Department of Education Proposes New Regulations to Protect Students from Excessive Debt

The Department of Education has introduced new regulations to prevent students from being burdened with unmanageable debt in for-profit institutions and certificate programs. The proposed changes include metrics for gainful employment programs, increased transparency through college-level data, and provisions for better accountability.

Questions Answered in this Article

1. What are the new regulations set forth by the Department of Education? The Department of Education has set forth new regulations to safeguard students enrolled in for-profit institutions and certificate programs from burdensome debt they cannot repay.
2. What key metrics must institutions meet to qualify for federal financial aid? Institutions must meet two key metrics to be eligible for federal financial aid: the debt-to-earnings ratio and earnings compared to high school graduates.
3. What information will be publicly available on the Department of Education’s website? The Department of Education will provide publicly available information on the cost of attendance, potential earnings, typical debt, and other relevant data points.
4. What are the additional provisions for enhanced accountability proposed by the regulations? The proposed regulations address financial responsibility, administrative capability, certification procedures, and adjustments to the “Ability to Benefit” provision of the Higher Education Act.
5. What is the purpose of the Department of Education’s proposed changes? The proposed changes aim to strengthen oversight and accountability measures, protect students, and maintain the integrity of federal financial aid programs.

New Department of Education Regulations Aim to Safeguard Students from Excessive Debt

The Department of Education has set forth new regulations to safeguard students enrolled in for-profit institutions and certificate programs from burdensome debt they cannot repay. These regulations are open for public comment until June 20.

For-profit institutions have faced numerous lawsuits alleging deceptive practices, leaving borrowers with overwhelming debt and inadequate job preparation. The borrower defense program has forgiven billions of dollars in federal student loans to recover students’ losses.

Undersecretary of Education James Kvaal stated, “We cannot turn a blind eye to the college programs that are leaving students with mountains of unaffordable debts.” He emphasized that for-profit and career colleges are at the core of this problem. The latest proposals are designed to protect students and other stakeholders against what Kvaal called “low-value, debt-fueled colleges.”

Metrics and Accountability: Gainful Employment Programs and Federal Financial Aid

To qualify for federal financial aid, for-profit institutions and public or private non-degree programs must meet specific metrics to prepare students for gainful employment adequately. These performance standards, outlined in the Higher Education Act, hold programs accountable.

The Department of Education has identified two critical areas in which institutions must meet the prescribed metrics:

1. Debt to earnings: The portion of a graduate’s annual income required for student debt payments must not exceed 8%. For graduates enrolled in income-based repayment plans, their debt-to-earnings ratio must be below 20% of their discretionary income. Discretionary income is income surpassing 150% of the federal poverty guideline.
2. Earnings compared to high school graduates: At least 50% of an institution’s graduates must earn more than the average high school graduate without postsecondary education. Graduate income is compared to the college’s state labor force.

If an institution fails to meet one of these metrics, it must inform students that the program may lose access to federal aid. However, if a program fails to meet both metrics on two occasions within three years, it will permanently lose eligibility for federal aid.

Increased Transparency through College-Level Data

To enhance transparency and assist students and families in making informed decisions, the Department of Education is actively promoting greater consistency in reporting the cost and outcomes of postsecondary education. This involves collecting more comprehensive data on various aspects, including the cost of attendance, potential earnings, and typical debt. The goal is to prevent students and families from burdening themselves with unmanageable debt.

The newly collected data may encompass the following elements:

1. Cost of tuition, fees, books, and supplies.
2. Licensing requirements and exam passage rates, if applicable to the program.
3. Amounts of nonfederal aid received per student.
4. Total amount borrowed per student, including both federal and private loans.
5. Earnings per student.

This information will be publicly available on a website managed by the Department of Education. Prior to receiving loans for a program that fails to meet federal standards, students will be required to acknowledge that they have reviewed the data points.

Furthermore, these metrics will create a “watch list” that identifies institutions with a track record of leaving students with substantial debt and poor earnings.

Additional Provisions for Enhanced Accountability

The proposed regulations address the specific metrics for federal financial aid eligibility and encompass broader changes in various government-defined regulatory areas. These modifications aim to empower the Department of Education in proactively holding institutions accountable and in cases where standards have not been met. The key areas of focus are as follows:

1. Financial responsibility: Institutions would be required to report behaviors that indicate a heightened risk of sudden closure, such as failure to make debt payments for over 90 days. In certain instances, specific financial triggers could prompt the Department of Education to mandate that the institution provide a credit letter to ensure payment.
2. Administrative capability: There will be increased requirements for college administration programs, including career services and financial aid offices. The proposals also aim to prevent hiring administrators with a history of misconduct related to federal financial aid programs.
3. Certification procedures: The Department of Education seeks greater flexibility in adjusting its agreements with institutions that receive federal financial aid. This would enable the department to adapt quickly to changing circumstances and ensure compliance with evolving standards.

Additionally, the regulations would adjust the “Ability to Benefit” provision of the Higher Education Act, which allows students without a high school diploma to access federal financial aid. These adjustments aim to refine and improve the implementation of this provision.

These proposed changes reflect the Department of Education’s commitment to strengthening oversight and accountability measures to protect students and maintain the integrity of federal financial aid programs.

Definition of Terms

1. Department of Education Regulations: Rules and guidelines set by the Department of Education to govern various aspects of education, including financial aid, student loans, accountability, and institutional practices.
2. Safeguard: Measures taken to protect or ensure the well-being of someone or something. In this context, safeguarding students means protecting them from excessive debt and deceptive practices.
3. Students: Individuals in educational institutions or programs seeking knowledge, skills, or qualifications.
4. Excessive Debt: A high level of financial obligation that becomes burdensome and difficult to repay, often leading to financial hardship.
5. For-profit institutions: Educational institutions operated as businesses with the primary goal of making a profit for their owners or shareholders.
6. Certificate programs: Educational programs that offer specialized training or instruction in a specific field or skill, typically leading to the award of a certificate upon completion.
7. Public comment: A period during which the general public is invited to provide feedback, opinions, or suggestions on proposed regulations or policies.
8. Borrower defense program: A program that allows borrowers to seek loan forgiveness if they can demonstrate that their educational institution defrauded them or if the institution engaged in deceptive practices.
9. Federal student loans: Loans provided by the government to help students and their families finance higher education, typically offering lower interest rates and more flexible repayment options compared to private loans.
10. Undersecretary of Education: A high-ranking official within the Department of Education who assists and advises the Secretary of Education in various matters.
11. Deceptive practices: Unfair or misleading actions or strategies institutions or individuals employ to manipulate or defraud others.
12. Job preparation: Activities, training, or education aimed at equipping individuals with the skills and knowledge necessary to enter or succeed in the job market.
13. Protection: Measures taken to safeguard or defend against harm, risks, or negative outcomes.
14. Low-value: Refers to educational programs or institutions that provide limited benefits or inadequate outcomes relative to the cost or investment required.
15. Debt-fueled colleges: Colleges or educational institutions heavily relying on student loans and debt to finance their operations and sustain their business model.
16. Metrics: Quantitative measurements or standards used to assess and evaluate performance, outcomes, or compliance.
17. Accountability: The obligation of individuals or institutions to take responsibility for their actions, decisions, or performance and to be answerable to relevant stakeholders.
18. Gainful Employment Programs: Educational programs, typically offered by for-profit institutions, are designed to provide students with the skills and training necessary to gain employment in a specific field or industry.
19. Federal financial aid: Monetary assistance provided by the federal government to eligible students to help cover the costs of their education, including grants, scholarships, and loans.
20. Debt to earnings: A ratio that compares a graduate’s annual income to their student debt payments. It is used as a metric to assess the affordability of student loan repayments. The debt-to-earnings ratio should not exceed a certain threshold to ensure graduates can manage debt obligations.
21. Discretionary income: The income remaining after deducting taxes and necessary expenses. It is used to determine the affordability of student loan payments for graduates enrolled in income-based repayment plans.
22. Earnings compared to high school graduates: A comparison between the average income of an institution’s graduates and those of individuals with only a high school diploma. It is used to assess the value of the education provided by the institution in terms of graduates’ earning potential.
23. Eligibility for federal aid: The criteria and requirements that educational programs and institutions must meet to qualify for federal financial aid programs. Failure to meet these requirements may result in the loss of eligibility for federal aid.
24. Transparency: Openness and accessibility of information. In education, clarity refers to providing clear and comprehensive information about the cost, outcomes, and other relevant aspects of postsecondary education to students and their families.
25. College-Level Data: Information and statistics collected at the college level to provide insights into various aspects of postsecondary education. This data may include details such as the cost of attendance, potential earnings of graduates, typical debt levels, and other relevant factors.
26. Watch list: A list that identifies institutions with a history of leaving students with substantial debt and poor earnings. It is a monitoring tool to keep track of institutions that may require additional scrutiny or intervention.
27. Financial responsibility: The ability of an institution to manage its financial obligations and meet its financial commitments. Reporting behaviors indicating a heightened risk of sudden closure and failure to make debt payments are factors that may be considered when assessing an institution’s financial responsibility.
28. Administrative capability: The capacity and competence of an educational institution’s executive departments, such as career services and financial aid offices, to effectively fulfill their responsibilities and support students.
29. Certification procedures: Processes and requirements for certifying or approving institutions to participate in federal financial aid programs. These procedures may involve assessing an institution’s compliance with regulations and ensuring it meets the necessary standards.
30. Ability to Benefit provision: A provision in the Higher Education Act that allows students without a high school diploma or equivalent to access federal financial aid if they can demonstrate their ability to benefit from the education or training offered by an eligible institution.
31. Higher Education Act: Federal legislation that governs higher education policies and programs in the United States. It establishes regulations and standards for institutions, financial aid programs, and student protections.
32. Oversight: Monitoring, supervising, and ensuring compliance with regulations, standards, and policies. In the Department of Education context, oversight refers to its responsibility to monitor educational institutions and programs to protect students and maintain the integrity of federal financial aid programs.
33. Integrity: The adherence to high moral and ethical principles. Maintaining the integrity of federal financial aid programs involves ensuring that funds are used appropriately, institutions meet their obligations, and students receive the education and support they deserve.
34. Financial aid programs: Programs and initiatives that provide financial assistance to students pursuing higher education, typically offered by federal, state, or institutional sources. These programs aim to make education more accessible and affordable for students.

Summary

• The Department of Education has introduced new regulations to protect students from excessive debt in for-profit institutions and certificate programs.
• The regulations focus on metrics and accountability, including debt-to-earnings ratio and earnings compared to high school graduates.
• Institutions failing to meet the metrics may lose access to federal aid, and repeated failures can result in permanent ineligibility.
• The Department of Education aims to enhance transparency by collecting comprehensive data on cost, earnings, and debt, which will be publicly available.
• The proposed regulations also address financial responsibility, administrative capability, and certification procedures to ensure accountability.
• The changes reflect the Department of Education’s commitment to safeguarding students and maintaining the integrity of federal financial aid programs.