[Federal Register Volume 88, Number 97 (Friday, May 19, 2023)]
[Proposed Rules]
[Pages 32300-32511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09647]
[[Page 32299]]
Vol. 88
Friday,
No. 97
May 19, 2023
Part II
Department of Education
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34 CFR Parts 600 and 668
Financial Value Transparency and Gainful Employment (GE), Financial
Responsibility, Administrative Capability, Certification Procedures,
Ability to Benefit (ATB); Proposed Rule
Federal Register / Vol. 88 , No. 97 / Friday, May 19, 2023 / Proposed
Rules
[[Page 32300]]
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DEPARTMENT OF EDUCATION
34 CFR Parts 600 and 668
[Docket ID ED-2023-OPE-0089]
RIN 1840-AD51, 1840-AD57, 1840-AD64, 1840-AD65, and 1840-AD80
Financial Value Transparency and Gainful Employment (GE),
Financial Responsibility, Administrative Capability, Certification
Procedures, Ability to Benefit (ATB)
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Notice of proposed rulemaking.
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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.
FOR FURTHER INFORMATION CONTACT: For financial value transparency and
GE: Joe Massman. Telephone: (202) 453-7771. Email: [email protected].
For financial responsibility: Kevin Campbell. Telephone: (214) 661-
9488. Email: [email protected]. For administrative capability:
Andrea Drew. Telephone: (202) 987-1309. Email: [email protected]. For
certification procedures: Vanessa Gomez. Telephone: (202) 453-6708.
Email: [email protected]. For ATB: Aaron Washington. Telephone:
(202) 987-0911. Email: [email protected]. 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.
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 (Sec. 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 (Sec. 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 (Sec.
668.171)(f)(i)(iii)
We specifically invite comments as to whether an investigation as
described in Sec. 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 (Sec. 668.13(c))
Proposed Sec. 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-
[[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 (Sec. 668.156(f))
As agreed by Committee consensus, we propose a success rate
calculation under proposed Sec. 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.
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\1\ https://nscresearchcenter.org/wp-content/uploads/SHEEO-NSCRCCollegeClosuresReport.pdf.
\2\ Figure excludes the $1.1 billion in additional closed school
discharges for ITT Technical Institute announced in August 2021.
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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
[[Page 32302]]
determine an entity's financial strength based on its audited financial
statement as described in Sec. 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 Sec. 668.15.
We propose several additional standards in the administrative
capability regulations at Sec. 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 Sec. 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 Sec. 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 Sec.
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 Sec. 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 Sec. 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 (Sec. 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 Sec. 600.10(c) to require an institution seeking to
establish the eligibility of a GE program to add the program to its
application.
Amend Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 668.401 to provide the scope and purpose
of newly established financial value transparency regulations under
subpart Q.
Add a new Sec. 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 Sec. 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
[[Page 32303]]
and assessed charges, as well as to provide exclusions and specify when
D/E rates will not be calculated.
Add a new Sec. 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 Sec. 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 Sec. 668.406 to require the Secretary to notify
institutions of their financial value transparency metrics and
outcomes.
Add a new Sec. 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 Sec. 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 Sec. 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 Sec. 668.601 to provide the scope and purpose
of newly established GE regulations under subpart S.
Add a new Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 (Sec. Sec. 668.15, 668.23, and 668, subpart L
Sec. Sec. 171, 174, 175, 176 and 177)
Remove and reserve Sec. 668.15 thereby consolidating all
financial responsibility factors, including those governing changes in
ownership, under part 668, subpart L.
Amend Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 668.171(f) to revise the set of conditions
whereby an institution must report to the Department that a triggering
event, described in Sec. 668.171(c) and (d), has occurred.
Amend Sec. 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
[[Page 32304]]
been addressed or whether the opinion of doubt reflects a lack of
financial responsibility.
Amend Sec. 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 Sec. 668.176 to consolidate financial
responsibility requirements for institutions undergoing a change in
ownership under Sec. 668, subpart L.
Redesignate the existing Sec. 668.176, establishing
severability, as Sec. 668.177 with no change to the regulatory text.
Administrative Capability (Sec. 668.16)
Amend Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 668.16(q) to require that institutions provide
adequate career services to eligible students who receive title IV, HEA
program assistance.
Add Sec. 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 Sec. 668.16(s) to require that an institution timely
disburses funds to students consistent with the students' needs.
Add Sec. 668.16(t) to require institutions to meet new
standards for their GE programs, as outlined in regulation.
Add Sec. 668.16(u) to require that an institution does
not engage in misrepresentations or aggressive and deceptive
recruitment.
Certification Procedures (Sec. Sec. 668.2, 668.13, and 668.14)
Amend Sec. 668.2 to add a definition of ``metropolitan
statistical area.''
Amend Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 668.23.
Amend Sec. 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 Sec. 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 Sec. 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 Sec. 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 (Sec. Sec. 668.2, 668.32, 668.156, and 668.157)
Amend Sec. 668.2 to add a definition of ``eligible career
pathway program.''
Amend Sec. 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 Sec. 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 Sec. 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
[[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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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.
[[Page 32306]]
Background
Financial Value Transparency and Gainful Employment (Sec. Sec. 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\
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\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.
\4\ Oreopoulos, P., & Salvanes, K.G. (2011). Priceless: The
Nonpecuniary Benefits of Schooling. Journal of Economic
Perspectives, 25(1), 159-184.
\5\ Moretti, E. (2004). Workers' Education, Spillovers, and
Productivity: Evidence from Plant-Level Production Functions.
American Economic Review, 94(3), 656-690.
\6\ Dee, T.S. (2004). Are There Civic Returns to Education?
Journal of Public Economics, 88(9-10), 1697-1720.
\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.
\8\ Hendren, N., & Sprung-Keyser., B. (2020). A Unified Welfare
Analysis of Government Policies. The Quarterly Journal of Economics,
135(3), 1209-1318.
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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.
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\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.
\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).
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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.
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\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/ 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.
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To address these issues, the Department proposes to amend
Sec. Sec. 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)
[[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
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\13\ Ass'n of Priv. Colleges & Universities v. Duncan, 870 F.
Supp. 2d 133 (D.D.C. 2012).
\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).
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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.
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\17\ 84 FR 31392.
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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.
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\18\ We discuss potential reliance interests regarding all parts
of the proposed rule below, in the ``Reliance Risks'' section.
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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
[[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\
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\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.
\20\ See, for example, 20 U.S.C. 1001(a)(1), 1901.
\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.
\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.
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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.
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\23\ See https://www.dol.gov/agencies/whd/mw-consolidated.
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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.
---------------------------------------------------------------------------
\24\ See https://libertystreeteconomics.newyorkfed.org/2015/02/looking_at_student_loan_defaults_through_a_larger_window/.
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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
[[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\
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\25\ 88 FR 1902 (Jan. 11, 2023).
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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.
---------------------------------------------------------------------------
\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.
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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.''
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\27\ www.urban.org/urban-wire/devos-misrepresents-evidence-seeking-gainful-employment-deregulation.
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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.
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\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.
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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 Sec. 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,
[[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\
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\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.
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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 ``Sec. 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.
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\30\ For an overview of research findings see, for example,
ticas.org/files/pub_files/consumer_information_in_higher_education.pdf.
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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.
---------------------------------------------------------------------------
\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/ 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.
\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.
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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.
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\34\ See discussion in section ''Outcome Differences Across
Programs'' of the Regulatory Impact Analysis for an overview of
these research findings.
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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
[[Page 32311]]
earnings metric.\35\ We further explain the debt-to-earnings (D/E) and
earnings premium (EP) metrics in discussions above and below.
---------------------------------------------------------------------------
\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.
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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\
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\36\ See the discussions below at [TK].
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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).
---------------------------------------------------------------------------
\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.
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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 (Sec. Sec. 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
Sec. 668.15 to only situations where an institution is undergoing a
change in ownership.
These proposed regulations would remove the outdated regulations
from Sec. 668.15 and reserve that section. Proposed regulations in a
new Sec. 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 Sec. 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.
[[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:
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\38\ 81 FR 75926.
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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
[[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.
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\39\ 84 FR 49788.
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Administrative Capability (Sec. 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 Sec. 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 (Sec. Sec. 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
[[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.
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\40\ 85 FR 54742
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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 Sec. 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.
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\41\ Metropolitan statistical area as defined by the U.S. Office
of Management and Budget (OMB), www.census.gov/programs-surveys/metro-micro.html.
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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
[[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.
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\42\ 87 FR 65426.
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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 (Sec. Sec. 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
Sec. 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.
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\43\ 60 FR 61830.
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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 Sec. Sec. 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
[[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.
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\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.
\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.
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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
[[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 (Sec. Sec. 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 Sec. 600.10(c) to require an institution seeking to
establish the eligibility of a GE program to add the program to its
application.
Amend Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 668.401 to provide the scope and purpose
of newly established financial value transparency regulations under
subpart Q.
Add a new Sec. 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 Sec. 668.403 to establish a methodology to
calculate annual and
[[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 Sec. 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 Sec. 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 Sec. 668.406 to require the Secretary to notify
institutions of their financial value transparency metrics and
outcomes.
Add a new Sec. 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 Sec. 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 Sec. 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 Sec. 668.601 to provide the scope and purpose
of newly established GE regulations under subpart S.
Add a new Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 (Sec. Sec. 668.15, 668.23, 668.171, and
668.174 Through 668.177) (Section 498(c) of the HEA)
Remove all regulations currently under Sec. 668.15 and
reserve that section.
Amend Sec. 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 Sec. 668.23 with the updated reference, ``2
CFR part 200--Uniform Administrative Requirements, Cost Principles, And
Audit Requirements For Federal Awards.''
Amend Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 668.171(f) to require an institution to notify
the Department, typically no later than 10 days, after any of the
following occurs:
[ssquf] The institution incurs a liability as described in proposed
Sec. 668.171(c)(2)(i)(A);
[ssquf] The institution is served with a complaint linked to a
lawsuit as described in Sec. 668.171(c)(2)(i)(B) and an updated notice
when such a lawsuit has been pending for at least 120 days;
[ssquf] The institution receives a civil investigative demand,
subpoena, request for documents or information, or other formal or
informal inquiry from any government entity;
[ssquf] As described in proposed Sec. 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;
[ssquf] As described in proposed Sec. 668.171(c)(2)(vi) or
(d)(11), the U.S Securities and Exchange Commission (SEC) or an
exchange where the entity's
[[Page 32319]]
securities are listed takes certain disciplinary actions against the
entity;
[ssquf] As described in proposed Sec. 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;
[ssquf] As described in proposed Sec. 668.171(c)(2)(xi), there are
actions initiated by a creditor of the institution;
[ssquf] 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 Sec.
668.28(c)(3) (This notification deadline would be 45 days after the end
of the institution's fiscal year);
[ssquf] As described in proposed Sec. 668.171(c)(2)(ix) or
(d)(10), the institution or one of its programs loses eligibility for
another Federal educational assistance program;
[ssquf] As described in proposed Sec. 668.171(d)(7), the
institution discontinues an academic program;
[ssquf] The institution fails to meet any one of the standards in
Sec. 668.171(b);
[ssquf] As described in proposed Sec. 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;
[ssquf] As described in proposed Sec. 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;
[ssquf] 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;
[ssquf] 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 Sec. 600.2;
[ssquf] As described in proposed Sec. 668.171(d)(2), the
institution suffers other defaults, delinquencies, or creditor events;
Amend Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec.
668.171(b), it must remedy the issues that gave rise to the failure.
Add Sec. 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 Sec. 668.15.
Add a new Sec. 668.177 to contain the severability
statement that currently resides in Sec. 668.176.
Administrative Capability (Sec. 668.16) (Section 498(a) of the HEA)
Amend Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 668.16(q) to require that institutions provide
adequate career services to eligible students who receive title IV, HEA
program assistance.
Add Sec. 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 Sec. 668.16(s) to require that an institution
disburse funds to students in a timely manner consistent with the
students' needs.
Add Sec. 668.16(t) to require institutions that offer GE
programs to meet program standards as outlined in regulation.
Add Sec. 668.16(u) to require that an institution does
not engage in misrepresentations or aggressive recruitment.
[[Page 32320]]
Certification Procedures (Sec. Sec. 668.2, 668.13, and 668.14)
(Section 498 of the HEA)
Amend Sec. 668.2 to add a definition of ``metropolitan
statistical area.''
Amend Sec. 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 Sec. 668.13(c)(1) to include additional events that
lead to provisional certification.
Amend Sec. 668.13(c)(2) to require provisionally
certified schools that have major consumer protection issues to
recertify after two years.
Add a new Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 668.14(e) to establish a non-exhaustive list
of conditions that the Secretary may apply to provisionally certified
institutions.
Amend Sec. 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 Sec. 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 (Sec. Sec. 668.2, 668.32, 668.156, and 668.157 (Section 484(d) of
the HEA)
Amend Sec. 668.2 to codify a definition of ``eligible
career pathway program.''
Amend Sec. 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 Sec. 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 Sec. 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 Sec. 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,
[[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 Sec.
668.156(d), now redesignated proposed Sec. 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 Sec. 668.156(d), now redesignated proposed
Sec. 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 Sec. 668.156(b), now redesignated proposed
Sec. 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 Sec. 668.156(b), now redesignated proposed
Sec. 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 Sec. 668.156(g), now redesignated proposed
Sec. 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 Sec. 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\
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\46\ 20 U.S.C. 1221e-3.
\47\ 20 U.S.C. 3474.
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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.
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\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).
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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\
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\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.
\50\ E.g., 20 U.S.C. 1015(e).
\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.
\52\ E.g., 20 U.S.C. 1082(m), regarding common application forms
and promissory notes or master promissory notes.
\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.
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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
[[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.
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\54\ 20 U.S.C. 1001(b)(1).
\55\ 20 U.S.C. 1002(b)(1)(A)(i), (c)(1)(A).
\56\ 20 U.S.C. 1088(b).
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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.
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\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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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 (Sec. 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 Sec. 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\
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\58\ Oreopoulos, P. & Salavanes, K. (2011). Priceless: The
Nonpecuniary Benefits of Schooling. Journal of Economic
Perspectives. 25(1) 159-84. Marken, S. (2021). Ensuring a More
Equitable Future: Exploring the Relationship Between Wellbeing and
Postsecondary Value. Post Secondary Value Commission. Ross, C. & Wu,
C. (1995). The Links Between Education and Health. American
Sociological Review. 60(5) 719-745. Cutler, D. & Lleras-Muney, A.
(2008). Education and Health: Evaluating Theories and Evidence. In
Making Americans Healthier: Social and Economic Policy as Health
Policy. House, J. et al (Eds). Russel Sage Foundation. New York.
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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.
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\59\ nces.ed.gov/datalab/powerstats/table/ugaxgt.
\60\ Nces.ed.gov/datalab/powerstats/table/uuaklv.
\61\ nces.ed.gov/datalab/powerstats/table/ugaxgt.
\62\ Nces.ed.gov/datalab/powerstats/table/uuaklv.
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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
[[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\
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\63\ Hershbein, B., and Kearney, M. (2014). Major Decisions:
What Graduates Earn Over Their Lifetimes. The Hamilton Project.
Brookings Institution. Washington, DC.
\64\ Webber, D. (2016). Are college costs worth it? How ability,
major, and debt affect the returns to schooling, Economics of
Education Review, 53, 296-310.
\65\ 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.
\66\ 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.
\67\ Heterogeneity in Labor Market Returns to Master's Degrees:
Evidence from Ohio. (EdWorkingPaper: 22-629). Retrieved from
Annenberg Institute at Brown University: doi.org/10.26300/akgd-9911.
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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\
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\68\ Stolzenberg, E. B., Aragon, M.C., Romo, E., Couch, V.,
McLennan, D., Eagan, M.K., Kang, N. (2020). ``The American Freshman:
National Norms Fall 2019,'' Higher Education Research Institute at
UCLA, www.heri.ucla.edu/monographs/TheAmericanFreshman2019.pdf.
\69\ Rachel Fishman (2015), ``2015 College Decisions Survey:
Part I Deciding To Go To College,'' New America,
static.newamerica.org/attachments/3248-deciding-to-go-to-college/CollegeDecisions_PartI.148dcab30a0e414ea2a52f0d8fb04e7b.pdf.
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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\
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\70\ For example, the work of the Postsecondary Value Commission
(postsecondaryvalue.org/), the Hamilton Project
(www.hamiltonproject.org/papers/major_decisions_what_graduates_earn_over_their_lifetimes),and
Georgetown University`s Center on Education and the Workforce
(https://cew.georgetown.edu/).
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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\
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\71\ Hurwitz, Michael, and Jonathan Smith. ``Student
responsiveness to earnings data in the College Scorecard.'' Economic
Inquiry 56, no. 2 (2018): 1220-1243. Also Huntington-Klein 2017.
nickchk.com/Huntington-Klein_2017_The_Search.pdf.
\72\ Blagg, Kristin, Matthew M. Chingos, Claire Graves, and Anna
Nicotera. ``Rethinking consumer information in higher education.''
(2017) Urban Institute, Washington DC. www.urban.org/research/publication/rethinking-consumer-information-higher-education.
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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\
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\73\ Anthony, A., Page, L. and Seldin, A. (2016) In the Right
Ballpark? Assessing the Accuracy of Net Price Calculators. Journal
of Student Financial Aid. 46(2). 3.
\74\ The Institute for College Access & Success (TICAS). (2012).
Adding it All Up 2012: Are College Net Price Calculators Easy to
Find, Use, and Compare? ticas.org/files/pub_files/Adding_It_All_Up_2012.pdf.
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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\
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\75\ Burd, S. et al. (2018) Decoding the Cost of College: The
Case for Transparent Financial Aid Award Letters. New America.
Washington, DC. https://www.newamerica.org/education-policy/policy-papers/decoding-cost-college/. Anthony, A., Page, L., & Seldin, A.
(2016) In the Right Ballpark? Assessing the Accuracy of Net Price
Calculators. Journal of Student Financial Aid. 46(2) 3. https://files.eric.ed.gov/fulltext/EJ1109171.pdf.
\76\ Baker, D. J. (2020). ``Name and Shame'': An Effective
Strategy for College Tuition Accountability? Educational Evaluation
and Policy Analysis, 42(3), 393-416. doi.org/10.3102/0162373720937672.
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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
[[Page 32324]]
college decision-making, information must be timely, personalized, and
easy to understand.
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\77\ Steffel, M., Kramer, D., McHugh, W., & Ducoff, N. (2020).
Informational Disclosure and College Choice. Brookings. Washington,
DC www.brookings.edu/research/information-disclosure-and-college-choice/; Robertson, B. & Stein, B. (2019). Consumer Information in
Higher Education. The Institute for College Access & Success
(TICAS). ticas.org/files/pub_files/consumer_information_in_higher_education.pdf; Morgan, J. & Dechter,
G. (2012). Improving the College Scorecard. Using Student Feedback
to Create an Effective Disclosure. Center For American Progress,
Washington, DC.
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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\
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\78\ Carrel, S. & Sacerdote, B. (2017). Why Do College-Going
Interventions Work? American Economic Journal; Applied Economics.
1(3) 124-151.
\79\ Barr, A. & Turner, S. (2018). A Letter and Encouragement:
Does Information Increase Postsecondary Enrollment of UI Recipients?
American Economic Journal: Economic Policy 2018, 10(3): 42-68.
doi.org/10.1257/pol.20160570.
\80\ Eric P. Bettinger, Bridget Terry Long, Philip Oreopoulos,
Lisa Sanbonmatsu, The Role of Application Assistance and Information
in College Decisions: Results from the H&R Block Fafsa Experiment,
The Quarterly Journal of Economics. 127(3) 1205-1242. doi.org/10.1093/qje/qjs017.
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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\
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\81\ Goldstein, D.G., Johnson, E.J., Herrmann, A., Heitmann, M.
(2008). Nudge your customers toward better choices. Harvard Business
Review, 86(12). 99-105.
Johnson, E.J., Shu, S.B., Benedict G.C. Dellaert, Fox, C.,
Goldstein, D.G., H[auml]ubl, G., Larrick, R.P., Payne, J.W., Peters,
E., Schkade, D., Wansink, B., & Weber, E.U. (2012). Beyond nudges:
Tools of a choice architecture. Marketing Letters, 23(2), 487-504.
\82\ Mulhern, C. (2021). Changing College Choices with
Personalized Admissions Information at Scale: Evidence on Naviance.
Journal of Labor Economics. 39(1) 219-262.
\83\ Dynarski, S., Libassi, C., Michelmore, K. & Owen, S.
(2021). Closing the Gap: The Effect of Reducing Complexity and
Uncertainty in College Pricing on the Choices of Low-Income
Students. American Economic Review, 111 (6): 1721-56.; Gurantz, O.,
Hurwitz, M. and Smith, J. (2017). College Enrollment and Completion
Among Nationally Recognized High-Achieving Hispanic Students. J.
Pol. Anal. Manage., 36: 126-153. doi.org/10.1002/pam.21962; Howell,
J., Hurwitz, M. & Smith, J., The Impact of College Outreach on High
Schoolers' College Choices--Results From Over 1,000 Natural
Experiments (November 2020). ssrn.com/abstract=3463241.
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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\
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\84\ Boatman, A., Evans, B.J., & Soliz, A. (2017). Understanding
Loan Aversion in Education: Evidence from High School Seniors,
Community College Students, and Adults. AERA Open, 3(1). doi.org/10.1177/2332858416683649; Evans, B., Boatman, A. & Soliz, A. (2019).
``Framing and Labeling Effects in Preferences for Borrowing for
College: An Experimental Analysis,'' Research in Higher Education,
Springer; Association for Institutional Research, 60(4), 438-457.
\85\ Darolia, R., & Harper, C. (2018). Information Use and
Attention Deferment in College Student Loan Decisions: Evidence From
a Debt Letter Experiment. Educational Evaluation and Policy
Analysis, 40(1), 129-150. doi.org/10.3102/0162373717734368.
\86\ Ruder, A. & Van Noy, M. (2017). Knowledge of earnings risk
and major choice: Evidence from an information experiment, Economics
of Education Review, 57, 80-90, doi.org/10.1016/j.econedurev.2017.02.001.; Baker, R., Bettinger, E., Jacob, B. &
Marinescu, I. (2018). The Effect of Labor Market Information on
Community College Students' Major Choice, Economics of Education
Review, 65, 18-30, doi.org/10.1016/j.econedurev.2018.05.005.
\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 Ballpark? Assessing the
Accuracy of Net Price Calculators, Journal of Student Financial Aid.
46(2), 3. publications.nasfaa.org/jsfa/vol46/iss2/3;
The Institute For College Access & Success (TICAS). (2012)
Adding it all up 2012: Are college net price calculators easy to
find, use, and compare? ticas.org/files/pub_files/Adding_It_All_Up_2012.pdf.
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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 Sec. 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
[[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 (Sec. 668.402)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add new Sec. 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 Sec. 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 Sec. 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.''
[[Page 32326]]
[GRAPHIC] [TIFF OMITTED] TP19MY23.000
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.
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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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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.
[[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).
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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.
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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.
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\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.
\91\ Matsudaira and Turner Brookings. PVC ``threshold zero''
measure.
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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\
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\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.
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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
[[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 Sec. 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 (Sec. 668.403)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add new Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec.
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 Sec. 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 Sec. 601.2.
The Department would attribute all loan debt incurred by the student
for enrollment in any undergraduate
[[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 Sec. 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 Sec. 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
[[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 Sec. 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
Sec. 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.
[[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 Sec. 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 Sec. 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
[[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
Sec. 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 (Sec. 668.404)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new Sec. 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 Sec. 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 ``Sec. 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
[[Page 32333]]
a minimum, exceed the earnings of those who only completed the
equivalent of a secondary school education.\93\
---------------------------------------------------------------------------
\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 (Sec. 668.401)'', and below at ``Gainful employment (GE)
scope and purpose (Sec. 668.601)''. The discussion here
concentrates on methodology.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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
[[Page 32334]]
programs--are likely employed or looking for work.
Process for Obtaining Data and Calculating D/E Rates and Earnings
Premium Measure (Sec. 668.405)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new Sec. 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 Sec. 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 Sec. 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
[[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 Sec. 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 Sec. 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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\96\ https://www.govinfo.gov/content/pkg/PLAW-117publ2/html/PLAW-117publ2.htm.
---------------------------------------------------------------------------
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
[[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\
---------------------------------------------------------------------------
\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.
\98\ For further discussion on the Department's experience with
alternate earnings appeals, see below at Sec. 668.603.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\99\ www.regulations.gov/comment/ED-2018-OPE-0042-13794.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\100\ www.peerresearchproject.org/peer/research/body/PEER_HairTaxes-Final.pdf.
---------------------------------------------------------------------------
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 Sec. 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 (Sec. 668.406)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new Sec. 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 Sec. 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 Sec.
668.407; (5) For a GE program, whether the institution would be
required to provide
[[Page 32337]]
the student warning under proposed Sec. 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 Sec. [thinsp]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 Sec. 668.605,
and take actions necessary to improve programs with unacceptable
outcomes.
Student Disclosure Acknowledgments (Sec. 668.407)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new Sec. 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
Sec. 668.605.
Under proposed changes to Sec. 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 Sec. 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
Sec. 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 Sec. 668.402. To enhance the
clarity of these proposed regulations, we discuss the warning
requirements for GE programs separately under proposed Sec. 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
[[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.
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\101\ onlinelibrary.wiley.com/doi/abs/10.1111/ecin.12530.
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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 Sec. 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 (Sec. 668.408)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new Sec. 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
[[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 Sec. 668.43(d), including the completion rates, program
costs, median loan debt, median earnings, and debt-to-earnings, among
other disclosures. As discussed in ``Sec. 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 Sec. 668.43 and Sec. 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 Sec. 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.
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\102\ studentaid.gov/announcements-events/borrower-defense-update.
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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 Sec.
668.403 would use a different cohort period in calculating the D/E
rates for those programs. See ``Sec. 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 Sec. 668.403, in determining a program's
median loan amount, each
[[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.
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\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.
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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
Sec. 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
[[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.
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\104\ www.newamerica.org/education-policy/policy-papers/decoding-cost-college/; https://www.gao.gov/products/gao-23-104708.
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Severability (Sec. 668.409)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new Sec. 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 Sec. 668.409 would operate
in conjunction with the severability provision in proposed Sec.
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 Sec. 668.409 would operate in
conjunction with the severability provision in proposed Sec. 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 Sec. 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
[[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\
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\105\ See 34 CFR 668.11 at 87 FR 65426, 65490 (Oct. 28, 2022).
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Gainful Employment (GE) Scope and Purpose (Sec. 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 Sec. 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 Sec. 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 Sec. 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.
---------------------------------------------------------------------------
\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.
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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
[[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
---------------------------------------------------------------------------
\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.
\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.
\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/.
\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.
---------------------------------------------------------------------------
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 (Sec. 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
[[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 Sec. 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 Sec. 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.
---------------------------------------------------------------------------
\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.
\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/2022.3.3-PEER_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.
---------------------------------------------------------------------------
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
[[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 (Sec. 668.603)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new Sec. 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
Sec. 668.402 for the length of time specified in Sec. 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 Sec.
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 Sec. 668.602.
Proposed Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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.
---------------------------------------------------------------------------
\117\ Am. Ass'n of Cosmetology Schs. v. DeVos, 258 F. Supp. 3d
50, 76-77 (D.D.C. 2017).
---------------------------------------------------------------------------
Several additional considerations inform our decision to not
include a
[[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.
---------------------------------------------------------------------------
\118\ For further discussion of unreported income, see above at
[TK].
\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.
---------------------------------------------------------------------------
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 Sec. 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.
---------------------------------------------------------------------------
\120\ 84 FR 31392, 31409-10 (2019).
---------------------------------------------------------------------------
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's D/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 Sec. 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 (Sec. 668.604)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new Sec. 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
[[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 Sec. 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 Sec. 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 Sec. 668.603.
Warnings and Acknowledgments (Sec. 668.605)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new Sec. 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
[[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 Sec. 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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
Reasons: In proposed Sec. 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 Sec.
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 Sec. 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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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
[[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 (Sec. 668.606)
Statute: See Authority for This Regulatory Action.
Current Regulations: None.
Proposed Regulations: We propose to add a new Sec. 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 Sec. 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 (Sec.
600.10(c)(1)(v))
Statute: See Authority for This Regulatory Action.
Current Regulations: Current Sec. 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 Sec. 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 Sec.
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 Sec. 600.21(a)(11).
Reasons: Programs that lose eligibility under proposed subpart S
would be subject to the restrictions in proposed Sec. 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 Sec. 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 (Sec. 600.21(a)(11))
Statute: See Authority for This Regulatory Action.
Current Regulations: Current Sec. 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 Sec. 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
Sec. 668.604.
Reasons: Current Sec. 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
Sec. 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
Sec. 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 (Sec. 668.2)
Statute: See Authority for This Regulatory Action.
Current Regulations: The current regulations at Sec. 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 Sec. 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
[[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 Sec. 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 Sec. 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 Sec.
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
[[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 Sec. 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 (Sec. 668.43)
Statute: See Authority for This Regulatory Action.
Current Regulations: Under current Sec. 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 Sec. 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 Sec. 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 Sec. 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
Sec. 668.14(b)(32). We also believe it is crucial to know which States
consider these programs to be meeting
[[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 Sec. 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 Sec. 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 ''Sec. 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 (Sec. 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 Sec. 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
Sec. 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 Sec. 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 Sec. 668.15(c).
Proposed Regulations: In new Sec. 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 the D/E
rates or earnings premium measure, unless the hearing official
concludes there was a material error in the calculation of the metric.
Reasons: Proposed Sec. 668.91(a)(3)(vi) is a conforming change to
the measures at proposed Sec. 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 Sec. 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 Sec.
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
Sec. 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.
[[Page 32353]]
Financial Responsibility (Sec. Sec. 668.15, 668.23, and 668, Subpart L
Sec. Sec. 171, 174, 175, 176 and 177) (Sec. 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 (Sec. 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 Sec. 668.15 have been applied to institutions undergoing a
change in ownership.
Proposed Regulations: The Department proposes to remove and reserve
Sec. 668.15.
Reasons: The factors stated in Sec. 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 Sec. 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 Sec. 668.176, which would better
reflect the Department's consideration of an institution's change in
ownership application.
Compliance Audits and Audited Financial Statements (Sec. 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 Sec. 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.
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\123\ www.gao.gov/assets/gao-21-105373.pdf.
\124\ 87 FR 65904.
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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 Sec.
668.23(a)(5) by replacing the outdated reference to the OMB Circular A-
133
[[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 Sec. 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 Sec.
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 Sec. 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 Sec. 668.15, which we propose to remove and
reserve in light of the new proposed Sec. 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 Sec.
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 Sec.
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
[[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 (Sec. 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 Sec. 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
Sec. 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 Sec. 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 Sec. 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 Sec. 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 their 90/10 rate.
Financial Responsibility--Mandatory Triggering Events (Sec. 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:
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\125\ 84 FR 49788.
\126\ 81 FR 75926.
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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 Sec.
668.171(c) with a more robust set of mandatory triggers. Proposed Sec.
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 Sec. 668.171(d). As with
the existing Sec. 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 Sec. 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 Sec. 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;
[[Page 32356]]
Under Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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:
[ssquf] 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;
[ssquf] 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;
[ssquf] 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;
[ssquf] 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
[ssquf] 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 Sec. 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 Sec. 668.28;
Under Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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
[[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 Sec. 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
Sec. 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 Sec. 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 Sec. 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
[[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 Sec. 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.
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\127\ 87 FR 65904.
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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 Sec. 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 Sec.
668.171(c)(1)(i)(B) and (ii) into a replacement of Sec.
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 Sec. 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
[[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 Sec. 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.
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\128\ 84 FR 31392.
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The Department proposes to add Sec. 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 Sec. 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 Sec. 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 Sec.
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 Sec. 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
[[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.
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\129\ www.congress.gov/bill/117th-congress/house-bill/1319/text.
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The Department proposes to add Sec. 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 Sec. 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 Sec. 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 Sec. 668.171(c)(2)(x) to establish
a mandatory trigger for institutions whose financial statements
required to be submitted under Sec. 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 Sec. 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
[[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 Sec. 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 Sec. 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 (Sec.
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 Sec.
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 Sec. 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 Sec. 668.171(d)(2)(i) and (ii), except as provided
in proposed Sec. 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 Sec. 668.171(d)(2)(iii), except as provided in
proposed Sec. 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 Sec. 600.20(g) or (h), Sec.
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 Sec. 668.171(d)(2)(iv), except as provided in
proposed Sec. 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), Sec. 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 Sec. 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), Sec. 668.23, or this
subpart L has a monetary judgment entered against it that is subject to
appeal or under appeal;
Under Sec. 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 Sec. 668.171(d)(4), an institution has high annual
dropout rates, as calculated by the Department;
Under Sec. 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
[[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 Sec. 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 Sec. 668.171(d)(7), the institution discontinues
academic programs that enroll more than 25 percent of students at the
institution; Under Sec. 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 Sec. 600.2;
Under Sec. 668.171(d)(9), the institution is cited by a
State licensing or authorizing agency for failing to meet requirements;
Under Sec. 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 Sec. 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 Sec. 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 Sec. 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
[[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 Sec. 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 Sec.
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 Sec. Sec. 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 Sec. 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 Sec. 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 Sec. 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
[[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 Sec. 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.
---------------------------------------------------------------------------
\130\ 87 FR 65904.
---------------------------------------------------------------------------
The Department proposes to add Sec. 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 Sec. 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 Sec. 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
[[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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 (Sec.
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:
[ssquf] For the primary reserve ratio, increasing expenses and
decreasing adjusted equity by that amount;
[ssquf] For the equity ratio, decreasing modified equity by that
amount; and
[ssquf] For the net income ratio, decreasing income before taxes by
that amount;
For liabilities incurred by a non-profit institution;
[ssquf] For the primary reserve ratio, increasing expenses and
decreasing expendable net assets by that amount;
[ssquf] For the equity ratio, decreasing modified net assets by
that amount; and
[ssquf] 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--
[ssquf] For the primary reserve ratio, decreasing adjusted equity
by that amount; and
[ssquf] For the equity ratio, decreasing modified equity by that
amount.
Proposed Regulations: The Department proposes to amend Sec.
668.171(e) to expand when we would recalculate the institution's
composite score. The proposed regulations would establish several
mandatory triggers in
[[Page 32366]]
Sec. 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 Sec.
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 Sec.
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 Sec.
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 Sec. 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 Sec. 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 Sec. 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 Sec. 668.23, or in the
year following a change in ownership, for the entity who submitted
financial statements to meet the requirements of Sec. 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 Sec. 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 Sec. 600.20(g), Sec. 668.23, or subpart L
of part 668 and described in Sec. Sec. 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 Sec.
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 Sec. 668.171(c)(2)(x), we would adjust the
composite score as follows: