Program Integrity: Gainful Employment-New Programs, 66665-66677 [2010-27395]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 75, Number 209 (Friday, October 29, 2010)]
[Rules and Regulations]
[Pages 66665-66677]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-27395]


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DEPARTMENT OF EDUCATION

34 CFR Part 600

RIN 1840-AD04
[Docket ID ED-2010-OPE-0012]


Program Integrity: Gainful Employment--New Programs

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the regulations for Institutional 
Eligibility Under the Higher Education Act of 1965, as amended (HEA), 
to establish a process under which an institution applies for approval 
to offer an educational program that leads to gainful employment in a 
recognized occupation.

DATES: These regulations are effective July 1, 2011. However, affected 
parties do not have to comply with the information collection 
requirements in Sec.  600.20(d) until the Department of Education 
publishes in the Federal Register the control number assigned by the 
Office of Management and Budget (OMB) to these information collection 
requirements. Publication of the control number notifies the public 
that OMB has approved these information collection requirements under 
the Paperwork Reduction Act of 1995.

FOR FURTHER INFORMATION CONTACT: John Kolotos or Fred Sellers. 
Telephone: (202) 502-7762 or (202) 502-7502, or via the Internet at: 
John.Kolotos@ed.gov or Fred.Sellers@ed.gov.
    If you use a telecommunications device for the deaf (TDD), call the 
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
    Individuals with disabilities can obtain this document in an 
accessible format (e.g., braille, large print, audiotape, or computer 
diskette) on request to one of the contact persons listed under FOR 
FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION: On July 26, 2010, the Secretary published a 
notice of proposed rulemaking (NPRM) for gainful employment issues in 
the Federal Register (75 FR 43616).
    In the preamble to the NPRM, the Secretary discussed on pages 43617 
through 43624 the major regulations proposed in that document to 
establish measures for determining whether certain programs lead to 
gainful employment in recognized occupations and the conditions under 
which those programs remain eligible for title IV, HEA program funds. 
In these final regulations, we address in a limited way only one issue 
from the proposed regulations: The provisions relating to the 
Secretary's approval of additional programs. The remaining issues will 
be addressed in final regulations that we intend to publish in the next 
few months.

Implementation Date of These Regulations

    Section 482(c) of the HEA requires that regulations affecting 
programs under title IV of the HEA be published in final form by 
November 1 prior to the start of the award year (July 1) to which they 
apply. However, that section also permits the Secretary to designate 
any regulation as one that an entity subject to the regulation may 
choose to implement earlier and to specify the conditions under which 
the entity may implement the provisions early.
    The Secretary has not designated any of the provisions in these 
final regulations for early implementation.

Analysis of Comments and Changes

    These final regulations were developed through the use of 
negotiated rulemaking. Section 492 of the HEA requires that, before 
publishing any proposed regulations to implement programs under title 
IV of the HEA, the Secretary must obtain public involvement in the 
development of the proposed regulations. After obtaining advice and 
recommendations, the Secretary must conduct a negotiated rulemaking 
process to develop the proposed regulations. The negotiated rulemaking 
committee did not reach

[[Page 66666]]

consensus on the proposed regulations that were published on July 26, 
2010. The Secretary invited comments on the proposed regulations by 
September 9, 2010.
    Over 90,000 parties submitted comments, many of which were 
substantially similar. Of those comments several hundred pertained to 
the regulations in proposed Sec.  668.7(g) regarding institutions' 
applications for and the Secretary's approval of additional programs. 
We have reviewed all of the comments related to this specific 
provision. In the following section we address those comments in the 
context of the limited nature of the changes we are making in these 
final regulations. Our analysis and the changes we are making in these 
regulations regarding additional programs follow.
    Generally, we do not address minor, nonsubstantive changes, 
recommended changes that the law does not authorize the Secretary to 
make, or comments pertaining to operational processes. We also do not 
address comments pertaining to issues that do not relate to the 
additional programs provision or were not within the scope of the NPRM.

Additional Programs (Sec. Sec.  600.10 and 600.20)

    Comments: Several commenters generally supported the employer 
affirmation provisions in proposed Sec.  668.7(g)(1)(iii), but made 
several recommendations. First, the commenters recommended that 
employers should specify the location of the anticipated job vacancies 
because pursuing a job across the country may be a reasonable choice 
for a graduate with a degree that provides training for a high-paying 
profession, but unreasonable for a graduate with a certificate or 
degree that provides training for a low-paying occupation. Second, the 
commenters stated that regulations should require the employer to 
identify for the employer's business the number of current or expected 
job vacancies and whether those vacancies are for full-time, part-time, 
or temporary jobs. Third, the commenters stated that the Department 
should specify that the affirmations apply to time periods related to 
the length of the program. For example, the affirmations for a new 
eight-month program should cover the period after the first group of 
students completes that program. Fourth, the commenters asked that the 
regulations be revised to prohibit an employer from providing an 
affirmation to several different institutions if the employer does not 
have jobs for graduates from all of those institutions. Finally, to 
ensure that employer affirmations are clear and uniform, the commenters 
presented a model form detailing the information an employer would 
provide for these purposes.
    With regard to the remaining provisions in proposed Sec.  668.7(g), 
some of the commenters suggested that any provisions limiting the 
establishment of new programs apply only to institutions whose programs 
are currently restricted or determined in the previous three years to 
be ineligible. The commenters believed this approach would provide a 
stronger incentive for institutions to keep their programs fully 
eligible and reduce the burden on institutions that have a strong 
record of preparing students for gainful employment.
    Other commenters acknowledged the criticism that employer 
affirmations and attestations are often pro forma, but supported the 
regulations because seeking affirmation of demand could lead to closer 
connections with employers. The commenters recommended that 
institutions include, as part of the affirmation process, the number of 
students hired by an employer who attended a program and the percentage 
of students hired by the employer who completed that program.
    Some commenters stated that the provisions in proposed Sec.  
668.7(g) place significant limitations on a cosmetology school's 
ability to grow and meet the demands of employers, which include not 
only positions in salons and spas, but also in marketing, distribution, 
and sales. The commenters were particularly concerned about how the 
Department would use five-year enrollment projections and employer 
affirmations in determining whether to approve a program or limit its 
growth. The commenters argued that if growth limitations are determined 
based on an institution's ability to document national and regional 
demand through employer affirmations, it would be unfair and 
unrealistic for the Department to rely only on affirmations from 
nonaffiliated employers. According to the commenters, many institutions 
work closely with salon owners and cosmetics manufacturers and 
distributors, and in some cases school owners have separate businesses 
making them affiliated employers. In addition, relying solely on 
nonaffiliated affirmations would eliminate one of the primary uses of 
program integrity boards which are designed to work in collaboration 
with institutions on the continued development and refinement of 
program expectations. The commenters believed that precluding 
affirmations from these sources is not only at cross-purposes with 
common business practices but also with guidance under other statutes, 
such as the Workforce Investment Act. The commenters concluded that the 
Department should withdraw or significantly revise the regulations to 
return the primary responsibility for aligning curricula with job 
demand back to accrediting agencies and States.
    A number of commenters stated that the regulations for additional 
programs in proposed Sec.  668.7(g) would hamper an institution's 
ability to develop, roll out, adapt, and improve new educational 
programs. For example, an institution that is developing a technical 
training program related to alternative fuels and green technologies 
would not be able to demonstrate projected job vacancies or expected 
demand, and it would be virtually impossible for such an employer to 
affirm that the program's curriculum aligns with recognized 
occupations. In addition, the commenters stated that the regulations 
were too vague and lacked clarity in key areas. Some of the commenters 
asked the Department to clarify or explain the following:
     In what ways the Department would consider employers 
qualified to determine educational quality or appropriate content of 
educational programs? The commenters contend that employers are not 
qualified to make these determinations.
     What would constitute a local employer when education is 
delivered through an online medium? The commenters believe that any 
national employer should suffice.
     What is an affiliated employer? Some commenters suggested 
that the institution may not have an ownership stake in the employer 
but may have a relationship with the employer along the lines of 
providing internships and externships to current and graduated 
students. Other commenters noted that an institution may have 
relationships or partnership arrangements with manufacturers, dealers, 
or other businesses and questioned whether these arrangements would 
preclude these businesses from providing affirmations.
     How many employer affirmations are needed and what is the 
extent of the required documentation?
     What criteria will be used to accept or reject a new 
program? If a program becomes ineligible under proposed Sec.  668.7(f) 
but in a subsequent year satisfies the gainful employment provisions, 
would the program be treated as a new program under proposed Sec.  
668.7(g)?
     What are the metrics that would be used to align the size 
of the employers'

[[Page 66667]]

projected needs to the size of the program? Would an institution be 
required to obtain affirmations from employers proximate to each 
location at which a program is offered? In this case, will program 
approvals be location-specific or will an institution continue to be 
able to offer a program at its additional locations under the same 
Program Participation Agreement?
     How does the Department want institutions to determine 
projected enrollment and how will the Department use enrollment 
projections? Will an institution be able to update its enrollment 
projections?
    Other commenters believed that enrollment projections have no 
bearing on whether a program provides gainful employment. Some of the 
commenters argued that rather than the Department attempting to control 
the number of individuals entering an occupation by limiting the number 
of students who enroll in a particular program, students should have 
the option of choosing a program so long as the program satisfies the 
standards of quality established by an accrediting agency. The 
commenters believed that the Department should not attempt to exert 
control over the educational options available to students in any 
capacity that exceeds ensuring program quality. In addition, the 
commenters objected to obtaining affirmations from nonaffiliated 
employers, particularly for online and graduate-level programs. With 
respect to online programs, the commenters contended that it would be 
overly burdensome to obtain affirmations from employers all over the 
country. With regard to graduate programs at institutions where most of 
the students enrolled in these programs are employed full-time, the 
commenters opined that employer affirmations are unnecessary because 
students taking these programs to advance their careers already 
understand the employment demands in their field. The commenters also 
believed that because section 496 of the HEA mandates that an 
accrediting agency may not be recognized by the Department unless the 
agency monitors the growth of programs at institutions that are 
experiencing significant enrollment growth, accrediting agencies are in 
a much better position than the Department to assess the impact of 
growth on an institution's operations and whether that growth impacts 
educational quality.
    Another commenter asserted that the proposed additional program 
requirements violate 20 U.S.C. 1232a, which limits the amount of 
control or oversight that the Department may exercise over program 
curricula and other internal decisions made by schools. Moreover, the 
commenter believed that the HEA does not give the Department any 
authority to restrict a title IV, HEA program because the Department 
predicts it will be difficult for program graduates to secure 
employment.
    One commenter asserted that neither the Department nor employers 
should be able to control new programs. Rather, the commenter said that 
programs should be allowed to prove their worth over time. The 
commenter concluded that innovation and growth will be severely 
hindered because the proposed regulations prejudge the efficacy of, and 
market for, new programs.
    Many commenters opined that the Department should rely on data from 
the U.S. Department of Labor's Bureau of Labor Statistics (BLS), 
instead of employer affirmations, to evaluate expected demand for an 
additional program. The commenters argued that one benefit of using BLS 
data is that an institution has access to the data and can confirm the 
need for new programs before expending substantial funds to develop the 
programs. In addition, the commenters stated that the Department would 
receive an endless number of appeals if it determined the eligibility 
of programs through ad hoc employer recommendations and decisions by 
Department employees who lack expertise in the labor markets. The 
commenters recommended that the Department establish a process under 
which an institution could appeal a decision denying the eligibility of 
a new program, where the decision maker would have substantial 
expertise in curriculum development and analyzing labor trends and 
occupational needs.
    A commenter stated that the proposed approval process for new 
programs was unfair and cumbersome and should be eliminated. 
Nevertheless, the commenter suggested that institutions offering new 
programs provide some form of expanded notice to the Department or the 
proposed process should be modified to apply only to an institution 
where over 50 percent of its programs are on a restricted status.
    Several commenters believed the proposed approval process for new 
programs is costly, redundant, and unnecessary. Some of the commenters 
stated that State and accrediting agencies already require approval of 
new programs and reinforced that view by claiming that provisions in 
the NPRM that the Department published on June 18, 2010 (75 FR 34806) 
would expand State oversight. The commenters stated that one 
institution alone implemented scores of new programs over the last year 
and questioned how the Department would be able to review efficiently 
the anticipated number of programs with the speed required for 
institutions to function effectively. The commenters opined that 
requiring employer affirmations does not fall within any reasonable 
understanding of the statutory requirements that programs prepare 
students for gainful employment. Moreover, because the proposed 
regulations do not adequately explain how the process for employer 
affirmations will be conducted, how the Department would review and 
verify the affirmations, or how the Department will determine that a 
program is acceptable, the regulations would leave the Department with 
vague, arbitrary, and ultimate power to approve or deny a program. The 
commenters concluded that the Department would be the arbiter of 
program offerings, which would result in a system that does not best 
serve students or the national economic interests. Another commenter 
believed that employer affirmations are not needed because job 
vacancies in any market can be obtained easily online.
    Another commenter opined that it is infeasible to obtain employer 
affirmations because no employer would affirm job openings for a 
specific number of a program's graduates. According to the commenter, 
doing so could amount to a commitment to hire and employers would not 
expose themselves to that liability. In addition, an employer's ability 
to foresee demand is limited and governed by economic conditions over 
which the employer has little or no control. The commenters concluded 
that requiring employer affirmations would effectively ban new programs 
leading to gainful employment. In addition, the commenters contended 
that the Department does not have the authority to impose such 
requirements.
    Some commenters argued that because postbaccalaureate degree and 
certificate programs enable an individual to refine his or her 
expertise or obtain a specialization associated with a recognized 
occupation, the programs are not necessarily intended to train 
individuals to move into the job market or a basic career field. 
Therefore, according to the commenters, these programs should be 
excluded from the regulations. Along the same lines, other commenters 
suggested excluding graduate programs from the regulations because many 
students in these programs are working adults seeking to advance their 
careers. Alternatively, one of the commenters suggested that the 
Department consider exempting from

[[Page 66668]]

these regulations institutions with a history of low default rates.
    One commenter believed that the number of program approvals, 
estimated in the NPRM at 650 over the first 3 years, is vastly 
underestimated. Based on the approvals that would be required at the 
commenter's institution, the commenter estimated that 6,000 or more 
would occur over that timeframe, presenting an unworkable burden to the 
Department. The commenter suggested that the Department use a different 
mechanism to address concerns that institutions may attempt to 
circumvent the regulations by renaming existing programs or by other 
means. At a minimum, the commenter recommended that institutions be 
allowed to bypass Department approval entirely if (1) BLS data show a 
demand in the region where the new program will be offered, or (2) 
programs representing 50 percent or more of the institution's total 
enrollment or programs representing 50 percent of its enrollment in the 
same job family, are not restricted or ineligible, or (3) the State in 
which the program will be offered requires a demand assessment.
    Some commenters requested that programs training alternative oral 
health workforce professionals be exempted from the regulations. The 
commenters explained that to address access to oral health care, States 
and national organizations have implemented programs that create new 
members of the dental team. Some of these new workforce models require 
the completion of a degree program while others require the completion 
of a certificate program. Because these are new programs, it would be 
difficult to project growth in coming years. In addition, because these 
new workforce models aim to serve a constituency that has historically 
faced barriers to oral health care, prospective employers may not be in 
a position to adequately gauge the need for these new practitioners. 
The Children's Health Insurance Program Reauthorization Act, Public Law 
111-3, requires the GAO to conduct a study and report on issues 
pertaining to the oral health of children, including ``the feasibility 
and appropriateness of using qualified mid-level dental health 
practitioners, in coordination with dentists, to improve access for 
children to oral health services and public health overall.'' In 
addition, the Affordable Care Act, Public Law 111-148, authorized an 
alternative dental health provider demonstration project grant program 
for States. The commenters concluded that it would be contradictory for 
the Federal Government to provide funding to a State to create a 
program for a new oral health professional, and then deny prospective 
students access to title IV, HEA loans to matriculate in the program.
    Another commenter suggested that the Department apply the two-year 
rule used for new institutions (a new institution must operate for two 
years before it applies to participate in the title IV, HEA programs) 
to institutions where a change in control results in control vested in 
a person or organization that does not have previous experience in 
administering the title IV, HEA programs. Under this approach, title 
IV, HEA funds would be capped at prechange levels for two years until 
the Department conducts a program review to assure that no substantial 
change in mission or educational outcomes has occurred as a result of 
the change in control. The commenter believed this approach would 
mitigate potential misalignment of the interests of a new owner and the 
educational and career expectations of the institution's students.
    Many commenters noted that workforce education programs offered by 
community colleges and technical colleges are designed to meet local 
market needs. The commenters stated that as public institutions, these 
colleges undergo thorough oversight before adding new programs, 
including the use of business advisory committees. In addition, board, 
public agency, accrediting agency, and State approval is often 
required. Although the commenters believed that the additional 
regulations may be appropriate for some institutions, in their view the 
regulations are redundant and unnecessary for community colleges in 
light of this oversight and approval process.
    Several commenters suggested that, to avoid confusion, the 
provisions in proposed Sec.  668.7(g) belong more appropriately in 
Sec.  600.10(c,) which currently addresses the approval of additional 
programs. The commenters recommended retaining the exception in Sec.  
600.10(c)(2), which allows an institution to add a program without 
obtaining approval from the Department if the program leads to a degree 
or prepares students for gainful employment in the same or related 
occupation as a program previously approved by the Department. The 
commenters believed that this exception should continue to apply so 
long as the previously approved program is not in a restricted status, 
as proposed under proposed Sec.  668.7(e), or is not subject to debt 
warning disclosures under proposed Sec.  668.7(d). In addition, the 
commenters believed that it would be impracticable for an institution 
to make the five-year enrollment projections under proposed Sec.  
668.7(g)(1)(ii), but did not offer any alternatives.
    Some commenters expressed concern that the approval process for 
additional programs places a high burden of proof on institutions and 
would hamper the ability of colleges to respond to new and emerging 
workforce needs. In addition, the commenters requested that the 
Department clarify how the program approval requirements in proposed 
Sec.  668.7(g) would apply to programs that institutions may now offer 
without approval under current Sec.  600.10(c)(2). As noted previously, 
under that section an institution is not currently required to obtain 
the Department's approval of an additional program if the program leads 
to a degree or prepares students for gainful employment in the same or 
related occupation as a program previously approved by the Department. 
The commenters recommended that any expanded approval process apply 
only in cases where there is a record of poor performance sufficient to 
justify additional oversight. Along the same lines, other commenters 
recommended that any approval process for new programs should apply 
only to institutions with programs in a restricted or ineligible 
status.
    Discussion: As a threshold matter, we disagree that the review and 
approval of an application from an institution to offer a new program 
is prohibited by 20 U.S.C. 1232a. That provision prevents the 
Department from exercising control over the content of a curriculum, 
program, or personnel at an institution. The HEA establishes 
requirements for institutions and programs to be eligible to 
participate in the title IV, HEA student financial aid programs, and 
the Department is charged with the responsibility to ensure that 
institutions participating in these programs have the financial 
strength and administrative capability needed to do so. In this 
context, the Department proposed in the NPRM and establishes in these 
final regulations a requirement that an institution must notify the 
Department of its intent to offer a new program and if necessary obtain 
the Department's approval to add a new program that is subject to the 
gainful employment regulations. Such review and approval do not 
constitute exercising control over the substance of the curriculum for 
that program, but rather involve a review of the institution and the 
institution's decision to offer a particular program. Furthermore, 
regardless of the Department's determination of a program's title IV, 
HEA program

[[Page 66669]]

eligibility, nothing under the HEA would prevent any institution from 
offering an ineligible program for which students would receive no 
title IV, HEA program assistance.
    In general, we agree with the commenters who suggested that the 
program approval process for additional programs should apply, in some 
way, only to an institution with programs in a restricted or ineligible 
status or otherwise be based on the performance of the institution's 
gainful employment programs. This more focused approval process would 
not only reduce burden on institutions and the Department, but would 
enable institutions with good performance records to offer new programs 
more expediently. However, as noted in the SUPPLEMENTARY INFORMATION 
section of the preamble, these final regulations do not address the 
standards that will be used to gauge the performance of gainful 
employment programs and the consequences of not meeting those standards 
over time. Therefore, in these final regulations, the Department is 
establishing in Sec.  600.20(d) requirements intended to remain in 
place until performance based standards can be implemented for 
approving additional programs using gainful employment measures along 
the lines suggested by the commenters.
    Under these requirements that go into effect on July 1, 2011, the 
Department does not require employer affirmations or enrollment 
projections before approving a program. Instead, the Department will 
rely on a notice from the institution, submitted at least 90 days prior 
to the time when the institution plans to offer the new program, that 
provides a narrative explanation of why and how the new program was 
developed. Specifically, an institution must describe how it determined 
the need for the new program and how the program was designed to meet 
local market needs, or for an online program, regional or national 
market needs by, for example, consulting BLS data or State labor data 
systems or consulting with State workforce agencies. The institution 
also must describe how the program was reviewed or approved by, or 
developed in conjunction with, business advisory committees, program 
integrity boards, public or private oversight or regulatory agencies, 
and businesses that would likely employ graduates of the program. 
Additionally, the institution must include in its notice documentation 
that the program has been approved by its accrediting agency or is 
otherwise included in the institution's accreditation by its 
accrediting agency, or comparable documentation if the institution is a 
public postsecondary vocational institution approved by a recognized 
State agency for the approval of public postsecondary vocational 
education in lieu of accreditation. The notice from an institution 
should also include any information that describes how the program 
would be offered in connection with, or in response to, an initiative 
by a governmental entity, such as the oral health program with the 
Federal support described in the comments. Additionally, an institution 
must include in its notice a description of any wage analysis it may 
have performed, including any consideration of BLS wage data that is 
related to the new program.
    Department staff will review the notices to identify instances 
where additional information may be needed about the program. Unless 
otherwise required to obtain approval for the new program, an 
institution that provides a notice may proceed with its plans to offer 
the new program based on its determination that the program is an 
eligible program that prepares students for gainful employment in a 
recognized occupation. If a concern or need for additional information 
about the new program is identified, the Department, under its 
authority in Sec.  600.20(c)(1)(v), will send a letter to the 
institution alerting it that the Department must approve the program 
for title IV, HEA program purposes.
    If the Department denies approval of an institution's new program, 
we will explain the basis for that decision and permit the institution 
to respond to our concerns and to request reconsideration of the 
denial. We note that even if the new program is not yet approved or is 
denied, an institution may still offer the program but students would 
be ineligible to receive title IV, HEA program funds to pay the costs 
of attendance associated with that program. In the case of a denial, 
the institution could later seek to add the program and provide 
additional information about students who completed it.
    In deciding whether to seek additional information regarding a 
program, the Department will assess the institution's administration of 
its current programs, its capability to add the new program and provide 
the additional resources associated with it, and evaluate the 
institution's determination that the program should be offered. This 
review includes examining (1) the institution's demonstrated financial 
responsibility and administrative capability in operating existing 
programs, (2) whether the additional educational program is one of 
several new programs that would replace similar programs currently 
offered by the institution, as opposed to supplementing or expanding 
the current programs provided by the institution, (3) whether the 
number of additional educational programs being added is inconsistent 
with the institution's historic program offerings, growth, and 
operations, and (4) the sufficiency of the institution's process and 
determination to offer an additional educational program that leads to 
gainful employment in a recognized occupation.
    In evaluating the institution's determination, we may consult 
external sources including the State, the institution's accrediting 
agency, BLS, and State resources, and may contact entities identified 
in the institution's notice. The Department may also require the 
institution to submit other information related to the new program.
    When determining whether to deny a new program, the Department will 
consider factors (2) through (4) of the four factors described above. 
The Department will consider any tie-in with a governmental entity as 
an indication that the new program is intended to meet either current 
or expected employment demands. The Department may also consider BLS 
wage data related to the new program when reviewing information from an 
institution.
    In general, for institutions with a history of good performance 
administering their programs, we believe that no approval will be 
needed for new programs under these requirements. However, the 
Department is concerned that some institutions might attempt to 
circumvent the proposed gainful employment standards (see the July 26, 
2010 NPRM, 75 FR 43638-43640) by adding new programs before those 
standards would take effect. Although the proposed standards would 
evaluate most programs based on past performance, newly offered 
programs would not be subject to the standards for several years until 
they established an operating history. For example, an institution may 
seek to offer a significant number of new programs that would not be 
evaluated under the new standards for up to five years as a contingency 
plan in case its current programs are eliminated or restricted under 
measures that would be established in the final gainful employment 
regulations. We believe that such an approach by an institution should 
be examined closely to determine whether those new programs are 
substantially different and offer more potential benefits to its 
students.

[[Page 66670]]

With these regulations, the Department intends to mitigate the 
potential for this type of response by identifying such circumstances 
and requiring those new programs to be approved.
    We believe this approach, based on a program development process 
articulated by a wide range of commenters and augmented by other 
information available to the Department, will provide some assurance 
that a new gainful employment program is needed at an institution and 
is responsive to student and employer needs. Moreover, we believe that 
these requirements correspond to the process an institution should 
follow in performing its due diligence responsibilities with respect to 
establishing an additional program.
    The Department will continue to consider changes to these approval 
requirements as part of its consideration of the remaining issues 
presented in the gainful employment NPRM. Toward that end, we are 
continuing to consider carefully the suggestions to exclude 
postbaccalaureate certificate programs from the new program notice and 
approval process and ways to provide a more flexible approach for 
approving programs in new and emerging fields. In addition, we intend 
to address the questions raised on employer affirmations and enrollment 
projections in the subsequent final regulations for gainful employment.
    Finally, we intend to implement administrative procedures that 
should mitigate the burden on institutions and the Department in 
submitting and reviewing notices for new programs. For example, the 
Department may allow an eligible institution to combine several new 
programs in one notice if the institution used the same, or similar, 
processes in developing those programs. An eligible institution may 
submit a notice for a new program that will be offered at multiple 
locations of the institution.
    With regard to the concern that the number of program approvals, 
estimated in the NPRM at 650 over the first 3 years, is underestimated, 
we looked at the number of new program submissions to Federal Student 
Aid over the period from October 1, 2009 through September 30, 2010. 
Based on this data, we determined that a better estimate was a total of 
1,919 new programs annually. Thus, over a three-year period the 
estimate would be 5,757 new programs. We note that the procedure in the 
regulations will result in most of those new programs being offered 
solely by providing notice to the Department, and that the separate 
approval process will be used for a much smaller number of those new 
programs.
    Changes: We have revised Sec.  600.10(c), as suggested by some of 
the commenters, to provide that an institution must provide at least 90 
days advance notice to the Department of its plans to offer a new 
educational program that leads to gainful employment in a recognized 
occupation. Section 600.10(c)(1)(v) has also been revised to provide 
that the Secretary may notify an institution it is required to obtain 
approval for a new educational program. An institution does not have to 
provide notice to add a non-gainful-employment program under this 
section, except for direct assessment programs under 34 CFR 668.10 or 
unless required to do so by a provision in its Program Participation 
Agreement. Under revised Sec.  600.10(c)(3), an institution that is 
required to obtain approval from the Department for a new program, but 
does not obtain the Department's approval or that incorrectly 
determines that an educational program is an eligible program for title 
IV, HEA program purposes, must repay to the Secretary all HEA program 
funds received by the institution for that educational program, and all 
the title IV, HEA program funds received by or on behalf of students 
who enrolled in that program.
    We have amended Sec.  600.20(d) to specify that an institution must 
provide notice at least 90 days in advance for a new educational 
program that leads to gainful employment in a recognized occupation. 
The notice must describe how the institution determined the need for 
the program and how the program was designed to meet local market 
needs, or for an online program, regional or national market needs. The 
institution also must describe in the notice how the program was 
reviewed or approved by, or developed in conjunction with, business 
advisory committees, program integrity boards, public or private 
oversight or regulatory agencies, and businesses that would likely 
employ graduates of the program. Additionally, the institution must 
include documentation that the program has been approved by its 
accrediting agency or is otherwise included in the institution's 
accreditation by its accrediting agency, or comparable documentation if 
the institution is a public postsecondary vocational institution 
approved by a recognized State agency for the approval of public 
postsecondary vocational education in lieu of accreditation. In 
addition, an institution must include in its notice a description of 
any wage analysis it may have performed, including any consideration of 
BLS wage data that is related to the new program. The institution must 
also provide the date of the first day of class of the new program.
    Section 600.20(d) also provides that the Department may require the 
institution to obtain approval of the new program, and submit 
additional information about it. This section also describes the 
factors the Department will consider in evaluating the institution's 
application and specifies that if the Department denies an application 
from an institution to offer an additional program under Sec.  
600.10(c), the Department will explain in the denial how the 
institution failed to demonstrate the new program would likely lead to 
gainful employment in a recognized occupation. The institution will be 
permitted to respond to the concerns raised by the Department in the 
denial and request reconsideration of the denial.
    As discussed in the Paperwork Reduction Act of 1995 section of this 
preamble, we have corrected the OMB control number for Sec.  600.20 to 
read ``1845-0012''.

Executive Order 12866

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the OMB. 
Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action likely to result in a rule that may 
(1) have an annual effect on the economy of $100 million or more, or 
adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local, or 
tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule); (2) create serious 
inconsistency or otherwise interfere with an action taken or planned by 
another agency; (3) materially alter the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raise novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive order.
    Pursuant to the terms of the Executive order, we have determined 
that this regulatory action will not have an annual effect on the 
economy of more than $100 million. Therefore, this action is not 
``economically significant'' and subject to OMB review under section 
3(f)(1) of Executive Order 12866.

[[Page 66671]]

Notwithstanding this determination, we have assessed the potential 
costs and benefits--both quantitative and qualitative--of this 
regulatory action and have determined that the benefits justify the 
costs.

Need for Federal Regulatory Action

    Student debt is more prevalent and individual borrowers are 
incurring more debt than ever before. Twenty years ago, only one in six 
full-time freshmen at four-year public colleges and universities took 
out a Federal student loan; now more than half do. Today, nearly two-
thirds of all graduating college seniors carry student loan debt. The 
availability of Federal student aid allows students to access 
postsecondary educational opportunities crucial to employment. For-
profit postsecondary education along with occupationally specific 
training at other institutions has long played an important role in the 
nation's system of postsecondary education. Many of the institutions 
offering these programs have recently pioneered new approaches to 
enrolling, teaching, and graduating students. In recent years, 
enrollment in for-profit institutions has grown rapidly to 1.8 million 
students, nearly tripling between 2000 and 2008. This trend is 
promising and supports President Obama's goal of leading the world in 
the percentage of college graduates by 2020. This goal cannot be 
achieved without a healthy and productive for-profit sector of higher 
education. However, the programs offered by the for-profit sector must 
lead to measurable outcomes, or those programs will devalue 
postsecondary credentials through oversupply.
    The proposed gainful employment regulations described in the NPRM 
published on July 26, 2010 received a record number of comments for a 
regulation proposed by the Department. The Department expects to 
publish the subsequent, final gainful employment regulations in early 
2011 with an effective date of July 1, 2012. The provision related to 
approval of additional programs is addressed separately in these final 
regulations and will take effect on July 1, 2011. Specifically, these 
regulations establish interim requirements regarding the approval of 
gainful employment programs with initial enrollment beginning after 
July 1, 2011.
    In general, for institutions with good records administering their 
programs, we believe that most new programs will satisfy these 
requirements and will not need to obtain approval of their programs 
from the Department. However, the Department is concerned that some 
institutions might attempt to circumvent the proposed gainful 
employment standards (see the July 26, 2010 NPRM, 75 FR 43638-43640) by 
adding new programs before those standards would take effect. Although 
the proposed standards would evaluate most programs based on past 
performance, newly offered programs would not be subject to the 
standards for several years until they established an operating 
history. For example, an institution may seek to offer a significant 
number of new programs that would not be evaluated under the new 
standards for up to five years as a contingency plan in case its 
current programs are eliminated or restricted under measures that would 
be used in the final gainful employment regulations. We believe that 
such an approach should be examined closely to determine whether those 
new programs are substantially different and offer more potential 
benefits to its students. With these regulations, the Department 
intends to mitigate the potential for this type of response. 
Accordingly, where an institution is required to obtain approval from 
the Department, the Department will consider the following factors when 
reviewing an institution's notice: (1) The institution's demonstrated 
financial responsibility and administrative capability in operating its 
existing programs, (2) whether the additional educational program is 
one of several new programs that would replace similar programs 
currently offered by the institution, as opposed to supplementing or 
expanding the current programs provided by the institution, (3) whether 
the number of additional educational programs being added is 
inconsistent with the institution's historic program offerings, growth, 
and operations, and (4) the sufficiency of the process used and 
determination made by the institution to offer an additional 
educational program that leads to gainful employment in a recognized 
occupation. The Department may decline to approve a new program based 
upon the last three of these four factors. The Department will also 
take into consideration other publicly available data, including data 
from the U.S. Department of Labor, about the job prospects for 
individuals that would complete the new programs.
    If the Department denies an application from an institution to 
offer an additional program under Sec.  600.10(c), the Department will 
explain in the denial how the institution failed to demonstrate the new 
program would likely lead to gainful employment in a recognized 
occupation. The institution will be permitted to respond to the 
concerns raised by the Department in the denial and request 
reconsideration of the denial. We also note that even if the new 
program is not yet approved or is denied, an institution may still 
offer the program but students would be ineligible to receive title IV, 
HEA program funds to pay the costs of attendance associated with that 
program. In the case of a denial, the institution could later seek to 
add the program and provide additional information about students who 
completed it.
    We intend to establish performance-based requirements in subsequent 
regulations early in 2011 for approving additional programs. Until 
those subsequent regulations take effect, institutions must comply with 
the interim requirements in these regulations. As discussed elsewhere 
in this preamble, we will continue to consider whether to exclude 
certain programs from these approval requirements as a part of our 
consideration of the remaining issues presented in the gainful 
employment NPRM. Toward that end, we are continuing to consider 
carefully the suggestions to exclude postbaccalaureate certificate 
programs from the new program approval process and ways to provide a 
more flexible approach for approving programs in new and emerging 
fields. In addition, we intend to address the questions raised on 
employer affirmations and enrollment projections in the context of the 
subsequent final regulations for gainful employment in early 2011.
    As described earlier, we also intend to implement administrative 
procedures that mitigate the burden on institutions and the Department 
in submitting and reviewing information for new programs. For example, 
the Department may allow an institution to combine several new programs 
in one notification if the institution used the same, or similar, 
processes in developing those programs. Further, an eligible 
institution may submit a notice for a new program that will be offered 
at multiple locations of the institution.
    A description of the additional programs proposed regulations, the 
reasons for adopting them, and an analysis of the regulations' effects 
was presented in the NPRM published on July 26, 2010. This updated 
Regulatory Impact Analysis describes changes considered in response to 
comments received about the additional programs provision.

[[Page 66672]]

Regulatory Alternatives Considered

    In the NPRM published on July 26, 2010, the Department proposed 
requirements for institutions to establish additional programs subject 
to the gainful employment regulations. In that regard, the NPRM 
provided that, as part of an institution's application to establish an 
additional program, the institution would need to provide (1) the 
projected enrollment for the program for the next five years for each 
location of the institution that will offer the additional program, (2) 
documentation from employers not affiliated with the institution that 
the program's curriculum aligns with recognized occupations at those 
employers' businesses and that there are projected job vacancies or 
expected demand for those occupations at those businesses, and (3) if 
the additional program constitutes a substantive change, documentation 
of the approval of the substantive change from its accrediting agency.
    As described elsewhere in this preamble, we received a range of 
comments related to this provision. Some were supportive of the 
proposed regulations but had specific recommendations for the form and 
content of the affirmations from unaffiliated employers. Other 
commenters requested clarification about how many affirmations would be 
needed and what is considered a local employer and how a local employer 
would be determined with respect to online programs or programs whose 
students pursue jobs nationally. Commenters also asked us to clarify 
how the proposed requirement that the employer be unaffiliated with the 
institution would affect the valuable internship and externship 
relationships between institutions and employers, and what metrics 
would be used to align an employer's projected needs to the size of the 
program. Other commenters expressed concern that the proposed 
provisions would stifle an institution's ability to establish 
innovative programs for emerging fields in anticipation of future job 
opportunities. Several commenters suggested that the proposed provision 
interfered with curriculum development and internal decisions of 
schools and would undermine the close relationships programs subject to 
the proposed gainful employment regulations develop with local 
employers.
    In general, we agree with commenters who suggested that the program 
approval process for additional programs should apply only to an 
institution with programs in a restricted or ineligible status. This 
would relieve the burden on institutions and the Department, and would 
allow institutions with a record of strong performance to establish new 
programs more expediently. However, we are not addressing in these 
regulations the standards that will be used to gauge the performance of 
gainful employment programs and the consequences of not meeting those 
standards. These regulations address in only a very limited manner the 
provisions relating to the Secretary's approval of additional 
educational programs. Modifications to make the approval process for 
additional programs performance based will be addressed in subsequent 
regulations.
    Under the requirements established in these regulations, the 
Department will instead rely on a notice from the institution submitted 
at least 90 days prior to the time when the institution plans to offer 
the new program that provides a narrative explanation of why and how 
the new program was developed. Specifically, an institution must 
describe how it determined the need for the new program and how the 
program was designed to meet local market needs, or for an online 
program, regional or national market needs by, for example, consulting 
BLS data or State labor data systems or consulting with State workforce 
agencies. The institution also must describe how the program was 
reviewed or approved by, or developed in conjunction with, business 
advisory committees, program integrity boards, public or private 
oversight or regulatory agencies, and businesses that would likely 
employ graduates of the program. Additionally, the institution must 
include in its notice documentation that the program has been approved 
by its accrediting agency or is otherwise included in the institution's 
accreditation by its accrediting agency, or comparable documentation if 
the institution is a public postsecondary vocational institution 
approved by a recognized State agency for the approval of public 
postsecondary vocational education in lieu of accreditation. The notice 
from an institution should also include any information that describes 
how the program would be offered in connection with, or in response to, 
an initiative by a governmental entity, such as the oral health program 
with the Federal support described in the comments. Additionally, an 
institution must include in its notice a description of any wage 
analysis it may have performed, including any consideration of BLS wage 
data that is related to the new program. Based on this information, the 
Department will determine whether approval is required, and if required 
the Department will consider the notice as an application. Under the 
regulations, an institution does not have to apply for approval to add 
a program under Sec.  600.20 unless (a) it has been directed to do so 
by the Department under Sec.  600.20(c)(5), (b) it is a direct 
assessment programs under 34 CFR 668.10, or (c) it is required to do so 
by a provision in its Program Participation Agreement.
    As discussed in the Paperwork Reduction Act of 1995 section of this 
preamble, the Department estimates that institutions will submit 
notifications for approximately 914 new nondegree programs and 1,005 
new degree programs annually under the process set forth in these final 
regulations, or a total of 5,757 over a three-year period.
    The effect of these changes on the cost estimates prepared for and 
discussed in the Regulatory Impact Analysis of the NPRM is discussed in 
the Costs section of this Regulatory Impact Analysis.

Benefits

    We believe the approach set forth in these regulations, based on a 
program development process articulated by commenters representing both 
the public and private sectors, provides some assurance that new 
gainful employment programs are needed and responsive to student and 
employer needs. This provision results in no net costs to the 
government over 2011-2015. The administrative expenses associated with 
the approval process will be covered by the Department's existing 
discretionary funds.

Costs

    The process established by these regulations is based on 
institutional practices described in comments received from 
representatives of public and private institutions. Accordingly, many 
entities wishing to continue to participate in the title IV, HEA 
programs have already absorbed many of the administrative costs related 
to implementing these regulations, and additional costs would primarily 
be due to documenting the program development process. Other 
institutions may have to establish a program development process, but 
the regulations allow flexibility in meeting the core requirements.
    In assessing the potential impact of these regulations, the 
Department recognizes that the provision may increase workload for some 
program participants. This additional workload is discussed in more 
detail under the

[[Page 66673]]

Paperwork Reduction Act of 1995 section of this preamble. Additional 
workload would normally be expected to result in estimated costs 
associated with either the hiring of additional employees or 
opportunity costs related to the reassignment of existing staff from 
other activities. In total, these changes are estimated to increase 
burden on entities participating in the Federal Student Assistance 
programs by 3,591 hours.
    As detailed in the Paperwork Reduction Act of 1995 section of this 
preamble, the additional paperwork burden is attributable to the 
process of documenting and submitting a description of how the 
institution determined to develop a new program. We estimate that this 
process would take institutions 3,591 hours and the costs would be 
$91,032 under information collection 1845-0012. In response to comments 
that the regulations would be costly, we reviewed the wage rates for 
more recent information and the share of work performed by office 
workers and management and professional staff. This increased the wage 
rate for gainful employment related matters from $20.71 to $25.35.
    Because data underlying many of these burden estimates was limited, 
in the NPRM, the Department requested comments and supporting 
information for use in developing more robust estimates. In particular, 
we asked institutions to provide detailed data on actual staffing and 
system costs associated with implementing the regulations regarding 
additional programs. Some commenters believed the estimate of 650 new 
programs annually was low and suggested 6,500 per year was a more 
reasonable figure. The Department reviewed internal data sources and 
estimated that 1,919 programs would be reviewed annually, or a total of 
5,757 over a three-year period. As discussed above, we also reviewed 
the wage rates for more recent data and the share of work allocated to 
managerial and professional staff.

Net Budget Impacts

    The regulations are estimated to have a net budget impact of $0.0 
million over FY 2011-2015. Consistent with the requirements of the 
Credit Reform Act of 1990, budget cost estimates for the student loan 
programs reflect the estimated net present value of all future non-
administrative Federal costs associated with a cohort of loans. (A 
cohort reflects all loans originated in a given fiscal year.)
    These estimates were developed using the Office of Management and 
Budget's Credit Subsidy Calculator. This calculator will also be used 
for reestimates of prior-year costs, which will be performed each year 
beginning in FY 2009. The OMB calculator takes projected future cash 
flows from the Department's student loan cost estimation model and 
produces discounted subsidy rates reflecting the net present value of 
all future Federal costs associated with awards made in a given fiscal 
year. Values are calculated using a ``basket of zeros'' methodology 
under which each cash flow is discounted using the interest rate of a 
zero-coupon Treasury bond with the same maturity as that cash flow. To 
ensure comparability across programs, this methodology is incorporated 
into the calculator and used government-wide to develop estimates of 
the Federal cost of credit programs. Accordingly, the Department 
believes it is the appropriate methodology to use in developing 
estimates for these regulations. That said, however, in developing the 
following Accounting Statement, the Department consulted with OMB on 
how to integrate our discounting methodology with the discounting 
methodology traditionally used in developing regulatory impact 
analyses.
    Absent evidence on the impact of these regulations on student 
behavior, budget cost estimates were based on behavior as reflected in 
various Department data sets and longitudinal surveys listed under 
Assumptions, Limitations, and Data Sources. Program cost estimates were 
generated by running projected cash flows related to each provision 
through the Department's student loan cost estimation model. Student 
loan cost estimates are developed across five risk categories: Two-year 
and less proprietary institutions; two-year and less public and private 
nonprofit institutions; freshmen and sophomores at four-year 
institutions; juniors and seniors at four-year institutions; and 
graduate students. Risk categories have separate assumptions based on 
the historical pattern of behavior--for example, the likelihood of 
default or the likelihood to use statutory deferment or discharge 
benefits--of borrowers in each category.
    The Department estimates no budgetary impact for these regulations 
as there is no data indicating that the provisions will have any impact 
on the volume or composition of Federal student aid programs.

Assumptions, Limitations, and Data Sources

    Impact estimates provided in the preceding section reflect a 
prestatutory baseline in which the Higher Education Opportunity Act 
changes implemented in these regulations do not exist. Costs have been 
quantified for five years.
    In developing these estimates, a range of data sources were used, 
including data from the National Student Loan Data System, and 
operational and financial data from Department of Education systems. 
Data from other sources, such as the U.S. Census Bureau or the U.S. 
Bureau of Labor Statistics, were also used. Data on administrative 
burden at participating institutions are extremely limited.
    Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and 
explain burdens specifically associated with information collection 
requirements. See the heading Paperwork Reduction Act of 1995.

Accounting Statement

    As required by OMB Circular A-4 (available at https://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf), in Table 2, we have 
prepared an accounting statement showing the classification of the 
estimated expenditures associated with the provisions of these 
regulations. This table provides our best estimate of the changes in 
Federal student aid payments as a result of these regulations. 
Expenditures are classified as transfers from the Federal government to 
student loan borrowers.

 Table 1--Accounting Statement: Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Costs.............  $0.1.
                                         Cost of compliance with
                                          paperwork requirements.
Annualized Monetized Transfers.........  $0.

[[Page 66674]]

 
From Whom To Whom?.....................  Federal Government To Student
                                          Loan Borrowers.
------------------------------------------------------------------------

Regulatory Flexibility Act Certification

    The Secretary certifies that these regulations would not have a 
significant economic impact on a substantial number of small entities. 
These regulations would affect institutions that participate in title 
IV, HEA programs and loan borrowers. The definition of ``small entity'' 
in the Regulatory Flexibility Act encompasses ``small businesses,'' 
``small organizations,'' and ``small governmental jurisdictions.'' The 
definition of ``small business'' comes from the definition of ``small 
business concern'' under section 3 of the Small Business Act as well as 
regulations issued by the U.S. Small Business Administration (SBA). The 
SBA defines a ``small business concern'' as one that is ``organized for 
profit; has a place of business in the U.S.; operates primarily within 
the U.S. or makes a significant contribution to the U.S. economy 
through payment of taxes or use of American products, materials or 
labor * * *'' ``Small organizations,'' are further defined as any 
``not-for-profit enterprise that is independently owned and operated 
and not dominant in its field.'' The definition of ``small entity'' 
also includes ``small governmental jurisdictions,'' which includes 
``school districts with a population less than 50,000.''
    Data from the Integrated Postsecondary Educ