the institution updates its list of eligible programs, the institution may
disburse title IV, HEA program funds to students enrolled in that program.
(2) An institution may not update its list of eligible programs to include a GE
program, or a GE program that is substantially similar to a failing program that
the institution voluntarily discontinued or became ineligible as described in
§ 668.603(c), that was subject to the three-year loss of eligibility under
§ 668.603(c), until that three-year period expires.
(d) GE program eligibility certifications. An institution certifies for each
eligible GE program included on its Eligibility and Certification Approval
Report, at the time and in the form specified in this section, that such program
is approved by a recognized accrediting agency or is otherwise included in the
institution's accreditation by its recognized accrediting agency, or, if the
institution is a public postsecondary vocational institution, the program is
approved by a recognized State agency for the approval of public postsecondary
vocational education in lieu of accreditation.
§ 668.605
Student warnings and acknowledgments.
(a) Events requiring a warning to students and prospective students. The
institution must provide a warning with respect to a GE program to students and
prospective students for any year for which the Secretary notifies an
institution that the GE program could become ineligible under this subpart based
on its final D/E rates or earnings premium measure for the next award year for
which D/E rates or the earnings premium measure are calculated for the GE
program.
(b) Subsequent warning. If a student or prospective student receives a warning
under paragraph (a) of this section with respect to a GE program, but does not
seek to enroll until more than 12 months after receiving the warning, the
institution must again provide the warning to the student or prospective
student, unless, since providing the initial warning, the program has passed
both the D/E rates and earnings premium measures for the two most recent
consecutive award years in which the metrics were calculated for the program.
(c) Content of warning. The institution must provide in the warning—
(1) A warning, as specified by the Secretary in a notice published in the
Federal Register , that—
(i) The program has not passed standards established by the U.S. Department of
Education based on the amounts students borrow for enrollment in the program and
their reported earnings, as applicable; and
(ii) The program could lose access to Federal grants and loans based on the next
calculated program metrics;
(2) The relevant information to access the disclosure website maintained by the
Secretary described in § 668.43(d);
(3) A statement that the student must acknowledge having seen the warning
through the disclosure website maintained by the Secretary described in
§ 668.43(d) before the institution may disburse any title IV, HEA funds;
(4) A description of the academic and financial options available to students to
continue their education in another program at the institution, including
whether the students could transfer credits earned in the program to another
program at the institution and which course credits would transfer, in the event
that the program loses eligibility for title IV, HEA program funds;
(5) An indication of whether, in the event that the program loses eligibility
for title IV, HEA program funds, the institution will—
(i) Continue to provide instruction in the program to allow students to complete
the program; and
(ii) Refund the tuition, fees, and other required charges paid to the
institution by, or on behalf of, students for enrollment in the program; and
(6) An explanation of whether, in the event that the program loses eligibility
for title IV, HEA program funds, the students could transfer credits earned in
the program to another institution in accordance with an established
articulation agreement or teach-out plan or agreement.
(d) Alternative languages. In addition to providing the English-language
warning, the institution must also provide translations of the English-language
student warning for those students and prospective students who have limited
proficiency in English.
(e) Delivery to enrolled students. An institution must provide the warning
required under this section in writing, Start Printed Page 32511 by hand
delivery, mail, or electronic means, to each student enrolled in the program no
later than 30 days after the date of the Secretary's notice of determination
under § 668.406 and maintain documentation of its efforts to provide that
warning. The warning must be the only substantive content contained in these
written communications.
(f) Delivery to prospective students. (1) An institution must provide the
warning as required under this section to each prospective student or to each
third party acting on behalf of the prospective student at the first contact
about the program between the institution and the student or the third party
acting on behalf of the student by—
(i) Hand-delivering the warning as a separate document to the prospective
student or third party individually, or as part of a group presentation;
(ii) Sending the warning to the primary email address used by the institution
for communicating with the prospective student or third party about the program,
provided that the warning is the only substantive content in the email and that
the warning is sent by a different method of delivery if the institution
receives a response that the email could not be delivered; or
(iii) Providing the warning orally to the student or third party if the contact
is by telephone.
(2) An institution may not enroll, register, or enter into a financial
commitment with the prospective student with respect to the program earlier than
three business days after the institution delivers the warning as described in
paragraph (f) of this section.
(g) Restriction on disbursement. An institution may not disburse title IV, HEA
funds to the student until the student completes the acknowledgment described in
paragraph (c)(3) of this section, as administered and collected through the
disclosure website maintained by the Secretary described in § 668.43(d).
(h) Disclaimer. The provision of a student warning or the acknowledgment
described in paragraph (c)(3) of this section does not mitigate the
institution's responsibility to provide accurate information to students
concerning program status, nor will it be considered as evidence against a
student's claim if applying for a loan discharge.
§ 668.606
Severability.
If any provision of this subpart or its application to any person, act, or
practice is held invalid, the remainder of the part and this subpart, and the
application of this subpart's provisions to any other person, act, or practice,
will not be affected thereby.
End Supplemental Information
FOOTNOTES
1. https://nscresearchcenter.org/ wp-content/ uploads/
SHEEO-NSCRCCollegeClosuresReport.pdf.
Back to Citation
2. Figure excludes the $1.1 billion in additional closed school discharges for
ITT Technical Institute announced in August 2021.
Back to Citation
3. Barrow, L., & Malamud, O. (2015). Is College a Worthwhile Investment? Annual
Review of Economics, 7(1), 519–555.
Card, D. (1999). The causal effect of education on earnings. Handbook of labor
economics, 3, 1801–1863.
Back to Citation
4. Oreopoulos, P., & Salvanes, K.G. (2011). Priceless: The Nonpecuniary
Benefits of Schooling. Journal of Economic Perspectives, 25(1), 159–184.
Back to Citation
5. Moretti, E. (2004). Workers' Education, Spillovers, and Productivity:
Evidence from Plant-Level Production Functions. American Economic Review, 94(3),
656–690.
Back to Citation
6. Dee, T.S. (2004). Are There Civic Returns to Education? Journal of Public
Economics, 88(9–10), 1697–1720.
Back to Citation
7. Currie, J., & Moretti, E. (2003). Mother's Education and the
Intergenerational Transmission of Human Capital: Evidence from College Openings.
The Quarterly Journal of Economics, 118(4), 1495–1532.
Back to Citation
8. Hendren, N., & Sprung-Keyser., B. (2020). A Unified Welfare Analysis of
Government Policies. The Quarterly Journal of Economics, 135(3), 1209–1318.
Back to Citation
9. Hoxby, C.M. 2019. The Productivity of US Postsecondary Institutions. In
Productivity in Higher Education, C.M. Hoxby and K.M. Stange (eds). University
of Chicago Press: Chicago, 2019.
Lovenheim, M. and J. Smith. 2023. Returns to Different Postsecondary
Investments: Institution Type, Academic Programs, and Credentials. In Handbook
of the Economics of Education Volume 6, E. Hanushek, L. Woessmann, and S. Machin
(Eds). New Holland.
Back to Citation
10. Cellini, S. and Turner, N. 2018. Gainfully Employed? Assessing the
Employment and Earnings of For-Profit College Students Using Administrative
Data. Journal of Human Resources. 54(2).
Back to Citation
11. Dominique J. Baker, Stephanie Riegg Cellini, Judith Scott-Clayton, and
Lesley J. Turner, “Why information alone is not enough to improve higher
education outcomes,” The Brookings Institution (2021). www.brookings.edu/ blog/
brown-center-chalkboard/ 2021/ 12/ 14/
why-information-alone-is-not-enough-to-improve-higher-education-outcomes/ .
12. Mary Steffel, Dennis A. Kramer II, Walter McHugh, Nick Ducoff, “Information
disclosure and college choice,” The Brookings Institution (2019).
www.brookings.edu/ wp-content/ uploads/ 2020/ 11/
ES-11.23.20-Steffel-et-al-1.pdf.
Back to Citation
13. Ass'n of Priv. Colleges & Universities v. Duncan, 870 F. Supp. 2d 133
(D.D.C. 2012).
Back to Citation
14. Ass'n of Proprietary Colleges v. Duncan, 107 F. Supp. 3d 332 (S.D.N.Y.
2015).
15. Ass'n of Priv. Sector Colleges & Universities v. Duncan, 110 F. Supp. 3d
176 (D.D.C. 2015), aff'd, 640 F. App'x 5 (D.C. Cir. 2016) (per curiam).
16. Am. Ass'n of Cosmetology Sch. v. DeVos, 258 F. Supp. 3d 50 (D.D.C. 2017).
Back to Citation
17. 84 FR 31392.
Back to Citation
18. We discuss potential reliance interests regarding all parts of the proposed
rule below, in the “Reliance Risks” section.
Back to Citation
19. For further discussion of the earnings premium metric and the Department's
reasons for proposing it, see below at ”Authority for this Regulatory Action,”
and at ”668.402 Financial value transparency framework” and “668.602 Gainful
employment criteria” under the Significant Proposed Regulations section of this
Notice. Those discussions also address the D/E metric.
Back to Citation
20. See, for example, 20 U.S.C. 1001(a)(1), 1901.
Back to Citation
21. 20 U.S.C. 1002(b)(1)(A), (c)(1)(A). See also 20 U.S.C. 1088(b)(1)()(i),
which refers to a recognized profession.
Back to Citation
22. For example, a recent survey of 2,000 16 to 19 year olds and 2,000 22 to 30
year old recent college graduates rated affordable tuition, higher income
potential, and lower student debt as the top 3 to 4 most important factors in
choosing a college ( https://www.nytimes.com/ 2023/ 03/ 27/ opinion/
problem-college-rankings.html). The RIA includes citation to other survey
results with similar findings.
Back to Citation
23. See https://www.dol.gov/ agencies/ whd/ mw-consolidated.
Back to Citation
24. See https://libertystreeteconomics.newyorkfed.org/ 2015/ 02/ looking_ at_
student_ loan_ defaults_ through_ a_ larger_ window/ .
Back to Citation
25. 88 FR 1902 (Jan. 11, 2023).
Back to Citation
26. Christensen, Cody and Turner, Lesley. (2021) Student Outcomes at Community
Colleges: What Factors Explain Variation in Loan Repayment and Earnings? The
Brookings Institution. Washington, DC. https://www.brookings.edu/ wp-content/
uploads/ 2021/ 09/ Christensen_ Turner_ CC-outcomes.pdf. lack, Dan A., and
Jeffrey A. Smith. “Estimating the returns to college quality with multiple
proxies for quality.” Journal of labor Economics 24.3 (2006): 701–728.
Cohodes, Sarah R., and Joshua S. Goodman. “Merit aid, college quality, and
college completion: Massachusetts' Adams scholarship as an in-kind subsidy.”
American Economic Journal: Applied Economics 6.4 (2014): 251–285.
Andrews, Rodney J., Jing Li, and Michael F. Lovenheim. “Quantile treatment
effects of college quality on earnings.” Journal of Human Resources 51.1 (2016):
200–238.
Dillon, Eleanor Wiske, and Jeffrey Andrew Smith. “The consequences of academic
match between students and colleges.” Journal of Human Resources 55.3 (2020):
767–808.
Back to Citation
27. www.urban.org/ urban-wire/
devos-misrepresents-evidence-seeking-gainful-employment-deregulation.
Back to Citation
28. These rates were not required disclosures under the 2014 Prior Rule, but
rather among a list of items that the Secretary may choose to include.
Back to Citation
29. These figures use four-year cohorts to compute rates. The comparable share
of programs with calculatable metrics using only the two-year cohorts is 19 and
15 percent for non-GE and GE programs, respectively.
Back to Citation
30. For an overview of research findings see, for example,
ticas.org/files/pub_files/consumer_information_in_higher_education.pdf.
Back to Citation
31. Dominique J. Baker, Stephanie Riegg Cellini, Judith Scott-Clayton, and
Lesley J. Turner, “Why information alone is not enough to improve higher
education outcomes,” The Brookings Institution (2021). www.brookings.edu/ blog/
brown-center-chalkboard/ 2021/ 12/ 14/
why-information-alone-is-not-enough-to-improve-higher-education-outcomes/ .
32. Mary Steffel, Dennis A. Kramer II, Walter McHugh, Nick Ducoff, “Information
disclosure and college choice,” The Brookings Institution (2019).
www.brookings.edu/ wp-content/ uploads/ 2020/ 11/
ES-11.23.20-Steffel-et-al-1.pdf.
Back to Citation
33. A similar conclusion was reached in a recent study that found that about
670,000 students per year, comprising 9 percent of all students that exit
postsecondary programs on an annual basis, attended programs that leave them
worse off financially. See Jordan D. Matsudaira and Lesley J. Turner. “Towards a
framework for accountability for federal financial assistance programs in
postsecondary education.” The Brookings Institution. (2020) www.brookings.edu/
wp-content/ uploads/ 2020/ 11/ 20210603-Mats-Turner.pdf.
Back to Citation
34. See discussion in section ”Outcome Differences Across Programs” of the
Regulatory Impact Analysis for an overview of these research findings.
Back to Citation
35. Stephanie R. Cellini and Kathryn J. Blanchard, “Using a High School
Earnings Benchmark to Measure College Student Success Implications for
Accountability and Equity.” The Postsecondary Equity and Economics Research
Project. (2022). www.peerresearchproject.org/ peer/ research/ body/
2022.3.3-PEER_ HSEarnings-Updated.pdf.
Back to Citation
36. See the discussions below at [TK].
Back to Citation
37. Neal, Derek and Sherwin Rosen. (2000) Chapter 7: Theories of the
distribution of earnings. Handbook of Income Distribution. Elsevier. Vol. 1.
379–427. https://doi.org/ 10.1016/ S1574-0056(00)80010-X.
Back to Citation
38. 81 FR 75926.
Back to Citation
39. 84 FR 49788.
Back to Citation
40. 85 FR 54742
Back to Citation
41. Metropolitan statistical area as defined by the U.S. Office of Management
and Budget (OMB), www.census.gov/ programs-surveys/ metro-micro.html.
Back to Citation
42. 87 FR 65426.
Back to Citation
43. 60 FR 61830.
Back to Citation
44.
fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2015-05-22/gen-15-09-subject-title-iv-eligibility-students-without-valid-high-school-diploma-who-are-enrolled-eligible-career-pathway-programs.
Back to Citation
45.
fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2016-05-09/gen-16-09-subject-changes-title-iv-eligibility-students-without-valid-high-school-diploma-who-are-enrolled-eligible-career-pathway-programs.
Back to Citation
46. 20 U.S.C. 1221e– 3.
Back to Citation
47. 20 U.S.C. 3474.
Back to Citation
48. 20 U.S.C. 1231a(2)–(3). The term “applicable program” means any program for
which the Secretary or the Department has administrative responsibility as
provided by law or by delegation of authority pursuant to law. 20 U.S.C.
1221(c)(1).
Back to Citation
49. 20 U.S.C. 1015(a)(3), (b), (c)(5), (e), (h). See also section 111 of the
Higher Education Opportunity Act (20 U.S.C. 1015a), which authorizes the College
Navigator website and successor websites.
Back to Citation
50. E.g.,20 U.S.C. 1015(e).
Back to Citation
51. 20 U.S.C. 1015(a)(3), (b), (c)(5), (e), (h). See also section 111 of the
Higher Education Opportunity Act (20 U.S.C. 1015a), which authorizes the College
Navigator website and successor websites.
Back to Citation
52. E.g.,20 U.S.C. 1082(m), regarding common application forms and promissory
notes or master promissory notes.
Back to Citation
53. A compilation of the current and previous editions of the Federal Student
Aid Handbook, which includes detailed discussion of consumer information and
school reporting and notification requirements, is posted at
https://fsapartners.ed.gov/ knowledge-center/ fsa-handbook.
Back to Citation
54. 20 U.S.C. 1001(b)(1).
55. 20 U.S.C. 1002(b)(1)(A)(i), (c)(1)(A).
Back to Citation
56. 20 U.S.C. 1088(b).
Back to Citation
57. Ass'n of Priv. Sector Colleges & Universities v. Duncan, 110 F. Supp. 3d
176, 198–200 (D.D.C. 2015) (recognizing statutory authority to require
institutions to disclose certain information about GE programs to prospective
and enrolled GE students), aff'd, 640 F. App'x 5, 6 (D.C. Cir. 2016) (per
curiam) (unpublished) (indicating that the plaintiff's challenge to the GE
disclosure provisions was abandoned on appeal).
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58. Oreopoulos, P. & Salavanes, K. (2011). Priceless: The Nonpecuniary Benefits
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80. Eric P. Bettinger, Bridget Terry Long, Philip Oreopoulos, Lisa Sanbonmatsu,
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87. Previous informational interventions around net price, for example, were
less consistent in the calculation of values, and in the presentation of net
price calculation aids. Anthony, A., Page, L., & Seldin, A. (2016). In the Right
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ticas.org/files/pub_files/Adding_It_All_Up_2012.pdf.
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88. Baum, Sandy, and Schwartz, Saul, 2006. “How Much Debt is Too Much? Defining
Benchmarks for Managing Student Debt.” eric.ed.gov/?id=ED562688.
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89. For further discussion of the earnings premium metric and the Department's
reasons for proposing it, see above at [TK—preamble general introduction, legal
authority], and below at [TK—method for calculating metrics, around p.180], and
at [TK—GE eligibility, around p.250]. The discussion here concentrates on
transparency issues.
Back to Citation
90. See for example, www.hamiltonproject.org/ papers/ major_ decisions_ what_
graduates_ earn_ over_ their_ lifetimes/
,cew.georgetown.edu/cew-reports/the-college-payoff/,www.clevelandfed.org/
publications/ economic-commentary/ 2012/ ec-201210-the-college-wage-premium,
among many other examples.
Back to Citation
91. Matsudaira and Turner Brookings. PVC “threshold zero” measure.
Back to Citation
92. Minaya, Veronica and Scott-Clayton, Judith (2022). Labor Market
Trajectories for Community College Graduates: How Returns to Certificates and
Associate's Degrees Evolve Over Time. Education Finance and Policy, 17 (1):
53–80.
Back to Citation
93. For further discussion of the earnings premium metric and the Department's
reasons for proposing it, see above at “Background” and at “Financial value
transparency scope and purpose (§ 668.401)”, and below at “Gainful employment
(GE) scope and purpose (§ 668.601)”. The discussion here concentrates on
methodology.
Back to Citation
94. Graduate and Post-BA certificates, which make up 140 and 22 programs of the
over 26,000 programs with earnings data have interquartile ranges of 30 to 37
and 32 to 39 respectively.
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95. This calculation is based on a comparison of (1) the earnings data released
for GE programs in 2017 under the 2014 Prior Rule, inflation adjusted to 2019
dollars, to (2) earnings data for the subset of those GE programs still in
existence, calculated using the methodology proposed in this NPRM.
Back to Citation
96. https://www.govinfo.gov/ content/ pkg/ PLAW-117publ2/ html/
PLAW-117publ2.htm.
Back to Citation
97. Stephanie Riegg Cellini and Kathryn J. Blanchard, “Hair and taxes:
Cosmetology programs, accountability policy, and the problem of underreported
income,” Geo. Wash. Univ. (Jan. 2022), www.peerresearchproject.org/ peer/
research/ body/ PEER_ HairTaxes-Final.pdf.
Back to Citation
98. For further discussion on the Department's experience with alternate
earnings appeals, see below at § 668.603.
Back to Citation
99. www.regulations.gov/ comment/ ED-2018-OPE-0042-13794.
Back to Citation
100. www.peerresearchproject.org/ peer/ research/ body/ PEER_
HairTaxes-Final.pdf.
Back to Citation
101. onlinelibrary.wiley.com/doi/abs/10.1111/ecin.12530.
Back to Citation
102. studentaid.gov/announcements-events/borrower-defense-update.
Back to Citation
103. These tabulations compare the number of institutions providing enrollment
lists in NPSAS 18–AC to the number of institutions in the 2019 Program
Performance Data, described in the Regulatory Impact Analysis. The number of
institutions represented in the final survey is lower. see Table B1 in Burns,
R., Johnson, R., Lacy, T.A., Cameron, M., Holley, J., Lew, S., Wu, J., Siegel,
P., and Wine, J. (2022). 2017–18 National Postsecondary Student Aid Study,
Administrative Collection (NPSAS:18–AC): First Look at Student Financial Aid
Estimates for 2017–18 (NCES 2021–476rev). U.S. Department of Education.
Washington, DC: National Center for Education Statistics. Retrieved 1/30/2023
from nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2021476rev.
Back to Citation
104. www.newamerica.org/ education-policy/ policy-papers/
decoding-cost-college/ ;https://www.gao.gov/ products/ gao-23-104708.
Back to Citation
105. See34 CFR 668.11 at 87 FR 65426, 65490 (Oct. 28, 2022).
Back to Citation
106. Baker, D., Cellini, S., Scott-Clayton, J., & Turner, L. (2021) Why
information alone is not enough to improve higher education outcomes. Brookings
Institution. Washington, DC.
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107. Gurantz, O., Howell, J., Hurwitz, M., Larson, C., Pender, M. and White, B.
(2021), A National-Level Informational Experiment to Promote Enrollment in
Selective Colleges. J. Pol. Anal. Manage., 40: 453–479.
doi.org/10.1002/pam.22262; Hurwitz, M. and Smith, J. (2018), Student
Responsiveness to Earnings Data in the College Scorecard. Econ Inq, 56:
1220–1243. doi.org/10.1111/ecin.12530.
Back to Citation
108. 20 U.S.C. 1002(b)(1)(A), (c)(1)(A). See also 20 U.S.C. 1088(b)(1)(A)(i),
which refers to a recognized profession.
Back to Citation
109. Clive Belfield and Thomas Bailey, “The Labor Market Returns to
Sub-Baccalaureate College: A Review,” March 2017.
Ccrc.tc.columbia.edu/media/k2/attachments/labor-market-returns-sub-baccalaureate-college-review.pdf.
Back to Citation
110. Stephanie Cellini and Nick Turner, “Gainfully Employed?: Assessing the
Employment and Earnings of For-Profit College Students Using Administrative
Data,” Journal of Human Resources (2019, vol. 54, issue 2).
Econpapers.repec.org/article/uwpjhriss/v_3a54_3ay_3a2019_3ai_3a2_3ap_3a342–370.htm.
Cellini, S.R. and Koedel, C. (2017), The Case for Limiting Federal Student Aid
to For-Profit Colleges. J. Pol. Anal. Manage., 36: 934–942. https://doi.org/
10.1002/ pam.22008. Deming, D., Yuchtman, N., Abulafi, A., Goldin, C. & Katz, L.
(2016). The Value of Postsecondary Credentials in the Labor Market: An
Experimental Study. American Economic Review, 106 (3): 778–806. Armona, L.,
Chakrabarti, R., Lovenheim, M. (2022). Student Debt and Default: The Role of
For-Profit Colleges. Journal of Financial Economics. 144(1) 67–92. Liu, V.Y.T.,
& Belfield, C. (2020). The Labor Market Returns to For-Profit Higher Education:
Evidence for Transfer Students. Community College Review, 48(2), 133–155.
doi.org/10.1177/0091552119886659.
Back to Citation
111. David Deming, Claudia Goldin, and Lawrence Katz, “The For-Profit
Postsecondary School Sector: Nimble Critters or Agile Predators?”, Journal of
Economic Perspectives (Volume 26, Number 1, Winter 2012). www.aeaweb.org/
articles? id= 10.1257/ jep.26.1.139.
112. Judith Scott-Clayton, “What Accounts For Gaps in Student Loan Default, and
What Happens After”, Evidence Speaks Reports (Volume 2, Number 57, June 2018).
www.brookings.edu/ research/
what-accounts-for-gaps-in-student-loan-default-and-what-happens-after/ .
Back to Citation
113. Stephanie Cellini, Rajeev Darolia, and Leslie Turner, “Where Do Students
Go When For-Profit Colleges Lose Federal Aid?”, American Economic Journal:
Economic Policy (Volume 12, Number 2, May 2020). www.aeaweb.org/ articles? id=
10.1257/ pol.20180265.
114. Christopher Lau, “Are Federal Student Loan Accountability Regulations
Effective?”, Economics of Education Review (Volume 75, April 2020).
www.sciencedirect.com/ science/ article/ pii/ S0272775719303796? via%3Dihub.
Back to Citation
115. For further discussion of the earnings premium metric and the Department's
reasons for proposing it, see above at [TK—preamble general introduction, legal
authority], at [TK—transparency, around p.150], and at [TK—method for
calculating metrics, around p.180]. The discussion here concentrates on GE
program eligibility.
Back to Citation
116. See for example Jordan D. Matsudaira and Lesley J. Turner. “Towards a
framework for accountability for federal financial assistance programs in
postsecondary education.” The Brookings Institution. (2020) www.brookings.edu/
wp-content/ uploads/ 2020/ 11/ 20210603-Mats-Turner.pdf; Stephanie R. Cellini
and Kathryn J. Blanchard, “Using a High School Earnings Benchmark to Measure
College Student Success Implications for Accountability and Equity.” The
Postsecondary Equity and Economics Research Project. (2022).
www.peerresearchproject.org/ peer/ research/ body/ 2022.3.3PEER_
HSEarnings-Updated.pdf; and Michael Itzkowitz. “Price to Earnings Premium: A New
Way of Measuring Return on Investment in Higher Education.” Third Way. (2020).
https://www.thirdway.org/ report/
price-to-earnings-premium-a-new-way-of-measuring-return-on-investment-in-higher-ed.
Back to Citation
117. Am. Ass'n of Cosmetology Schs. v. DeVos, 258 F. Supp. 3d 50, 76–77
(D.D.C. 2017).
Back to Citation
118. For further discussion of unreported income, see above at [TK].
Back to Citation
119. The study is Stephanie Riegg Cellini and Kathryn J. Blanchard, “Hair and
taxes: Cosmetology programs, accountability policy, and the problem of
underreported income,” Geo. Wash. Univ. (Jan. 2022),
www.peerresearchproject.org/ peer/ research/ body/ PEER_ HairTaxes-Final.pdf.
PEER_HairTaxes-Final.pdf (peerresearchproject.org). Note that tips included on
credit card payments to a business are more likely to be reported, and it is
reasonable to expect that many workers are complying with the law to include
tips in their reported income.
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120. 84 FR 31392, 31409–10 (2019).
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121. Title VI of the Civil Rights Act of 1964 prohibits discrimination on the
basis of race, color, or national origin by recipients of Federal financial
assistance. It requires that recipients of Federal funding take reasonable steps
to provide meaningful access to their programs or activities to individuals with
limited English proficiency (LEP), which may include the provision of translated
documents to people with LEP.
Back to Citation
122. Hurwitz, M. and Smith, J. (2018) Student Responsiveness to Earnings Data
in the College Scorecard. Economic Inquiry, Vo. 56, Issue 2. https://doi.org/
10.1111/ ecin.12530.
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123. www.gao.gov/ assets/ gao-21-105373.pdf.
Back to Citation
124. 87 FR 65904.
Back to Citation
125. 84 FR 49788.
Back to Citation
126. 81 FR 75926.
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127. 87 FR 65904.
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128. 84 FR 31392.
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129. www.congress.gov/ bill/ 117th-congress/ house-bill/ 1319/ text.
Back to Citation
130. 87 FR 65904.
Back to Citation
131. “Why Higher Ed?” available at
stradaeducation.org/report/why-higher-ed/.
Back to Citation
132. 87 FR 65904.
Back to Citation
133. www.census.gov/ programs-surveys/ metro-micro/ about.html.
Back to Citation
134. 85 FR 54742.
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135. 87 FR 65426.
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136. GAO Report, GAO–17–574, “Students Need More Information to Help Reduce
Challenges in Transferring College Credits,” Aug. 14, 2017. www.gao.gov/
products/ gao-17-574.
Back to Citation
137. GAO Report, GAO–21–89, “Higher Education: IRS and Education Could Better
Address Risks Associated with Some For-Profit College Conversions”, Dec. 31,
2020. www.gao.gov/ products/ gao-21-89.
Back to Citation
138. Ibid.
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139. Updated Program Participation Agreement Signature Requirements for
Entities Exercising Substantial Control Over Non-Public Institutions of Higher
Education,
fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2022-03-23/updated-program-participation-agreement-signature-requirements-entities-exercising-substantial-control-over-non-public-institutions-higher-education.
Back to Citation
140. 87 FR 65904.
Back to Citation
141. U.S. Department of Education press releases: www.ed.gov/ news/
press-releases/
education-department-approves-415-million-borrower-defense-claims-including-former-devry-university-students;
www.ed.gov/ news/ press-releases/
department-education-approves-borrower-defense-claims-related-three-additional-institutions.
Back to Citation
142. U.S. Department of Education press release: www.ed.gov/ news/
press-releases/
department-education-announces-approval-new-categories-borrower-defense-claims-totaling-500-million-loan-relief-18000-borrowers?
utm_ content= utm_ medium= email utm_ name= utm_ source= govdelivery utm_ term=
.
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143. Ithaka S+R. (2021). Stranded Credits: A Matter of
Equity.www.sr.ithaka.org/ publications/ stranded-credits-a-matter-of-equity/ .
144. Consumer Financial Protection Bureau (Fall 2022). Supervisory Highlights
Student Loan Servicing Special Edition, 8–9. www.files.consumerfinance.gov/ f/
documents/ cfpb_ student-loan-servicing-supervisory-highlights-special-edition_
report_ 2022-09.pdf.
Back to Citation
145. GAO Report, GAO–21–105373, “Many Impacted Borrowers Struggled Financially
Despite Being Eligible for Loan Discharges”, Sept. 30, 2021. www.gao.gov/
products/ gao-21-105373.
Back to Citation
146. Ibid.
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147. www.fsapartners.ed.gov/ knowledge-center/ library/
dear-colleague-letters/ 2022-06-16/
written-arrangements-between-title-iv-eligible-institutions-and-ineligible-third-party-entities-providing-portion-academic-program.
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148. 87 FR 65426.
Back to Citation
149. GAO Report, GAO–21–89, “Higher Education: IRS and Education Could Better
Address Risks Associated with Some For-Profit College Conversions”, Dec. 31,
2020. www.gao.gov/ products/ gao-21-89.
Back to Citation
150. 87 FR 65426.
Back to Citation
151. Ibid.
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152. This reference to “section 171”, may have been intended as a reference to
section 171 of the Workforce Innovation and Opportunity Act, Public Law 113–128,
which is classified to section 3226 of Title 29, Labor. Neither the National
Apprenticeship Act nor the HEA contains a section 171.
Back to Citation
153.
ifap.ed.gov/dear-colleague-letters/06-28-2012-gen-12-09-subjecttitle-iv-eligibility-students-without-valid-high.
Back to Citation
154. We use the phrase “low-financial-value” at various points in the RIA to
refer to low-earning or high-debt-burden programs that fail debt-to-earnings and
earnings premium metrics.
Back to Citation
155. https://nscresearchcenter.org/ wp-content/ uploads/
SHEEO-NSCRCCollegeClosuresReport.pdf.
Back to Citation
156. “For-profit” and “proprietary” are used interchangeably throughout the
text. Foreign schools are schools located outside of the United States at which
eligible U.S. students can use federal student aid.
Back to Citation
157. Note that the 2022 PPD will differ from the universe of programs that are
subject to the proposed GE regulations for the reasons described in more detail
in the “Data Used in this RIA” section, including that the 2022 PPD includes
programs defined by four-digit CIP code while the rule would define programs by
six-digit CIP code.
Back to Citation
158. Barrow, L., Malamud, O. (2015). Is College a Worthwhile Investment? Annual
Review of Economics, 7(1), 519–555.
Card, D. (1999). The causal effect of education on earnings. Handbook of labor
economics, 3, 1801–1863.
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159. Oreopoulos, P., Salvanes, K.G. (2011). Priceless: The Nonpecuniary
Benefits of Schooling. Journal of Economic Perspectives, 25(1), 159–184.
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160. Moretti, E. (2004). Workers' Education, Spillovers, and Productivity:
Evidence from Plant-Level Production Functions. American Economic Review, 94(3),
656–690.
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161. Dee, T.S. (2004). Are There Civic Returns to Education? Journal of Public
Economics, 88(9–10), 1697–1720.
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162. Currie, J., Moretti, E. (2003). Mother's Education and the
Intergenerational Transmission of Human Capital: Evidence from College Openings.
The Quarterly Journal of Economics, 118(4), 1495–1532.
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163. Avery, C., and Turner, S. (2013). Student Loans: Do College Students
Borrow Too Much-Or Not Enough? Journal of Economic Perspectives, 26(1), 165–192.
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164. Black, Dan A., and Jeffrey A. Smith. “Estimating the returns to college
quality with multiple proxies for quality.” Journal of Labor Economics 24.3
(2006): 701–728.
Cohodes, Sarah R., and Joshua S. Goodman. “Merit aid, college quality, and
college completion: Massachusetts' Adams scholarship as an in-kind subsidy.”
American Economic Journal: Applied Economics 6.4 (2014): 251–285.
Andrews, Rodney J., Jing Li, and Michael F. Lovenheim. “Quantile treatment
effects of college quality on earnings.” Journal of Human Resources 51.1 (2016):
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Dillon, Eleanor Wiske, and Jeffrey Andrew Smith. “The consequences of academic
match between students and colleges.” Journal of Human Resources 55.3 (2020):
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165. Hoxby, C.M. 2019. The Productivity of US Postsecondary Institutions. In
Productivity in Higher Education, C.M. Hoxby and K.M. Stange(eds). University of
Chicago Press: Chicago, 2019.
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166. Carrell, S.E. M. Kurleander. 2019. Estimating the Productivity of
Community Colleges in Paving the Road to Four-Year College Success. In
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Chicago Press: Chicago, 2019.
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167. Andrews, R.J., Stange, K.M. (2019). Price regulation, price
discrimination, and equality of opportunity in higher education: Evidence from
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Andrews, R.J., Imberman, S.A., Lovenheim, M.F. Stange, K. M. (2022), “The
returns to college major choice: Average and distributional effects, career
trajectories, and earnings variability,” NBER Working Paper w30331.
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168. Minaya, V., Scott-Clayton, J. Zhou, R.Y. (2022). Heterogeneity in Labor
Market Returns to Master's Degrees: Evidence from Ohio. (EdWorkingPaper:
22–629). Retrieved from Annenberg Institute at Brown University:
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169. Hastings, J.S., Neilson, C.A. Zimmerman, S.D. (2013), “Are some degrees
worth more than others? Evidence from college admission cutoffs in Chile,” NBER
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170. A recent overview can be found in Lovenheim, M. and J. Smith. 2023.
Returns to Different Postsecondary Investments: Institution Type, Academic
Programs, and Credentials. In Handbook of the Economics of Education Volume 6,
E. Hanushek, L. Woessmann, and S. Machin (Eds). New Holland.
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171. Mulhern, Christine. “Changing college choices with personalized admissions
information at scale: Evidence on Naviance.” Journal of Labor Economics 39.1
(2021): 219–262.
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172. Hurwitz, Michael, and Jonathan Smith. “Student responsiveness to earnings
data in the College Scorecard.” Economic Inquiry 56.2 (2018): 1220–1243.
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173. Aspen Institute. 2015. From College to Jobs: Making Sense of Labor Market
Returns to Higher Education. Washington, DC. www.aspeninstitute.org/
publications/ labormarketreturns/ .
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174. Much of the research is summarized in Ositelu, M.O., McCann, C. Laitinen,
A. 2021. The Short-term Credential Landscape. New America: Washington DC.
www.newamerica.org/ education-policy/ repoerts/
the-short-term-credentials-landscape.
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175. Soliz, A. 2016. Preparing America's Labor Force: Workforce Development
Programs in Public Community Colleges, (Washington, DC: Brookings, December 9,
2016), www.brookings.edu/ research/
preparing-americas-labor-force-workforce-development-programs-in-public-community-colleges/
.
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176. Aspen Institute. 2015. From College to Jobs: Making Sense of Labor Market
Returns to Higher Education. Washington, DC. www.aspeninstitute.org/
publications/ labormarketreturns.
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177. Deming, D.J., Yuchtman, N., Abulafi, A., Goldin, C., Katz, L.F. (2016).
The Value of Postsecondary Credentials in the Labor Market: An Experimental
Study. American Economic Review, 106(3), 778–806.
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178. Cellini, S.R. Chaudhary, L. (2014). The Labor Market Returns to a
For-Profit College Education. Economics of Education Review, 43, 125–140.
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179. Armona, L., Chakrabarti, R., Lovenheim, M.F. (2022). Student Debt and
Default: The Role of For-Profit Colleges. Journal of Financial Economics,
144(1), 67–92.
Back to Citation
180. Liu, V. Y.T. Belfield, C. (2020). The labor market returns to for-profit
higher education: Evidence for transfer students. Community College Review,
48(2), 133–155.
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181. Lang, K., Weinstein, R. (2013). The Wage Effects of Not-For-Profit and
For-Profit Certifications: Better Data, Somewhat Different Results. Labour
Economics, 24, 230–243.
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182. Cellini, S.R. Darolia, R. (2015). College costs and financial constraints.
In B. Hershbein K. Hollenbeck (Ed.). Student Loans and the Dynamics of Debt
(137–174). Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.
Cellini, S.R., Darolia, R. (2017). High Costs, Low Resources, and Missing
Information: Explaining Student Borrowing in the For-Profit Sector. The ANNALS
of the American Academy of Political and Social Science, 671(1), 92–112.
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183. Postsecondary Education: Student Outcomes Vary at For-Profit, Nonprofit,
and Public Schools (GAO–12–143), GAO, December 7, 2011.
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184. For Profit Higher Education: The Failure to Safeguard the Federal
Investment and Ensure Student Success, Senate HELP Committee, July 30, 2012.
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185. Cellini, S.R., Turner, N. (2019). Gainfully Employed? Assessing the
Employment and Earnings of For-Profit College Students using Administrative
Data. Journal of Human Resources, 54(2), 342–370.
Back to Citation
186. Ibid.
Back to Citation
187. Lang, K., Weinstein, R. (2013). The Wage Effects of Not-For-Profit and
For-Profit Certifications: Better Data, Somewhat Different Results. Labour
Economics, 24, 230–243.
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188. Dadgar, M., Trimble, M.J. (2015). Labor Market Returns to
Sub-Baccalaureate Credentials: How Much Does a Community College Degree or
Certificate Pay? Educational Evaluation and Policy Analysis, 37(4), 399–418.
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189. Gicheva, D. (2016). Student Loans or Marriage? A Look at the Highly
Educated. Economics of Education Review, 53, 207–2016.
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190. Chakrabarti, R., Fos, V., Liberman, A. Yannelis, C. (2020). Tuition, Debt,
and Human Capital. Federal Reserve Bank of New York Staff Report No. 912.
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191. Mezza, A., Ringo, D., Sherlund, S., Sommer, K. (2020). “Student Loans and
Homeownership,” Journal of Labor Economics, 38(1): 215–260.
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192. Gicheva, D. Thompson, J. (2015). The effects of student loans on long-term
household financial stability. In B. Hershbein K. Hollenbeck (Ed.). Student
Loans and the Dynamics of Debt (137–174). Kalamazoo, MI: W.E. Upjohn Institute
for Employment Research.
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193. studentaid.gov/manage-loans/default.
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194. Blagg, K. (2018). Underwater on Student Debt: Understanding Consumer
Credit and Student Loan Default. Urban Institute Research Report.
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195. Elliott, D. Granetz Lowitz, R. (2018). What Is the Cost of Poor Credit?
Urban Institute Report.
Corbae, D., Glover, A. Chen, D. (2013). Can Employer Credit Checks Create
Poverty Traps? 2013 Meeting Papers, No. 875, Society for Economic Dynamics.
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196. studentaid.gov/manage-loans/default.
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197. Deming, D., Goldin, C., Katz, L. (2012). The For-Profit Postsecondary
School Sector: Nimble Critters or Agile Predators? Journal of Economic
Perspectives, 26(1), 139–164.
Hillman, N.W. (2014). College on Credit: A Multilevel Analysis of Student Loan
Default. Review of Higher Education 37(2), 169–195.
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198. Looney, A., Yannelis, C. (2015). A Crisis in Student Loans? How Changes in
the Characteristics of Borrowers and in the Institutions They Attended
Contributed to Rising Loan Defaults. Brookings Papers on Economic Activity, 2,
1–89.
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199. https://www.ed.gov/ news/ press-releases/
new-proposed-regulations-would-transform-income-driven-repayment-cutting-undergraduate-loan-payments-half-and-preventing-unpaid-interest-accumulation.
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200. These estimates of the subsidy rate are not those used in the budget and
do not factor in take-up. Rather, they show the predicted subsidy rates under
the assumption that all students are enrolled in Proposed REPAYE.
Back to Citation
201. As explained in more detail later, the Department computed D/E and EP
metrics only for those programs with 30 or more students who completed the
program during the applicable two-year cohort period—that is, those programs
that met the minimum cohort size requirements.
Back to Citation
202. These findings come from ED's analysis of the 2019 Survey of Income and
Program Participation. This analysis compares individuals with annual income
below the 2019 U.S. national median income for individuals with a high school
degree aged 25–34 who had positive earnings or reported looking for work in the
previous year, according to the Census Bureau's American Community Survey (ACS).
Back to Citation
203. Deming, D., Goldin, C., Katz, L. (2012). The For-Profit Postsecondary
School Sector: Nimble Critters or Agile Predators? Journal of Economic
Perspectives, 26(1), 139–164.
Gilpin, G.A., Saunders, J., Stoddard, C. (2015). Why has for-profit colleges'
share of higher education expanded so rapidly? Estimating the responsiveness to
labor market changes. Economics of Education Review, 45, 53–63.
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204. Cellini, S.R. (2020). The Alarming Rise in For-Profit College Enrollment.
Washington, DC: Brookings Institution.
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205. Cellini, S.R. (2009). Crowded Colleges and College Crowd-Out: The Impact
of Public Subsidies on the Two-Year College Market. American Economic Journal:
Economic Policy, 1(2), 1–30.
Goodman, S. Volz, A.H. (2020). Attendance Spillovers between Public and
For-Profit Colleges: Evidence from Statewide Variation in Appropriations for
Higher Education. Education Finance and Policy, 15(3), 428–456.
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206. Ma, J. Pender, M. (2022). Trends in College Pricing and Student Aid 2022.
New York: College Board.
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207. Cellini, S. Koedel, K. (2017). The Case for Limiting Federal Student Aid
to For-Profit Colleges. Journal of Policy Analysis and Management, 36(4),
934–942.
Back to Citation
208. NCES. (2022). Digest of Education Statistics (Table 330.10). Available at:
nces.ed.gov/programs/digest/d21/tables/dt21_330.10.asp.
Back to Citation
209. Cellini, S.R. (2010). Financial aid and for‐profit colleges: Does aid
encourage entry? Journal of Policy Analysis and Management, 29(3), 526–552.
Lau, C.V. (2014). The incidence of federal subsidies in for‐profit higher
education. Unpublished manuscript. Evanston, IL: Northwestern University.
Back to Citation
210. Cellini, S.R., Goldin, C. (2014). Does federal student aid raise tuition?
New evidence on for-profit colleges. American Economic Journal: Economic Policy,
6(4), 174–206.
Back to Citation
211. Deming, D., Goldin, C., Katz, L. (2012). The For-Profit Postsecondary
School Sector: Nimble Critters or Agile Predators? Journal of Economic
Perspectives, 26(1), 139–164.
Cellini, S.R. Darolia, R. (2015). College costs and financial constraints. In B.
Hershbein K. Hollenbeck (Ed.). Student Loans and the Dynamics of Debt (137–174).
Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.
Back to Citation
212. Darolia, R. (2013). Integrity versus access? The effect of federal
financial aid availability on postsecondary enrollment. Journal of Public
Economics, 106, 101–114.
Back to Citation
213. Cellini, S.R., Darolia, R., Turner, L.J. (2020). Where do students go when
for-profit colleges lose federal aid? American Economic Journal: Economic
Policy, 12(2), 46–83.
Back to Citation
214. See https://www.gao.gov/ products/ gao-22-104403 and
sheeo.org/more-than-100000-students-experienced-an-abrupt-campus-closure-between-july-2004-and-june-2020/.
Back to Citation
215. To protect student privacy, we have applied certain protocols to the
publicly released 2022 PPD and thus that dataset differs somewhat from the 2022
PPD analyzed in this RIA. Such protocols include omitting the values of
variables derived from fewer than 30 students. For instance, the title IV
enrollment in programs with fewer than 30 students is used to determine the
number and share of enrollment in GE programs in this RIA, while the exact
program-level enrollment of such programs is omitted in the public 2022 PPD. The
privacy protocols are described in the data documentation accompanying this
NPRM. The Department would not have reached different conclusions on the impact
of the regulation or on the proposed rules if we had instead relied on this
privacy-protective dataset, though the Department views analysis based on the
2022 PPD and described in this NPRM to provide a more precise representation of
such impact. We view the differences in the analyses as substantively minor for
purposes of this rulemaking.
Back to Citation
216. This is a simplification. Under the proposed regulation, a “no data” year
is not considered passing when determining eligibility for GE programs based on
two out of three years. For non-GE programs, passing with data and without data
are treated the same for the purposes of the warnings.
Back to Citation
217. In many cases the loss of information from conducting analysis at a four-
rather than six-digit CIP code is minimal. According to the Technical
Documentation: College Scorecard Data by Field of Study, 70 percent of
credentials conferred were in four-digit CIP categories that had only one
six-digit category with completers at an institution. The 2015 official GE rates
can be used to examine the extent of variation in program debt and earnings
outcomes across 6-digit CIP programs within the same credential level and
institution.
Back to Citation
218. See pages 64939–40 of 79 FR https://www.federalregister.gov/ d/
2014-25594.
Back to Citation
219. See Technical Documentation: College Scorecard Data by Field of Study.
Back to Citation
220. For example, the average medial resident earns between roughly $62,000 and
$67,000 in the first three years of residency, according to the AAMC Survey of
Resident/Fellow Stipends and Benefits, and the mean composition for physicians
is $260,000 for primary care and $368,000 for specialists, according to the
Medscape Physician Compensation Report.
Back to Citation
221. Age at earnings measurement is not contained in the data, so we estimate
it with age at FAFSA filing immediately before program enrollment plus typical
program length (1 for certificate, 2 for Associate's programs, 4 for Bachelor's
programs) plus 3 years. To the extent that students take longer to complete
their programs, the average age will be even older than what is reported here.
Using this approach, the mean age when earnings are likely to be measured in
programs with at least 30 students is 30.34 across all undergraduate programs;
the mean for undergraduate certificate students is 30.42.
Back to Citation
222. To exclude workers that are minimally attached to the labor force or in
non-covered employment, the Census Postsecondary Employment Outcomes data
requires workers to have annual earnings greater than or equal to the annual
equivalent of full-time work at the prevailing Federal minimum wage and at least
three quarters of non-zero earnings. (
lehd.ces.census.gov/data/pseo_documentation.html). We impose a similar
restriction, including only those students whose pre-program earnings are
equivalent to full-time work for three quarters at the Federal minimum wage. We
only compute average pre-program income if at least 30 students meet this
criteria.
Back to Citation
223. Across undergraduate certificate programs for which the pre-program income
measure was calculated, the average share of students meeting the criteria is 41
percent (weighting each program equally) or 38 percent (weighting programs by
title IV, HEA enrollment). Given incomplete coverage and the potential for
non-random selection into the sample measuring pre-program income, we view this
analysis only suggestive.
Back to Citation
224. The earnings of 25 to 34 high school graduates used to construct the ET
(similar in age to program completers 3 years after graduation) should be
expected to exceed pre-program income because the former likely has more labor
force experience than the latter. Thus the comparison favors finding that the ET
exceeds pre-program income. The fact that pre-program income generally exceeds
the ET suggests that the ET is conservative.
Back to Citation
225. Unlike the proposed rule, the 2022 PPD also combines earnings and debt
data from two different (but overlapping) two-year cohorts. Alternatively, the
calculations in Table 3.2 use information for a single two-year completer cohort
for both earnings and debt, as the rule would do, and thus provides a more
accurate representation of the expected overall coverage. A second difference
between the coverage estimates in Table 3.2 and that in the 2022 PPD has do with
different data sources that result in slightly different estimates of enrollment
coverage between the two sources.
Back to Citation
226. We use significance level, or alpha, of 0.05 when assessing the
statistical significance in our regression analysis.
Back to Citation
227. Note that these statistics still do not fully capture the financial impact
of GE on institutions. A complete analysis would account for the share of
institutional revenue accounted for by title IV, HEA students, and the extent to
which students in programs that fail GE will unenroll from the institutions
entirely (vs. transferring to a passing program at the same institution). The
measures here are best viewed as a proxy for the share of Federal title IV, HEA
revenue at an institution that is potentially at risk due to the GE
accountability provisions.
Back to Citation
228. The number of Hispanic Serving Institutions reported here differs slightly
from the current eligibility list, as the 2022 PPD uses designations from 2021.
The number of HBCUs and TCCUs is the same in both sources, however.
Back to Citation
229. We conducted the regression analysis discussed below for non-GE programs
as well. Our conclusions about the relative contribution of demographic factors
in explaining program performance on the D/E and EP metrics is similar for
non-GE programs as for GE programs.
Back to Citation
230. Specifically, the C2016A and C2017A datasets available from the IPEDS data
center. These cover the 2015–16 and 2016–17 academic years (July 1 to June 30).
Back to Citation
231. Though not shown below, we have conducted parallel regression analysis
with binary indicators for whether the program fails the D/E metric and whether
it fails the EP metric as the outcomes. Results are qualitatively similar to
those reported here using continuous outcomes, though the amount of variation in
these binary outcomes that demographics explain is even more muted than that
reported here.
Back to Citation
232. Only 4 percent of GE programs are the only GE program within the
institution. The median number of programs within an institution is 18.
Back to Citation
233. The patterns by race are broadly similar to what was found in analysis of
the 2014 final rule. The coefficient on % Black in the final column suggests
that a 10-percentage point increase in the percent of students that are black is
associated with a 0.15 higher debt-to-earnings ratio, holding institution,
credential level, and the other demographic factors listed constant. Analysis of
the prior rule found an increase of 0.19, though the set of controls is not the
same.
Back to Citation
234. Since each of the 20 groups includes the same number of programs, the
income range varies across groups.
Back to Citation
235. Blau, Francine D., and Lawrence M. Kahn. 2017. “The Gender Wage Gap:
Extent, Trends, and Explanations.” Journal of Economic Literature 55 (3):
789–865.
Hillman, N.W. (2014). College on Credit: A Multilevel Analysis of Student Loan
Default. Review of Higher Education 37(2), 169–195.
Pager, D., Western, B. Bonikowski, B. (2009). Discrimination in a Low-Wage Labor
Market: A Field Experiment. American Sociological Review, 74, 777–799.
Back to Citation
236. Cottom, T.M. (2017). Lower Ed: The Troubling Rise of For-Profit Colleges
in the New Economy.
Government Accountability Office (2010). For-Profit Colleges: Undercover Testing
Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable
Marketing Practices.
United States Senate Committee on Health, Education, Labor and Pensions (2012).
For Profit Higher Education: The Failure to Safeguard the Federal Investment and
Ensure Student Success.
Back to Citation
237. Two other possibilities, which we include in our simulation of budget
impacts, is that students continue to enroll in programs without receiving title
IV, HEA aid or decline to enroll altogether.
Back to Citation
238. Since the 2022 PPD are aggregated to each combination of the six-digit
OPEID, four-digit CIP code, and credential level, we do not have precise data on
geographic location. For example, a program can have multiple branch locations
in different cities and States. At some of these locations, the program could be
offered as an online program while other locations offer only in-person
programs. Each of these locations would present as a single program in our data
set without detail regarding precise location or format. We do not possess more
detailed geographic information that would allow us to address this issue, so we
recognize that our analysis of geographic scope and alternatives may be
incomplete and cause us to understate the number of options students have.
Nonetheless, the vast majority of alternative options will be captured in our
analysis.
Back to Citation
239. In California, 55 percent of individuals passing either the practical or
written components of the licensure test are from title IV, HEA schools
according to Department analysis using licensing exam data retrieved from
www.barbercosmo.ca.gov/ schools/ schls_ rslts.shtml on December 7, 2022.
Back to Citation
240. Cellini, S. R. Onwukwe, B. (2022). Cosmetology Schools Everywhere. Most
Cosmetology Schools Exist Outside of the Federal Student Aid System.
Postsecondary Equity Economics Research Project working paper, August 2022.
Back to Citation
241. Cellini, S. R., Goldin, C. (2014). Does federal student aid raise tuition?
New evidence on for-profit colleges. American Economic Journal: Economic Policy,
6(4), 174–206.
Back to Citation
242. Cellini, S.R., Darolia, R. Turner, L.J. (2020). Where Do Students Go When
For-Profit Colleges Lose Federal Aid? American Economic Journal: Economic
Policy, 12 (2): 46–83.
Back to Citation
243. The only exception being that we use the debt for alternative programs in
the same credential level, same two-digit CIP code, and State to impute
alternative program debt if such a program is not available or calculable in
students' ZIP3. This is because there is no other natural benchmark debt level
analogous to the ET used to compute alternative program earnings.
Back to Citation
244. Programs at foreign institutions are excluded from this table as they do
not have an institutional type.
Back to Citation
245. Note that since many failing programs result in earnings lower than those
of the typical high school graduate, students leaving postsecondary education
still may be better off financially compared to staying in a failing program.
Back to Citation
246. Chakrabarti, R., Fos, V., Liberman, A. Yannelis, C. (2020). Tuition, Debt,
and Human Capital. Federal Reserve Bank of New York Staff Report No. 912.
Gicheva, D. (2016). Student Loans or Marriage? A Look at the Highly Educated.
Economics of Education Review, 53, 207–2016.
Gicheva, D. Thompson, J. (2015). The effects of student loans on long-term
household financial stability. In B. Hershbein K. Hollenbeck (Ed.). Student
Loans and the Dynamics of Debt (137–174). Kalamazoo, MI: W.E. Upjohn Institute
for Employment Research.
Hillman, N.W. (2014). College on Credit: A Multilevel Analysis of Student Loan
Default. Review of Higher Education 37(2), 169–195.
Mezza, A., Ringo, D., Sherlund, S., Sommer, K. (2020). “Student Loans and
Homeownership,” Journal of Labor Economics, 38(1): 215–260.
Back to Citation
247. Available at https://www.bls.gov/ oes/ current/ oes119033.htm.
Back to Citation
248. The budgetary cost of these discharges is not the same as the amount
forgiven.
Back to Citation
249. www.gao.gov/ products/ gao-21-105373.
Back to Citation
250. https://sheeo.org/
more-than-100000-students-experienced-an-abrupt-campus-closure-between-july-2004-and-june-2020/
.
Back to Citation
251.
libertystreeteconomics.newyorkfed.org/2017/11/who-is-more-likely-to-default-on-student-loans/.
Back to Citation
252. www.luminafoundation.org/ resource/ its-not-just-the-money/ ;
www.thirdway.org/ report/ ripple-effect-the-cost-of-the-college-dropout-rate.
Back to Citation
253. www.newamerica.org/ education-policy/ policy-papers/
decoding-cost-college/ .
Back to Citation
254. www.gao.gov/ products/ gao-23-104708.
Back to Citation
255. www.luminafoundation.org/ resource/ deciding-to-go-to-college/ .
Back to Citation
256. www.washingtonpost.com/ news/ grade-point/ wp/ 2018/ 09/ 01/
college-students-say-they-want-a-degree-for-a-job-are-they-getting-what-they-want/
.
Back to Citation
257.
sheeo.org/more-than-100000-students-experienced-an-abrupt-campus-closure-between-july-2004-and-june-2020/.
Back to Citation
258. Updated Program Participation Agreement Signature Requirements for
Entities Exercising Substantial Control Over Non-Public Institutions of Higher
Education. https://fsapartners.ed.gov/ knowledge-center/ library/
electronic-announcements/ 2022-03-23/
updated-program-participation-agreement-signature-requirements-entities-exercising-substantial-control-over-non-public-institutions-higher-education.
Back to Citation
259. www.nber.org/ papers/ w27658.
Back to Citation
260. www.gao.gov/ products/ gao-21-105373;
sheeo.org/more-than-100000-students-experienced-an-abrupt-campus-closure-between-july-2004-and-june-2020/.
Back to Citation
261. https://sheeo.org/
more-than-100000-students-experienced-an-abrupt-campus-closure-between-july-2004-and-june-2020/
.
Back to Citation
262. sr.ithaka.org/publications/solving-stranded-credits/.
Back to Citation
263. sr.ithaka.org/publications/stranded-credits-a-matter-of-equity/.
Back to Citation
264. www.aeaweb.org/ articles? id= 10.1257/ pol.20180279; www.nber.org/
papers/ w24804.
Back to Citation
265. As of January 2023, there are six States with an approved State process.
Back to Citation
266. AYs 2023 to 2034 are transformed to FYs 2022 to 2023 later in the
estimation process.
Back to Citation
267. The number of programs in proprietary post-BA certificates and proprietary
professional degrees was too low to reliably compute a growth rate. Therefore,
we assumed a rate equal to the overall proprietary rate of −0.4%.
Back to Citation
268. The budget simulations separate lower and upper division enrollment in
4-year programs. We assume the same program transition rates for both.
Back to Citation
269. In order to produce transition rates that are stable over time and that do
not include secular trends in passing or failing rates (which are already
reflected in our program growth assumptions), we compute transition rates from
Year 1 to Year 2 and from Year 2 to Year 1 and average them to generate a stable
rate shown in the tables.
Back to Citation
270. Fountain, J. (2019). The Effect of the Gainful Employment Regulatory
Uncertainty on Student Enrollment at For-Profit Institutions of Higher
Education. Research in Higher Education, Springer; Association for Institutional
Research, vol. 60(8), 1065–1089. Kelchen, R. Liu, Z. (2022) Did Gainful
Employment Regulations Result in College and Program Closures? Education Finance
and Policy; 17 (3): 454–478.
Back to Citation
271. Hentschke, G.C., Parry, S.C. Innovation in Times of Regulatory
Uncertainty: Responses to the Threat of “Gainful Employment”. Innov High Educ
40, 97–109 (2015). doi.org/10.1007/s10755-014-9298-z.
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272. https://www.gao.gov/ products/ gao-22-104403.
Back to Citation
273.
sheeo.org/more-than-100000-students-experienced-an-abrupt-campus-closure-between-july-2004-and-june-2020/.
Back to Citation
274. Cellini, S.R., Darolia, R., Turner, L.J. (2020). Where do students go when
for-profit colleges lose federal aid? American Economic Journal: Economic
Policy, 12(2), 46–83.
Back to Citation
275. Lower division includes students in their first two years of undergraduate
education. Upper division includes students in their third year or higher.
Back to Citation
276. Note that non-GE programs do not include risk group 1 (2-year and below
for-profit institutions) or the pre-ineligible or ineligible performance
categories. Some groups also do not have all four transfer group categories.
There are 184 total groups used in the analysis.
Back to Citation
278. The ratios used are 11.5% for 2-year or less, 16.5% for Bachelor's
programs, and 27.3% for graduate programs. These are the ratio between number of
title IV, HEA completers in the two-year earnings cohort and the average title
IV, HEA enrollment in the 2016 and 2017 Award Years.
Back to Citation
279. Hoekstra, Mark (2009) The Effect of Attending the Flagship State
University on Earnings: A Discontinuity-Based Approach, Review of Economics and
Statistics 2009, 91(4): 717–724.
Hoxby, C.M. 2019. The Productivity of US Postsecondary Institutions. In
Productivity in Higher Education, C.M. Hoxby and K.M. Stange (eds). University
of Chicago Press: Chicago, 2019.
Andrews, R.J., Stange, K.M. (2019). Price regulation, price discrimination, and
equality of opportunity in higher education: Evidence from Texas. American
Economic Journal: Economic Policy, 11.4, 31–65.
Andrews, Rodney, Scott Imberman, Michael Lovenheim, Kevin Stange (2022). The
Returns to College Major Choice: Average and Distributional Effects, Career
Trajectories, and Earnings Variability. NBER Working Paper 30331, August 2022.
Back to Citation
280. Mountjoy, Jack and Brent Hickman (2021). The Returns to College(s):
Relative Value-Added and Match Effects in Higher Education. NBER Working Paper
29276, September 2021.
Back to Citation
281. Note that both the “raw” and fully controlled regressions include
indicators for credential level, as enrollment is not permitted to move across
credential levels in our budget simulations other than modest shift from 2-year
programs to lower-division four-year programs.
Back to Citation
282. Hendren, Nathaniel, and Ben Sprung-Keyser. 2020. “A Unified Welfare
Analysis of Government Policies.” Quarterly Journal of Economics 135(3):
1209–1318.
Back to Citation
283. This may cause our estimates to slightly understate the instructional cost
impact since failing programs are disproportionately in lower-earning fields and
lower credential levels, which tend to have lower instructional costs. Though we
anticipate most movement will be within field and credential level, which would
mute this effect. See Steven W. Hemelt Kevin M. Stange Fernando Furquim Andrew
Simon John E. Sawyer, 2021. “Why Is Math Cheaper than English? Understanding
Cost Differences in Higher Education,” Journal of Labor Economics, vol 39(2),
pages 397–435.
Back to Citation
284. Since the policy is not estimated to shift enrollment until AY 2026 (which
includes part of FY 2025), we present enrollment and budget impacts starting in
2025. Impacts in both AY and FY 2024 are zero.
Back to Citation
285. In unpublished analysis of approximately 600 programs (defined by 2-digit
CIP by institution) at four-year public colleges in Texas as part of their
published work, Andrews Stange (2019) find that a 1 percent increase in log
program earnings (unadjusted) is associated with a .72 percent increase in log
program earnings after controlling for student race/ethnicity, limited English
proficiency, economic disadvantage, and achievement test scores. Additionally
controlling for students' college application and admissions behavior reduces
this to 0.62. Using the correlation of institution-level average earnings and
value-added in Figure 2.1 of Hoxby (2018) we estimate that an earnings gain of
$10,000 is associated with a value added gain of roughly $6,000 over the entire
sample, of roughly $4,000 for scores below 1200, and of roughly $2,000 for
scores below 1000. These relationships imply parameter values of 0.72, 0.62,
0.60, 0.40, and 0.20, respectively. Again, institution-level correlations may
not be directly comparable to program-level data.
Back to Citation
286. The Department uses an enrollment-based definition since this applies the
same metric to all types of institutions, allowing consistent comparison across
all types. For a further explanation of why the Department proposes this
alternative size standard, please see Student Assistance General Provisions,
Federal Perkins Loan Program, Federal Family Education Loan Program, and William
D. Ford Federal Direct Loan Program (Borrower Defense) proposed rule published
July 31, 2018 (83 FR 37242).
Back to Citation
287. The minimum number of program completers in a two-year cohort that is
required in order for the Department to compute the D/E and EP performance
metrics is referred to as the “n-size.” An n-size of 30 is used in the proposed
rule; GE and non-GE programs with fewer than 30 completers across two years
would not have performance metrics computed.
Back to Citation
288. For subparts 68.43, 668.407, and 668.605, these estimates were obtained by
proportioning the total PRA burden falling on institutions by the share of
institutions that are small entities, as reported in Table 10.1 (55 percent).
Back to Citation
289. Available at https://www.bls.gov/ oes/ current/ oes119033.htm.
Back to Citation
BILLING CODE 4000–01–P
BILLING CODE 4000–01–C
BILLING CODE 4000–01–P
BILLING CODE 4000–01–C
BILLING CODE 4000–01–P
BILLING CODE 4000–01–C
[FR Doc. 2023–09647 Filed 5–18–23; 8:45 am]
BILLING CODE 4000–01–P
PUBLISHED DOCUMENT
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