New Sanctions Proposed for Colleges Under Student Loan Rule

March 8, 2018 Emily Wilkins

This analysis was first available to Bloomberg Government subscribers.

The Education Department is proposing reduced sanctions for college and university programs under a revised regulation measuring how much students were paying on their loans compared to how much they earned.

The department also proposed several others provisions that would reduce the risk of schools facing punishment, according to documents obtained by Bloomberg Government.

The draft language for a revised gainful employment regulation comes a week before the third and final negotiations between representatives for students, colleges, consumer groups, organizations monitoring schools and others.

The rule could change several more times before becoming finalized, based on whether negotiators reach a consensus on certain issues and what public comments the department receives on a proposed rule that will be published in the Federal Register.

The current gainful-employment regulation was produced by the Obama administration to hold vocational programs accountable for how students fared repaying their loans. If a program’s average graduate spent more than 8 percent of their earnings or 20 percent of their discretionary income repaying their loans, the program risked losing federal funding.

The Trump administration initially proposed rewriting the rule so schools wouldn’t face any sanctions. Now, the department is proposing all programs that fail to meet the standard be limited from expanding more than 10 percent and be barred from starting a new program to prepare students for a similar occupation.

Metrics May Not Matter

While the punishment could cost schools hoping to grow their programs, it does nothing to shut down programs leaving students with worthless degrees said Ben Miller, senior director for postsecondary education with the Center for American Progress.

“There’s more accountability than what was in the last version, but calling it modest is an overstatement,” Miller said. “Having nothing that will force a program to shrink suggests that it kind of doesn’t matter what the metrics and the measures really end up being.”

When proposing the new language, the department insisted it wanted to hold poor-performing schools accountable, but asked negotiators to consider how factors beyond the program might impact a graduate’s ability to repay their loans.

Trace Urdan, an independent financial analyst studying the for-profit education market, said he favors strong consequences for poor programs. The issue is pinpointing whether borrowers’ struggles to repay their students loans are due to the college or to other factors.

“There might be labor-market factors the school can’t control. There might be actions on the part of the student that are beyond control,” he said. “I’m sympathetic to efforts to try to respond to that.”

Other changes the department is proposing include:

  • Only measuring the top 50 percent of students in a program;
  • Excluding graduate programs from being measured by the regulation;
  • Using the rate of how many students are repaying their student loans as an additional metric to consider if a school doesn’t meet the gainful-employment standard; and
  • Requiring schools to disclose to prospective students whether they use pre-dispute arbitration agreements or class actions waivers

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