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Guest Post: Gauging Gainful Employment

Published:  September 21, 2010

By Ben Miller

Newspaper readers across the country have been greeted the past several days with full-page color ads featuring large pictures of smiling nurses, medical assistants, and mechanics under the headline “I don’t count? Some in Washington think I don’t.” The ads warn that new Gainful Employment regulations that the U.S. Department of Education has proposed would put 100,000 people out of work and eliminate educational opportunities for up to one million low-income and minority students.

This ad campaign is funded by Corinthian Colleges, a for-profit higher education company that could have a lot to lose if these regulations -- which would penalize proprietary schools for saddling students with more debt than they can pay back -- go into effect. So it should come as no surprise to readers of Higher Ed Watch that the ads’ claims are a bit hysterical.

I recently conducted my own analysis of the Education Department’s proposed gainful employment rule by looking at the pricing, repayment rates, and estimated salary information for over 12,600 proprietary school programs. I found that, under these standards, only a small share of programs would be in danger of being removed from the federal student aid programs. These new standards, however, would probably force many for-profit colleges to alter their pricing and approach to student debt -- changes, that would, in other words, ultimately benefit the low-income and minority students these schools predominantly serve.

The issue of Gainful Employment dates back to the first Higher Education Act of 1965 and makes perfect sense —if you train people for specific jobs or vocations, you need to show that your graduates are actually able to find employment in the fields in which they train. Despite being on the books for 45 years, Congress never actually defined a way to measure gainful employment, instead giving colleges that offer vocational programs a free hand to report job placement and salary data in whatever way they saw fit.

But now, with widespread allegations of lending abuses at for-profit colleges, the Education Department has decided that it wants to curtail that freedom. Under the regulatory proposal it released in July, the Department would start determining whether a program provides gainful employment by using hard data that judges programs by the ratio of the debt that graduates assume relative to their current earnings and the rate at which they are able to repay it. If programs offered by for-profit colleges meet certain thresholds on those measures, they’ll be fine and nothing will change. But if they exceed specific benchmarks, they risk losing eligibility for federal student aid. Programs that fall in between will have to warn students that they may be taking on high debt levels and could have their enrollment capped.

Given the reliance of the for-profit education industry on federal student aid dollars, a proposal that threatens schools’ participation in these programs is understandably very controversial. Much of the debate has centered on how many and what types of programs are likely to be affected. The Education Department estimated that about 5 percent of programs -- representing about 8 percent of students at for-profit schools -- would lose eligibility. A study by an advisory company called the Parntheon Group and funded by Corinthian Colleges estimated the effect would be four times as large, affecting 32 percent of for-profit students. Such wildly different estimates makes it difficult to accurately gauge the standard’s effect, let alone see what types of programs are most likely to be in danger.

To shed more light on the subject, I decided to conduct my own analysis. Overall, my findings are not that dissimilar from the projections made by the Education Department. About 4 percent of programs would become ineligible for federal student aid, while 16 percent would remain fully eligible. Another 65 percent of programs would retain eligibility for student aid but have to warn prospective students about the debt levels they are likely to incur. The final 15 percent would fall into the “restricted” category and would have their enrollment capped. Not surprisingly, I found that the effects would be slightly greater at bachelor’s degree programs, with about 8 percent losing eligibility and about 29 percent being restricted. That makes sense -- obtaining a bachelor’s degree takes longer, so students are likely to borrow more debt relative to their starting incomes.

There are two categories of programs that appear to be most vulnerable. The first are those that train students in low-paying occupations, like medical assistant, cosmetologist, and cook/chef. The second are those in high-tech areas that have better earnings opportunities, but also substantially higher costs. These include programs in areas like e-commerce, graphic design, design and visual communication, and Animation, Interactive Technology, Video Graphics and Special Effects. It’s worth noting that there aren’t typically lots of available jobs in these areas, so the pay is only good if you can get it.

One of the difficulties with all these estimates is that there isn’t a reliable source that shows federal and private loan borrowing information for graduates by institution. Instead, my analysis assumed that student debt levels are roughly equal to the cost of tuition, fees, books, and supplies less federal grant aid. This makes sense -- you borrow to pay for your education. Most students at for-profits are working full-time, so their salaries can cover living expenses and other costs. If anything, one would think this assumption slightly overestimates borrowing levels -- while about 92 percent of for-profit students take out loans, surely some must drag down the average by not borrowing at all or taking out only a small amount of money.

So imagine my surprise when the main lobbying group for proprietary schools released a statement criticizing the report for vastly undercounting the amount of debt for-profit college students take on. The Career College Association tried to lay the blame on students, saying that they often borrow far more than they need. But it’s not clear that schools are innocent in this practice. Recent investigations by the Government Accountability Office and ABC News have revealed that some of the largest for-profit higher education companies have been encouraging their students to take out as much student loan debt as is available.

Regardless, CCA’s argument sends a strange message: asking regulators to back off on the grounds that borrowing levels are even worse than we imagined. If this is true, then that only makes a stronger case for why the government needs to keep a closer eye on these institutions.

Ben Miller is a policy analyst at Education Sector, where he writes for the blog The Quick and the Ed. Prior to joining Education Sector, Miller was a program associate in the Education Policy Program at the New America Foundation and a prolific Higher Ed Watch contributor. His views are his own and do not necessarily reflect those of the New America Foundation.

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