Will Programs Make the Grade with the Department of Ed and Prospective Students?

Legal Standpoint

By Lee Tyner    //    Volume 32,  Number 2   //    March/April 2024

If you have watched the arc of public support for higher education over the last few decades, you know the story. In the years following World War II, higher education was viewed as a public good. The assumptions were that in a democracy, we all benefit from an educated citizenry with a broad understanding of our world and our history; from the social stability that results when the American Dream is within reach for all; from the rising economic tide that occurs as more families attain the long-term wealth, health, and other gains associated with a college degree; and from the expansion of knowledge and the technological and scientific breakthroughs produced by university research.

Over the last several years, however, higher education has become increasingly viewed as a private good that primarily benefits the individual student. The benefits to society are assessed in terms of economic development and return on investment. Prospective students and policymakers evaluate degree programs based upon career preparation, measured by objective outcomes like job placement and starting salaries.

This shift in attitude towards higher education is bipartisan, expressed in changes in tax policy (taxing large endowments; changing the tax treatment for some athletics gifts; and imposing excise taxes on institutions for highly compensated employees), as well as in decreasing government support for higher education. Both parties have favored education programs that prepare students for particular careers through policies that incentivize students and institutions to invest in degree programs with a clear and immediate financial payoff.

New financial transparency rules promulgated by the Biden Administration in late 2023 continue this shift, pressing schools and students to pursue academic programs that lead to predictable financial returns.

The Higher Education Act has always required programs offered by for-profit institutions, as well as non-degree programs offered by non-profit and public institutions, to “prepare students for gainful employment in a recognized occupation.” In 2010 the Obama administration adopted a gainful employment rule (“GE Rule”) seeking to implement this statutory requirement through a complex system for measuring whether a program led to gainful employment. But the courts struck down the 2010 version of the GE Rule in 2012. The Obama administration promulgated a second version of the GE Rule in 2014, which also faced legal challenges. In 2017, the Trump Education Department rescinded the 2014 version of the Obama GE Rule.

The first two versions of this mandate had little impact on most institutions, as the rule only applied to Title IV programs at proprietary institutions and to non-degree programs at non-profit and public schools. However, the new version of the GE Rule promulgated in October 2023 includes financial transparency requirements for all Title IV programs, including all degree and other programs offered by non-profit and public institutions. For more details, see Financial Value Transparency and Gainful Employment, 88 FR 70004 (October 10, 2023)(amending 34 C.F.R. §§ 600 & 668), available at https://www.federalregister.gov/documents/2023/10/10/2023-20385/financial-value-transparency-and-gainful-employment.

Beginning in July 2024, all institutions that receive Title IV funds will be required to report rafts of financial and other information for each program offered by the institution. This reporting alone is a heavy burden.

Based on this and other data gathered by the Education Department, the department will calculate debt-to-earnings rates (“D/E Rates”) for every Title IV degree or other program. The agency will also calculate an “earnings premium” for each program. For an undergraduate program, this premium will be based on the extent to which the earnings of program graduates exceed (or fail to exceed) the median earnings of young adults who have only earned a high school diploma.

The department will publish D/E Rates and earnings premiums for every Title IV program on its program information website. Poorly performing programs may be labelled by the agency as “low earning” or “high debt burden.”

For those programs that must lead to gainful employment under the Higher Education Act (all Title IV programs at proprietary institutions and non-degree programs offered by non-profits and publics), these labels will be used to determine whether the program will remain eligible for Title IV funds. Although the D/E Rates and earnings premiums will not be used to determine Title IV eligibility for degree programs at public and non-profit colleges and universities, the information will be provided to enrolled and prospective students through a new Education Department website.

After July 1, 2026, universities and colleges will be required to disclose failing grades to prospective graduate students. Institutions may not allow a student to enroll in a graduate degree program with failing grades unless and until the prospective student has acknowledged the program’s poor performance.

In the commentary that accompanied the final rule, the department projects that there are more than 820,000 students enrolled in almost 1,500 different degree programs at public and non-profit universities that would fail one or both measures (D/E Rates or earnings premiums).

Trustees and institutional leaders should be asking hard questions about their programs well before the Education Department starts handing out grades.

Lee Tyner is general counsel at Texas Christian University. Lee.tyner@tcu.edu.