AGB Policy Alert: U.S. Department of Education Issues New Rules on Gainful Employment, Financial Transparency, and Other Regulations

By AGB November 21, 2023 AGB Alerts

In October 2023, the U.S. Department of Education published a series of new and revised regulations impacting higher education institutions and their ability to receive federal funding.

While these specific rules will not typically rise to the level of a board action, governing boards should be aware of the new rules and ensure that the chief executive takes appropriate measures to remain in compliance.

What Board Members Need to Know

Gainful Employment Rule

Overview: In July 2024, the Department of Education will implement a new rule called “gainful employment,” which applies to certificate programs offered at public and private nonprofit colleges and universities and all programs that are offered by for-profit institutions. The programs in question are required to prepare students for “gainful employment in a recognized occupation.”

Pertinent metrics: Every program that falls under “gainful employment” will be measured by three metrics:

  • Annual debt-to-earnings ratio
  • Discretionary debt-to-earnings ratio
  • Earnings premium

What this means in practice: As explained by the National Association of Student Aid Administrators:

  • “Under the [debt-to-earnings] ratio, the annual amount a typical graduate needs to devote to their student loans must be equal to or less than 8% of annual earnings, or equal to or less than 20% of their discretionary earnings (i.e., their annual earnings above 150% of the [f]ederal poverty guideline for a single individual).”
  • “The new earnings premium test would require at least half of program graduates to have higher earnings than a typical high school graduate in their state’s labor force who never enrolled in postsecondary education.”

Consequences for failing the metric: If a program fails the same debt-to-earnings measure or does not meet the earnings premium for two out of three consecutive years, the program loses eligibility to participate in federal student aid.

Required notice to students: Beginning in July 2026, institutions will be required to notify students of gainful employment programs that fail the test. Students will need to acknowledge seeing the warning prior to signing an enrollment agreement.

Financial Transparency

Overview: The Department of Education will implement a “financial value transparency framework” for programs that are not included under the gainful employment rule (i.e., all degree programs at the undergraduate and graduate level at public and private nonprofit colleges and universities).

  • Institutions must report several financial elements, including the debt-to-earnings metric for all programs, to the Department of Education.

Required notice to students: Beginning in 2026, institutions will be required to notify students who enroll in programs that fail the debt-to-earnings metric. Students who enroll in failing graduate programs, but not undergraduate programs, must acknowledge that they know the program is failing the metric.

  • Institutions are also required to include a link to a Department of Education website with information about higher education programs.

Financial Responsibility

Overview: The Department of Education determines whether an institution has the financial responsibility to participate in Title IV federal funding (i.e., whether the institution has the appropriate administrative resources to remain financially viable). The Department of Education determines a private institution’s financial responsibility in part through a “composite score” made up of multiple financial indicators. Further, the rule historically has outlined a series of “mandatory” and “discretionary” triggers that are used in conjunction with the composite score to decide an institution’s Title IV funding eligibility. In cases where an institution fails a trigger, it must issue some form of insurance such as a letter of credit.

What’s new: The updated rule maintains and expands some mandatory triggers and adds additional discretionary triggers.

Examples of new mandatory triggers include:

  • Fifty percent of an institution’s Title IV funds went to students enrolled in programs failing the new gainful employment requirement listed above.
  • An institution is required to submit a teach-out plan by a state or federal agency, an accrediting agency, or another oversight body.
  • An institution makes a declaration of financial exigency.

Examples of new discretionary triggers include:

  • Pending borrower defense claims
  • A requirement for the institution to submit a teach-out plan or agreement not covered under mandatory triggers
  • An accreditor placing an institution on probation

Public institutions must provide new documentation: At the request of the Department of Education, public colleges and universities must receive a letter or documentation from the state or government entity attesting that the state will provide full faith and credit backing to the institution.

Certification Procedures

Overview: Certification is the process that the Department of Education requires of a higher education institution so the institution can participate in Title IV programs.

What’s new: The rule has several new provisions that impact an institution’s ability to receive Title IV funding.

Consumer protection laws: While colleges and universities historically have been required to ensure that programs comply with all state consumer protection laws related to school closure, including record retention, teach-out plans or agreements, and tuition recovery funds or surety bonds, the institution must comply with these state consumer laws in every state where it serves students online or in person.

Transcript withholding: Colleges and universities must provide transcripts to students for payment periods in which a student received Title IV funds and all institutional charges were paid.

  • Colleges and universities are also prohibited from withholding transcripts if a student owes a balance that is due to an error in administering a Title IV program, or fraud or misconduct by the school.

Why This Matters

These new rules will add a significant administrative burden and can have an impact on an institution’s access to federal funding and on enrollment. While board members should not need to investigate the institution’s compliance with each specific provision of each rule, they should ensure that the chief executive and leadership team are aware of these changes and that the institution is taking appropriate action to comply.

Questions for Board Members

  • How will either the gainful employment regulations or financial transparency regulations impact institutional or academic operations?
  • How is your board staying abreast of significant federal and state policy issues that could materially impact your institution’s success?
  • Who is responsible for ensuring the institution remains compliant with federal and state regulations?

Go Deeper

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