Program Integrity: Gainful Employment-Debt Measures, 34386-34539 [2011-13905]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 76, Number 113 (Monday, June 13, 2011)]
[Rules and Regulations]
[Pages 34386-34539]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13905]



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Vol. 76

Monday,

No. 113

June 13, 2011

Part III





Department of Education





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34 CFR Part 668



Program Integrity: Gainful Employment--Debt Measures; Final Rule

Federal Register / Vol. 76 , No. 113 / Monday, June 13, 2011 / Rules 
and Regulations

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DEPARTMENT OF EDUCATION

34 CFR Part 668

RIN 1840-AD06
[Docket ID ED-2010-OPE-0012]


Program Integrity: Gainful Employment--Debt Measures

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the Student Assistance General Provisions 
regulations to improve disclosure of relevant information and to 
establish minimal measures for determining whether certain 
postsecondary educational programs lead to gainful employment in 
recognized occupations, and the conditions under which these 
educational programs remain eligible for the student financial 
assistance programs authorized under title IV of the Higher Education 
Act of 1965, as amended (HEA).

DATES: These regulations are effective July 1, 2012.

FOR FURTHER INFORMATION CONTACT: John Kolotos or Fred Sellers for 
general information only. Telephone: (202) 502-7805. Any other 
questions or requests for information regarding these final regulations 
must be submitted to: GE-Questions@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:

Executive Summary

    Institutions providing gainful employment programs offer important 
opportunities to Americans seeking to expand their skills and earn 
postsecondary degrees and certificates. For-profit institutions offer 
many quality programs, but in some instances, these programs leave 
large numbers of students with unaffordable debts and poor employment 
prospects.
    The Department of Education has a particularly strong interest in 
ensuring that institutions that are heavily reliant on Federal funding 
promote student academic and career opportunities. These final gainful 
employment regulations are designed to (1) provide institutions with 
better metrics and more time to assess their program outcomes and 
thereby a greater opportunity to improve the performance of their 
gainful employment programs before those programs lose eligibility for 
Federal student aid funds, and (2) identify accurately the worst 
performing gainful employment programs. At the same time, the final 
regulations require that these federally funded programs meet minimal 
standards because students and taxpayers have too much at stake to 
allow otherwise.
    The Higher Education Act of 1965, as amended (HEA), has long 
provided for the extension of financial aid to students attending 
postsecondary programs that ``lead to gainful employment in a 
recognized occupation,'' including nearly all programs at for-profit 
institutions and certificate programs at public and non-profit 
institutions. For-profit institutions, in particular, are a diverse, 
innovative, and fast-growing group of institutions. By pioneering 
creative course schedules and online programs and serving 
nontraditional students, many of these institutions have developed 
impressive, beneficial practices that both public and non-profit 
institutions might emulate. In recent months, a number of institutions 
have taken promising steps to improve the value of the programs they 
offer to students by offering free trial and orientation periods, 
closing underperforming programs, and investing more in their faculty 
and curricula. These reforms may serve students well and improve 
performance as measured under these final regulations.
    At the same time, for-profit institutions typically charge higher 
tuitions for their programs than do their public and non-profit 
counterparts. They also have higher net prices, a measure of how much 
students pay after receiving grant aid, such as Federal Pell Grants. As 
a result, students on average assume more debt to enroll in a program 
than do their peers who attend public or private, nonprofit 
institutions.
    We also have concerns about recruitment practices and completion 
rates for particular programs offered by for-profit institutions. The 
Government Accountability Office (GAO) and other investigators have 
found evidence of high-pressure and deceptive recruiting practices at 
for-profit institutions. These recruiting practices may contribute to 
low graduation rates. First-time students enrolling in four-year 
institutions in 2004 were only about half as likely to earn any kind of 
degree or certificate by 2009 if they began their postsecondary 
education at a for-profit institution than if they began their 
postsecondary education at a public institution. National Center for 
Education Statistics, 2004/2009 Beginning Postsecondary Students 
Longitudinal Study.
    Proprietary institutions market their programs to students by 
emphasizing the value of the program against the cost to the student. 
This approach is often called the value proposition of the program and 
is meant to portray to students the value of the specific program 
offerings to that student's career goals. It is this posture that 
distinguishes programs ``that lead to gainful employment in a 
recognized occupation'' as set forth in the HEA.
    These final regulations reflect the Department's policy 
determination that students are not adequately protected by the 
Department's current regulatory framework, which focuses on 
institutional level information. By defining what it means to provide 
training leading to gainful employment for each program that is 
eligible to receive title IV, HEA funds, the Department believes that 
students will be better served and the Department will have improved 
how it carries out its obligation to ensure program integrity.
    Some have argued that cohort default rates, measured at the 
institutional level, already provide a measure of whether student debt 
is at appropriate levels. The Department believes that those measures 
are properly supplemented and complemented by those outlined here. The 
Department's experience with the CDR is that it operates for particular 
purposes and that, among other things, it does not identify the harm to 
students that can come from enrolling in a specific program that leaves 
them with high education debts and limited job opportunities. An 
institution's average default rate does not measure the effect of any 
individual program, and that information alone does not provide a 
student with a measure of whether he or she will be able to achieve a 
career goal and pay off loan debt. Moreover, the default rate does not 
take account of the possibility that many students are struggling to 
repay their loans, such as those receiving economic hardship deferments 
or who are in income-based repayment. These are students who are seeing 
their loans grow, rather than shrink, because their incomes are low and 
their debts are high. As a result the default rate is a better 
measurement of the potential loss to taxpayers than of the repayment 
burden on borrowers.
    The Department is adopting in these final regulations a definition 
of programs that provide training leading

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to gainful employment in a recognized occupation in order to provide 
students with a measure of the particular program they are considering 
taking. This program-level assessment is further reflected in the way 
in which we have required disclosures of information and in the care we 
have taken with regulating the development of new programs once a 
program has failed to meet the measures in the regulation. The 
regulations we are adopting will help to protect students by removing 
eligibility from the worst performing programs that fail the minimum 
requirements, while providing institutions with incentives to improve 
the performance of their programs under the measures and create better 
outcomes for the students enrolled in those programs.
    Institutional measures of eligibility often fail to reveal the 
effects of providing bad outcomes to students in the particular 
programs that they offer. Most of the revenues of for-profit 
institutions come from Pell Grants and Federal student loans. The 
revenues of these institutions are dependent on the number of students 
they enroll in their programs; they are not otherwise dependent on 
whether their students graduate, find jobs, and ultimately repay their 
loans. Thus, if one of these students defaults on her or his loan, the 
institution's revenues are unlikely to be affected and the blended 
cohort default rates calculated for an institution tend to mask the 
harms to students that are coming from only a few bad programs offered 
at an institution. For students, however, the consequences of an 
unaffordable loan are severe. For the 2008 cohort year, 46 percent of 
student loans (weighted by dollars) borrowed by students at two-year 
for-profit institutions are expected to go into default over the life 
of the loans, compared to 16 percent of loans borrowed by students 
across all types of institutions.
    Former students who are not gainfully employed and cannot afford to 
repay their loans face very serious challenges. Discharging Federal 
student loans in bankruptcy is very rare. The common consequences of 
default include large fees--collection costs that can add 25 percent to 
the outstanding loan balance--and interest charges; struggles to rent 
or buy a home, buy a car, or get a job; collection agency actions, 
including lawsuits and garnishment of wages; and the loss of tax 
refunds and even Social Security benefits. Moreover, borrowers in 
default are no longer entitled to any deferments or forbearances and 
may be ineligible for any additional student aid until they have 
reestablished a good repayment history.
    Consistent with the HEA's requirements, to be eligible to 
participate in the title IV, HEA programs, certain institutions must 
provide an eligible program leading to gainful employment in a 
recognized occupation. The Department's goals in promulgating these 
regulations are to ensure that (1) students who enroll in these 
programs do not have to face these difficult challenges, because they 
are equipped to secure gainful employment rather than being left with 
unaffordable debts and poor employment prospects, and (2) the Federal 
investment of title IV, HEA student aid dollars is well spent.
    The Department began its efforts in this area with regulations 
designed to help students make informed choices about postsecondary 
education programs in 2009 by conducting a series of public hearings 
and negotiated rulemaking sessions. It published two notices of 
proposed rulemaking (NPRMs) in 2010. The Department's proposed 
regulations emphasized the use of disclosure mechanisms to provide 
students and the public with critical information about the performance 
of gainful employment programs. On October 29, 2010, the Department 
published regulations (75 FR 66832) (Program Integrity Issues final 
regulations) requiring institutions with programs that prepare students 
for gainful employment in a recognized occupation to disclose key 
performance information about each program on their Web site and in 
promotional materials to prospective students. The required elements 
include the program cost, on-time completion rate, placement rate, 
median loan debt, and other information for programs that prepare 
students for gainful employment in recognized occupations.
    Since publishing the final regulations, the Department has 
published in the Federal Register on April 13, 2011, a draft disclosure 
template for public comment (76 FR 20635). The Department intends to 
finalize this disclosure template by the fall of 2011 so that it is 
available for use by institutions by July 1, 2012. The disclosure 
template will automate the process by which institutions can prepare 
the required disclosures and will include links to provide the 
appropriate Web sites of other institutions offering the same program 
that participate in the title IV, HEA student aid programs, thus 
allowing students to compare similar programs. With this template, and 
consistent with section 4 of Executive Order 13563, the Department is 
thus attempting to foster informed decisions and to improve the 
operation of the market through ``disclosure requirements as well as 
provision of information to the public in a form that is clear and 
intelligible.''
    The Program Integrity Issues final regulations also included 
significant new regulations that we designed to protect consumers from 
misleading or overly aggressive recruiting practices, and to clarify 
State oversight responsibilities. These regulations took significant 
steps to curbing fraud and abuse in the Federal student aid programs by 
strengthening existing requirements that are designed to protect 
students and taxpayers. Among these changes were the strengthening of 
our misrepresentation regulations to provide the Department greater 
authority to take action against institutions engaging in deceptive 
advertising, marketing, and sales practices. The regulations also 
eliminate ``safe harbors'' that allowed questionable recruitment 
practices that often included institutions paying incentive 
compensation to recruiters. Too often this type of compensation leads 
to overly aggressive recruiting practices that encouraged students to 
take out loans they could not afford or enroll in programs for which 
they were unqualified or in which it was unlikely they could succeed. 
Additionally, the Program Integrity Issues final regulations took a 
needed step toward ensuring that States are taking necessary steps to 
ensure the appropriate oversight of the postsecondary education being 
provided by institutions by establishing minimum steps that States must 
take to meet their important responsibility under the HEA to protect 
students, including for institutions that offer distance or 
correspondence education.
    These final regulations, Gainful Employment--Debt Measures, reflect 
a number of significant changes and improvements from the July 26, 2010 
NPRM in response to public comments. The changes and improvements are 
designed to provide a better measure of whether a program provides 
training that will lead to gainful employment in a recognized 
occupation. They reflect alterations from the proposed regulations 
designed to (1) Provide better program information to students, (2) 
identify the worst performing programs, and (3) create appropriate 
flexibility and provide institutions the opportunity to improve their 
programs before losing title IV, HEA program eligibility. These changes 
are also designed to minimize the costs for regulated institutions, 
while providing

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considerable benefits both to students at regulated institutions and to 
taxpayers.
    The regulations emphasize the importance of disclosing program 
information and take several further steps to promote informed 
decisions. Thus, under the final regulations, institutions must 
disclose to the public, and the Secretary may also disseminate to the 
public, information about how each of an institution's programs are 
performing under the debt measures that we are establishing in these 
final regulations. The Department is considering additional steps to 
promote the comparison of programs and to facilitate access to this 
information. In keeping with the emphasis on disclosure, the 
regulations also provide that during the first two years that a program 
fails the debt measures, the institution must provide warnings to 
students. To promote informed student choice, these warnings must be 
provided to students sufficiently in advance of enrolling to permit the 
student time to consider whether to enroll in the program.
    While increasing the level of disclosure is critical, the 
Department recognizes that information alone is unlikely fully to 
promote the goals of the HEA and to ensure that programs provide 
training that leads to gainful employment in a recognized occupation. 
Students enrolling in a postsecondary program often have limited 
background information about a program and little or no experience 
choosing among postsecondary programs. High-pressure sales tactics by 
institutions may also make it difficult for individuals to choose 
carefully among programs. Therefore, the Department is setting minimum 
standards to measure whether programs are providing training that leads 
to gainful employment in a recognized occupation.
    To provide an additional layer of protection for students and 
taxpayers, the Department is defining a set of measures that identifies 
the lowest performing programs by focusing on the ability of students 
to repay their student loans. Under these measures, a program is now 
considered to lead to gainful employment if it has a repayment rate of 
at least 35 percent or its annual loan payment under the debt-to-
earnings ratios is 12 percent or less of annual earnings or 30 percent 
or less of discretionary income. Under the regulations, only after 
failing both debt measures for three out of four fiscal years does a 
program lose eligibility. These regulations set minimum standards and 
are designed to provide flexibility, specifically allowing programs an 
opportunity to improve their performance before losing title IV, HEA 
program eligibility. The Department believes that these measures will 
improve the operation of free markets by identifying the poorest 
performing programs and strengthening institutions' incentive to 
provide an affordable quality education.

Background of Rulemaking Proceedings

    On September 9, 2009, the Secretary announced the Department's 
intent to establish two negotiated rulemaking committees to develop 
proposed regulations under title IV of the HEA through a notice in the 
Federal Register (74 FR 46399). The Secretary established one committee 
to develop proposed regulations governing foreign schools and another 
committee to develop proposed regulations to improve integrity in the 
title IV, HEA programs. Team I--Program Integrity Issues (Team I) met 
to develop proposed regulations during the months of November 2009 
through January 2010; however, no consensus on the proposed regulations 
was reached during the negotiations. After Team I's negotiations 
concluded, the Department published two NPRMs.
    On June 18, 2010, the Secretary published the first NPRM in the 
Federal Register (75 FR 34806) (June 18, 2010 NPRM) proposing to 
strengthen and improve the administration of programs authorized under 
title IV of the HEA. With regard to gainful employment, the June 18, 
2010 NPRM included proposals covering several technical, reporting, and 
disclosure issues. The June 18, 2010 NPRM reserved for a second NPRM 
the remaining gainful employment issues, which addressed the extent to 
which certain educational programs lead to gainful employment and the 
conditions under which those programs remain eligible for title IV, HEA 
program funds.
    On July 26, 2010, the Secretary published a second NPRM for gainful 
employment issues in the Federal Register (75 FR 43616) (July 26, 2010 
NPRM). In the July 26, 2010 NPRM, the Secretary proposed to--
     Establish debt thresholds based on debt-to-income and 
repayment rate measures that a program at an institution would need to 
meet in order to demonstrate that it provides training that leads to 
gainful employment in a recognized occupation and consequently to 
remain eligible for title IV, HEA funds;
     Establish a tiered eligibility system under which a 
program may have unrestricted eligibility, may have restricted 
eligibility, or may become ineligible to participate in the title IV, 
HEA programs;
     Establish consequences for a program with a restricted 
eligibility status, including requirements to provide debt warning 
disclosures to current and prospective students that they may have 
difficulty repaying loans obtained for attending the program; employer 
affirmations that the program curriculum is appropriately aligned with 
recognized occupations at the employers' businesses and that there is a 
demand for those occupations; and limits on enrollment of title IV, HEA 
program recipients in that program;
     Provide that a program becomes ineligible if it does not 
meet at least one of the debt thresholds for one award year;
     Specify that the institution may not disburse any title 
IV, HEA program funds to students who subsequently begin attending a 
program determined to be ineligible, but may disburse title IV, HEA 
program funds to students who began attending the program before it 
became ineligible for the remainder of the award year and for the award 
year following the date of the Secretary's notice that the program is 
ineligible;
     Establish a transition year in which the Secretary would 
cap the number of programs that would be classified as ineligible for 
the first year after the regulations take effect;
     Add a definition of The Classification of Instructional 
Programs (CIP);
     Permit the Secretary to place on provisional certification 
an institution that has one or more of its programs determined to be 
subject to the eligibility limitations or determined ineligible under 
the gainful employment provisions; and
     Establish that in a termination action against a program 
for not meeting the gainful employment standards, the hearing official 
would accept, as accurate, earnings information for students that was 
obtained by the Department from another Federal agency, but would 
consider alternate earnings data as long as that data was reliable for 
the same students.
    The Department reviewed the comments from both the June 18, 2010 
NPRM and the July 26, 2010 NPRM and divided the final regulations into 
three separate documents. On October 29, 2010, the Secretary published 
both the first and second sets of final regulations in the Federal 
Register (75 FR 66832 and 75 FR 66665) (Program Integrity Issues and 
Gainful Employment/New Programs final regulations, respectively) with 
effective dates, generally, of July 1, 2011.

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    The Program Integrity Issues final regulations (75 FR 66832)--
     Clarified that only certificate or credentialed nondegree 
programs of at least one academic year that are offered by a public or 
nonprofit institution of higher education are gainful employment 
programs;
     Updated the definition of the term recognized occupation 
to reflect current usage;
     Established requirements for institutions to submit 
information on students who attend or complete programs that prepare 
students for gainful employment in recognized occupations; and
     Established requirements for institutions to submit 
information on students who attend or complete programs that prepare 
students for gainful employment in recognized occupations; and
     Established requirements for institutions to disclose on 
their Web site and in promotional materials to prospective students, 
the on-time graduation rate for students completing a program, 
placement rate, median loan debt, program costs, and any other 
information the Secretary provided to the institution about the 
program.
    The Gainful Employment/New Programs final regulations (75 FR 
66665)--
     Established a process under which an institution applies 
to the Secretary for approval to offer additional educational programs 
that lead to gainful employment in a recognized occupation.
    These final regulations, Gainful Employment--Debt Measures, 
comprise the third set of regulations and reflect a number of 
significant changes from the proposed regulations in response to public 
comments. We received over 90,000 comments in response to the July 26, 
2010 NPRM. These included tens of thousands of comments supporting our 
proposals and tens of thousands opposing them. Subsequent to our 
issuance of the Gainful Employment/New Programs final regulations, we 
also met with more than 100 individuals and organizations to permit 
these individuals and entities to clarify their comments in person. The 
Department extended its work on the regulations by six additional 
months to consider fully these comments. Consistent with Executive 
Order 13563, the result of this unprecedented public engagement is 
stronger regulations that (1) Are based on careful consideration of 
both the costs and benefits (both quantitative and qualitative) of the 
regulations; (2) incorporate many suggestions to allow flexible 
approaches for the regulated entities; and (3) balance the concerns of 
those on both sides of the ``gainful employment'' issue.
    The final regulations will:
     Give all programs three years to improve their 
performance. The Department will begin by giving institutions data to 
help them identify and improve their failing programs and to help 
current and prospective students make informed choices. The first 
programs could lose eligibility based upon their performance under the 
debt measures calculated for fiscal year (FY) 2014 and released in 
2015, rather than FY 2012 as proposed.
     Target only the worst performing failing programs by:
    (1) Permitting an institution to maintain a program's title IV, HEA 
program eligibility until the program fails both the debt-to-earnings 
ratios and repayment rate measures for three out of four FYs, similar 
to the multi-year measures used to assess cohort default rates (CDRs) 
at an institution;
    (2) Limiting the number of programs that will lose eligibility 
based on the debt measures calculated for only FY 2014 under Sec.  
668.7(k) to the worst performing 5 percent of programs (weighted by 
enrollment); and
    (3) Eliminating enrollment restrictions that the Department had 
proposed in the July 26, 2010 NPRM to apply to all programs with 
repayment rates below 45 percent and an annual loan payment that is 
more than 20 percent of discretionary income or 8 percent of annual 
earnings.
     Improve the repayment rate and debt-to-earnings ratios 
measures based on extensive public comment by:
    (1) Revising the measures such that a program is now considered to 
lead to gainful employment if it has a repayment rate of at least 35 
percent or its annual loan payment under the debt-to-earnings ratios is 
12 percent or less of annual earnings or 30 percent or less of 
discretionary income;
    (2) Allowing institutions to demonstrate that their programs meet 
the debt-to-earnings ratios with alternative reliable earnings 
information, including use of State data, survey data, or Bureau of 
Labor Statistics (BLS) data during a transitional period;
    (3) Measuring performance in years three and four of repayment, 
rather than years one through four, to examine more typical years in 
the life cycle of a loan (with a provision to use years three through 
six where necessary to ensure that more than 30 borrowers or completers 
are included in the measurement and additional adjustments to address 
the needs of programs that are improving their performance, graduate 
programs, and medical and dental programs);
    (4) Measuring debt burdens based on an assumption that loans are 
repaid over 10 to 20 years depending on the level of degree, rather 
than 10 years for all programs as was originally proposed. Loan debt 
will be amortized over 10 years for undergraduate or post-baccalaureate 
certificate and associate's degree programs, 15 years for bachelor's 
and master's degree programs, and 20 years for programs that lead to a 
doctoral or first-professional degree;
    (5) Limiting debt in the debt-to-earnings ratio calculation to 
tuition and fee charges for a specific educational program, if this 
information is provided by the institution, thereby providing programs 
relief for loans taken for indirect educational costs, including living 
expenses;
    (6) Providing that borrowers who meet their obligations under 
income-sensitive repayment plans are considered to be successfully 
repaying their loans even if their payments are smaller than accrued 
interest, so long as the program at issue does not have unusually large 
numbers of students in those categories; and
    (7) Providing that a program is considered to satisfy the debt 
measures if the number of students who completed the program or the 
number of borrowers whose loans entered repayment during the relevant 
four-year period is 30 or fewer.
     Improve the disclosure of information about programs by:
    (1) Providing in Sec.  668.7(g)(6) that the Secretary may 
disseminate the final debt measures and information about, or related 
to, the debt measures to the public in any time, manner, and form, 
including publishing information that will allow the public to 
ascertain how well programs perform under the debt measures and other 
appropriate objective metrics. The Department is considering 
appropriate ways to provide these metrics and other key indicators to 
facilitate access to the information and the comparison of programs;
    (2) Requiring that an institution with a failing program that does 
not meet the minimum standards specified in the regulations must 
provide warnings to enrolled and prospective students;
    (3) Requiring that the debt warnings for prospective students must 
be provided at the time the student first contacts the institution to 
request information about the program. The institution may not enroll 
the student until three days after the debt warnings are first provided 
to the student. If more than 30 days pass from the date the debt

[[Page 34390]]

warnings are first provided to the student and the date the student 
seeks to enroll in the program, the institution must provide the debt 
warnings again and may not enroll the student until three days after 
the debt warnings are most recently provided to the student; and
    (4) Requiring an institution to disclose the repayment rate and the 
debt-to-earnings ratio (based on total earnings) of its gainful 
employment programs.
     Establish restrictions on reestablishing eligibility of 
ineligible programs, new programs that are substantially similar to an 
ineligible program, and failing programs that are voluntarily 
discontinued by the institution.
    In sum, the Department has revised these regulations to promote 
disclosure, to encourage institutions to improve their occupational 
programs, and to provide more time for this improvement before revoking 
eligibility. The Department believes that institutions will strengthen 
their educational programs to meet these higher standards, and 
relatively few programs will fail. Programs that offer a rewarding 
education at an affordable price will prosper, and institutions will 
continue to innovate to serve students and taxpayers.

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. Therefore these final 
regulations are effective July 1, 2012.

Commitment to Continuing Retrospective Review

    As discussed further under the heading Executive Orders 12866 and 
13563, consistent with Executive Order 13563's emphasis on measuring 
``actual results'' and on retrospective review of regulations, the 
Department intends to monitor the implementation of these regulations 
carefully, consider new data as they become available to ensure against 
unintended adverse consequences, and reconsider relevant issues if the 
evidence warrants. We recognize that, despite the Department's diligent 
efforts and extensive public input, there are limitations in the best 
available data and there remains some uncertainty about the impact of 
these final regulations, such as the number of programs that will be 
identified as ineligible.
    In early 2012, the Department will calculate and share with 
institutions, for informational purposes only, performance data for 
programs subject to these regulations. Thus, institutions and the 
Department will have preliminary information about the performance of 
particular programs a full year before any programs could be labeled 
failing and three years before any programs could lose eligibility. 
This implementation schedule will allow the Department ample time to 
consider relevant evidence and data and to examine the performance of 
programs under the regulations. This collection of data, in conjunction 
with the agency's intention to evaluate the outcomes of these 
regulations, is consistent both with Executive Order 13563 and the 
Office of Information and Regulatory Affairs' February 2, 2011 
memorandum (OMB M-11-19) on Executive Order 13563, which emphasizes the 
importance of ``empirical testing of the effects of rules both in 
advance and retrospectively,'' and which encourages future regulations 
to be ``designed and written in ways that facilitate evaluation of 
their consequences and thus promote retrospective analyses.'' The 
Department will continue to explore the effects of the regulations. 
Among other things, the Department will examine the type and number of 
programs determined to be failing and ineligible, and it will consider 
whether these final regulations should be reconsidered or amended in 
furtherance of its goals of protecting students and taxpayers against 
educational programs that leave students with unaffordable debts and 
poor employment prospects.

Analysis of Comments and Changes

    As indicated earlier, over 90,000 parties submitted comments on the 
July 26, 2010 NPRM. Many of these comments were substantially similar. 
We have reviewed all of the comments. 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.

General

Comment Process

    Comment: The Department received over 90,000 comments on the July 
26, 2010 NPRM. Of those comments, approximately 25 percent were in 
support of our proposed regulations and approximately 75 percent were 
opposed. We received comments from numerous categories of individuals, 
including students, families, employees of institutions of higher 
education, school presidents, congressional and other governmental 
leaders, advocacy groups, State and local associations, trade 
associations, and businesses. The comments received varied in content 
and length from extremely short responses to complex and lengthy 
economic and legal analyses. The vast majority of the comments, 
however, were similar, largely duplicative, and apparently generated 
through petition drives and letter-writing campaigns. Generally, these 
commenters did not provide any specific recommendations beyond general 
support of or opposition to the proposed regulations. Many of the 
commenters--both those in support of, and in opposition to, specific 
provisions--indicated that they supported the goals and intent behind 
the proposed regulations. Specifically, commenters across all sectors 
of higher education as well as the student and consumer advocacy groups 
believed that the goal of ensuring student loan debt is affordable is 
an admirable one.
    Some of the commenters did not express substantive comments on the 
proposed regulations or their effects. For instance, a number of the 
commenters, particularly those from students, simply said ``No,'' or 
asked that the Department not ``take away my student loans.''
    Supporters of the proposed regulations praised the Department's 
transparency and commitment to improving the integrity of the title IV, 
HEA student aid programs. Some commenters praised the amount of 
information and data that the Department released with the NPRM and 
subsequently on the Department's Web site. Other commenters believed 
that the Department had taken appropriate steps to gather public input 
and to craft regulations that protect students by regulating programs 
that claim to prepare students for gainful employment, yet leave 
students with large amounts of debt and unprepared for employment in 
recognized occupations. These commenters suggested that the proposed 
regulations would help to ensure that employers can hire well-qualified 
employees and that taxpayer dollars are spent wisely and effectively. 
Some of the commenters believed that the proposed regulations provide 
for much-needed enforcement authority.

[[Page 34391]]

    Commenters who opposed the proposed regulations believed that the 
proposed regulations would have a number of unintended effects and 
suggested that the regulations would produce results counter to the 
President's economic and educational goals. These commenters also 
stated that the proposed regulations would be overly burdensome and 
discriminatory; represent an overreaching of the Department's 
authority; unfairly punish institutions for students' choices after 
graduating; disproportionately affect at-risk and underserved 
populations of students; and limit the growth of, and innovation in, 
new programs. The commenters recommended that the Department address 
these concerns by delaying the implementation of the regulations, 
considering alternatives to the debt-to-earnings and repayment rate 
metrics, and exempting certain types of institutions or programs from 
compliance with the regulations. While making a number of suggestions 
and recommendations, the commenters generally expressed a desire to 
work with the Department to provide additional information and insight 
to craft metrics that they believed would achieve the intended result 
of reducing student loan debt and helping students to obtain gainful 
employment.
    Discussion: The Department appreciates the numerous comments we 
received in support of the proposed regulations as well as those we 
received that expressed concerns about them. Specific issues raised by 
the commenters are addressed in the relevant topical discussions. These 
comments were instrumental in identifying ways the Department could 
design final regulations that provide benefits to students, minimize 
costs to regulated institutions, and provide institutions with greater 
flexibility to achieve regulatory compliance.
    Changes: Changes made in response to the commenters' specific 
concerns are addressed in the relevant topical discussions.

Timing of Implementation

    Comment: Some commenters urged the Department to implement these 
regulations as early as possible, arguing that students, consumers, and 
taxpayers need protection now and cannot afford to wait for these 
regulations to go into effect a few years in the future. Some of these 
commenters noted that putting provisions into effect, perhaps in a 
transitional form, would spur institutions with poorly performing 
programs to invest in program improvements and student services, such 
as career counseling and job placement assistance, to improve student 
outcomes.
    Some commenters asked the Department to delay the implementation of 
the regulations for a number of reasons. Some asked for the Department 
to delay implementation until the results of a forthcoming GAO study on 
proprietary schools are available. Other commenters requested a delay 
to allow Congress time to debate and pass a law on the definition of 
``gainful employment.'' These commenters argued that Congress, not the 
Department, appropriately has this authority. Some of the commenters 
also suggested a delay to allow time to see the effect of the 
additional disclosures and reporting requirements under the final 
regulations that will take effect July 1, 2011 (75 FR 66833-66975). 
Some commenters requested a delay until Congress acts to provide 
authority to institutions to limit loan funds to institutional charges.
    Commenters requested that the Department apply the metrics only to 
students who enroll after the final regulations are published. These 
commenters argued that schools should not be held accountable for an 
outcome that was not defined at the time the students attended the 
program and that it would be unfair to judge schools on metrics that 
they could have influenced at the time, when the quality of the 
programs and the outcomes for the students may be improving. Commenters 
noted that the Department should delay enforcing the regulations so 
programs have an opportunity to improve, and that programs that are 
improving may not be able to satisfy the metrics immediately given that 
the metrics measure outcomes from students who graduated in past years.
    A few commenters asked the Department to provide draft metrics to 
institutions before their programs would be subject to sanctions. The 
commenters encouraged the Department to use the new, three-year CDR as 
a model for how any new metrics on gainful employment could be phased 
in over time. They further stated that delayed implementation would 
give schools time to improve their programs and debt counseling advice 
to meet the metrics as well as time to discontinue programs that are 
not meeting the metrics.
    Some commenters requested further actions within the negotiated 
rulemaking process. Commenters requested that the Department issue 
these regulations as an interim final rule so that the public would 
have an opportunity to submit additional comments and, perhaps, to 
permit further modifications to the regulations based on those 
comments. Other commenters recommended that the Department extend the 
45-day public comment period to allow a full analysis of the breadth 
and complexity of the proposed regulations. They further suggested that 
the Department would benefit from further information from institutions 
on the details involved with compliance before implementation. A few 
commenters requested that the Department engage in another round of 
negotiated rulemaking so that participants could focus solely on an 
appropriate definition of gainful employment. These commenters believed 
that more analysis and discussion of the proposed regulations are 
needed before they become final.
    Some commenters suggested that the gainful employment metrics 
should apply no earlier than July 1, 2014, and sanctions for ineligible 
programs should apply on or after July 1, 2016, arguing that these 
timeframes would give institutions an adequate opportunity to comply 
with the new requirements.
    Discussion: We appreciate the concerns of the commenters who urged 
the Department to implement these regulations as early as possible. 
However, based on the concerns of other commenters, we believe it is 
desirable to extend the implementation schedule of these final 
regulations. In that regard, we agree that institutions should have the 
opportunity to improve program performance against the metrics before 
being subject to significant sanctions. The adjustments to the 
regulations reflecting these changes are discussed more fully under the 
relevant topical discussions.
    We do not agree with commenters that we should delay implementing 
the final regulations until a third party takes some action such as 
waiting for a GAO study to be available. We have already undertaken 
extensive efforts to analyze the impact of these regulations and gather 
public comments. We also believe the need to remove poorly performing 
programs is too great to wait for third-party actions.
    We do not agree that further actions need to be taken within the 
rulemaking process such as issuing interim final regulations, providing 
an additional comment period, or renegotiating the proposed 
regulations. Given the Department's extensive efforts to solicit and 
respond to comments from the public, including public hearings, three 
sessions of negotiations, additional meetings with interested parties, 
and the over 90,000 comments received, we do not believe it is 
necessary to reopen the rulemaking process and delay publishing these 
final regulations.

[[Page 34392]]

    Changes: Changes made in response to the commenters' specific 
concerns are addressed in the relevant topical discussions.

Legal Authority

    Comments: A number of commenters objected to the proposed 
regulations in whole or in part, claiming that no changes to the HEA 
require the Secretary to define the term ``gainful employment,'' and 
that the term cannot now be defined since Congress left it undisturbed 
during its periodic reauthorizations of the HEA. Some commenters 
expressed the view that the framework of detailed requirements under 
the HEA programs that includes institutional measures using cohort 
default rates, disclosure requirements for institutions, restrictions 
on student loan borrowing, and other financial aid requirements 
prevents the Department from adopting debt measures to determine the 
eligibility for these programs. Other commenters noted that it was 
unfair for the Department to propose these requirements for some 
programs and not others. Some commenters suggested that the phrase ``to 
prepare students for gainful employment'' is unambiguous and therefore 
not subject to further definition. Some commenters claimed that the 
Department has previously defined the term ``gainful employment in a 
recognized occupation'' in the context of conducting administrative 
hearings and argued that the Department did not adequately explain in 
the July 26, 2010 NPRM why it was departing from its prior use of that 
term.
    Discussion: The Department has broad authority to promulgate 
regulations to implement programs established by statute. Under section 
414 of the Department of Education Organization Act, 20 U.S.C. 3474, 
``[t]he Secretary is authorized to prescribe such rules and regulations 
as the Secretary determines necessary or appropriate to administer and 
manage the functions of the Secretary or the Department.'' Similarly, 
section 410 of the General Education Provisions Act, 20 U.S.C. 1221e-3, 
provides that the Secretary may ``make, promulgate, issue, rescind, and 
amend rules and regulations'' for Department programs, including the 
Federal student aid programs.
    The eligibility of programs leading to gainful employment in a 
recognized occupation is addressed in sections 101, 102 and 481(b) of 
the HEA. Section 481(b) of the HEA defines ``eligible program'' to 
include a program that offers at least a defined minimum quantity of 
instruction that ``provides a program of training to prepare students 
for gainful employment in a recognized profession.'' The HEA in section 
102(a) defines an ``institution of higher education for purposes of the 
student assistance programs'' and provides further in section 102(b), 
that proprietary institutions of higher education, with limited 
exception, ``provide[] an eligible program of training to prepare 
students for gainful employment in a recognized occupation.'' Similar 
requirements exist in section 101(b)(1) for public and private non-
profit institutions of higher education providing programs at least one 
year in length, and section 102(c) provides similar requirements for 
public and private non-profit postsecondary vocational institutions.
    Under section 102(b) of the HEA, programs offered at for-profit 
institutions are only eligible for title IV, HEA funds if they offer 
programs that ``prepare students for gainful employment in a recognized 
occupation.'' Such an institution is required to offer at least one 
eligible program leading to gainful employment in a recognized 
occupation in order for the institution to be eligible.
    This structure for eligibility at the program level and the 
institutional level is longstanding and has been retained through many 
amendments to the HEA. Indeed, as recently as the enactment of the 
Higher Education Opportunity Act of 2008 (HEOA) (Pub. L. 110-315), 
Congress retained this distinct treatment of programs by exempting 
liberal arts baccalaureate programs offered at some for-profit 
institutions from the requirement to provide gainful employment in a 
recognized occupation.
    The HEA establishes eligibility requirements for certain programs 
based upon the program length and the type of institution offering the 
program, including such programs that lead to gainful employment in a 
recognized occupation. Other requirements apply to certain types of 
institutions offering eligible programs, such as providing disclosures 
about revenue, and limiting the percentage of revenue that can be 
received from title IV, HEA programs. Other requirements apply to all 
eligible institutions, such as submitting annual financial statements 
and compliance audits, and meeting eligibility requirements based upon 
the loan cohort default rate calculated for an institution. None of 
these requirements, viewed alone or together, constitutes a framework 
that prohibits the Department from establishing the debt measures in 
these regulations to determine eligibility for programs required to 
provide training leading to gainful employment in a recognized 
occupation.
    The legislative history of the gainful employment requirement bears 
directly on the issues now emerging in the data. Congress was concerned 
that the availability of Federal student aid, particularly in the form 
of loans for some types of programs and institutions might lead to 
students taking on more debt than is reasonable given the earnings that 
could be expected. Congress extended loan eligibility beyond 
traditional degrees at traditional institutions after considering 
testimony regarding the connection between the expected earnings of the 
graduates and the debt burden they would incur from this training. A 
Senate Report quotes extensively from testimony provided by University 
of Iowa professor Dr. Kenneth B. Hoyt, who testified on behalf of the 
American Personnel and Guidance Association:

    It seems evident that, in terms of this sample of students, 
sufficient numbers were working for sufficient wages so as to make 
the concept of student loans to be [repaid] following graduation a 
reasonable approach to take. * * * I have found no reason to believe 
that such funds are not needed, that their availability would be 
unjustified in terms of benefits accruing to both these students and 
to society in general, nor that they would represent a poor 
financial risk. Sen. Rep. No. 758, 89th Cong., First Sess. (1965) at 
3745, 3748.

Congress cited the same affirmation from an industry spokesman, Lattie 
Upchurch, Jr., of Capitol Radio Engineering Institution, Washington, 
DC, who testified that ``the purely material rewards of continued 
education are such that the students receiving loans will, in almost 
every case, be enabled to repay them out of the added income resulting 
from their better educational status.'' Id. at 3752.
    These final regulations address harms to students that have been 
identified by the GAO, and were identified in the public hearings and 
in comments submitted in response to the proposed regulations, namely 
that program completers are unable to obtain jobs for which they 
received training. The regulations are also designed to address 
concerns about high levels of loan debt for students enrolled in 
postsecondary educational programs that, to qualify for participation 
in the title IV, HEA programs, must provide training that leads to 
gainful employment in a recognized occupation. These regulations are of 
particular importance because significant advances in electronic 
reporting and analysis now allow the Department to collect accurate and 
timely data that could not have

[[Page 34393]]

been utilized in the past. These analyses will provide the Department, 
students, and the institutions offering these programs with information 
about how well the programs are performing under the measures.
    With respect to the general claims from some commenters that the 
terms ``gainful employment'' and ``gainful employment in a recognized 
occupation'' are unambiguous and cannot be defined in regulation, it is 
clear from the thousands of comments we received that the terms 
``gainful employment'' and ``gainful employment in a recognized 
occupation'' are subject to many different views and interpretations. 
Thus, these regulations represent a reasonable interpretation of those 
terms and do so in a way that responds to many of the concerns raised 
in the comments. Adopting a definition now gives meaning to an 
undefined statutory term, thereby fulfilling the Department's duty to 
enforce the provisions of the HEA in a clear and meaningful way. And, 
although the term has been used to refer to applicable programs in the 
context of administrative hearings at the Department, that use does not 
limit the Department's use of its statutory authority to create a 
regulatory definition through the negotiated rulemaking procedures 
established under the HEA.
    With respect to claims that the Department should wait for Congress 
to legislate before regulating, it is important to note that the 
original efforts by the Department to address concerns about defaults 
in the Federal student loan programs were realized using the 
Secretary's general authority to regulate under section 414 of the 
Department of Education Organization Act. While Congress ultimately 
enacted the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101-
508), which provides statutory authority for much of the cohort default 
rate provisions in effect today, the Secretary's authority was 
nonetheless appropriately used to issue regulations in this area to 
require, for example, teach-out arrangements for private institutions.
    Changes: None.
    Comment: Some commenters suggested that the proposed definition of 
gainful employment would be unlawful because it would constitute 
placing price controls on offering gainful employment programs.
    Discussion: We disagree that these regulations would constitute 
price controls for gainful employment programs. The debt measures and 
eligibility thresholds provide institutions with multiple ways to 
manage their programs to improve performance.
    Changes: None.

Thresholds for the Debt Measures (Sec.  668.7(a)(1))

General

    Comment: Commenters expressed concerned that low-income and 
minority students, many of whom are Federal Pell Grant recipients, 
could be harmed by the proposed loan repayment rate and debt-to-income 
thresholds. These commenters noted that Federal Pell Grant recipients 
are likely to need to borrow the maximum amount of title IV, HEA loan 
funds and may have more difficulty repaying their loans than students 
who incur smaller levels of debt. As a result, according to the 
commenters, the schools these students attend may not be able to meet 
the debt measures and could be forced to close or limit their 
enrollment to exclude these students.
    Some of the commenters cited research by Mark Kantrowitz of 
FinAid.org and FastWeb.com that they believed showed that institutions 
with 50 percent or more Federal Pell Grant recipients are unlikely to 
satisfy the proposed 35 percent loan repayment rate threshold, and 
institutions with 40 percent or more of Federal Pell Grant recipients 
are unlikely to satisfy the proposed 45 percent loan repayment rate 
threshold. Similarly, other commenters cited studies indicating that 
minority students earn less than their white counterparts. For low-
income students, the commenters concluded that student access to higher 
education would be adversely affected because the proposed thresholds 
would act as a disincentive to institutions to admit these students. 
The commenters suggested that, given these concerns, the Department 
should allow lower repayment rates and debt-to-earnings ratios for 
institutions based on the demographics of the institution's student 
body and its success rate in graduating minority students. Other 
commenters recommended that the Department implement a sliding scale 
repayment rate based on the number of Federal Pell Grant recipients at 
an institution. Under this approach, institutions with a larger 
percentage of Federal Pell Grant recipients would be subject to a lower 
threshold for the loan repayment rate. Commenters suggested that, 
alternatively, the loan repayment rates of Federal Pell Grant 
recipients could be evaluated separately from the loan repayment rates 
of non-Federal Pell Grant recipients, with a lower threshold 
established for Federal Pell Grant recipients. Commenters also noted 
that some of these same issues apply to institutions and programs 
dominated by women, because careers dominated by women tend to be 
lower-paying and many women take maternity leave or work part-time and 
these circumstances would lead to lower repayment rates and earnings 
for women.
    One commenter noted that the Department's repayment rate data, when 
viewed across all sectors of the education industry, show that 
institutions with lower repayment rates serve high-risk students. The 
commenter argued that if the data demonstrate anything, it is that 
``at-risk'' students (working adults with family commitments and no 
parental support, or students from lower socioeconomic backgrounds who 
are more susceptible to forces that might cause them to leave or take a 
break from school) have more difficulty repaying their student loans or 
are more inclined to use alternative methods to repay their loans, 
regardless of the type of school they attended.
    Discussion: The Department does not agree that the thresholds 
should be adjusted to reflect the demographics or economic status of 
the students enrolled in gainful employment programs. Students are not 
well served by enrolling in programs that leave them with debts they 
cannot afford to repay, regardless of their background. Moreover, as 
illustrated in the Student Demographics section of the RIA, there are 
institutions and programs achieving strong results with students from 
disadvantaged backgrounds, and many programs serving even the most 
disadvantaged students are performing well under the debt measures.
    Changes: None.
    Comment: Some commenters stated that because the loan repayment 
rate was established outside the negotiated rulemaking process, it 
lacked transparency and the breadth of input from stakeholders and the 
public that would have assured its quality and relevancy.
    Discussion: The loan repayment rate was discussed during the 
negotiated rulemaking sessions in the context of whether borrowers who 
attended a program were repaying their loans. The issue summaries used 
for the rulemaking sessions describing the repayment rate were 
published at that time on the Department's Web site and are available 
at https://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity.html. The negotiating committee did not reach consensus on 
proposed regulations (see 74 FR 43617). As a result the Department was 
not bound to any of the draft regulations for

[[Page 34394]]

the issues in the manner those issues were discussed with the 
committee. Consequently, the Department chose to propose a dollar-based 
repayment rate instead of the borrower-based repayment rate discussed 
by the committee. As opposed to a borrower-based calculation where all 
borrowers have the same impact on the repayment rate regardless of 
their debt loads, the proposed dollar-based calculation rewards, or 
gives more weight to, borrowers with higher debt loads that repay their 
loans. For example:
    Borrowers A and B completed a program with $12,000 and $15,000, 
respectively, in loan debt. Borrowers C, D, and E withdrew from the 
program with loan debts of $3,000, $4,000, and $6,000, respectively. 
Under the proposed repayment rate, all loan debt incurred by borrowers 
who attended the program would be included in the denominator ($40,000) 
of the ratio. Presuming that program graduates are more likely to repay 
their loans, i.e., that Borrower A will repay the $12,000 debt and 
Borrower B will repay the $15,000 debt, but Borrowers C, D, and E will 
not repay their debts, the sum of Borrowers A and B's loans would be in 
the numerator, resulting in a 67.5 percent repayment rate ($27,000/
$40,000). Under a borrower-based calculation, the repayment rate would 
be 40 percent (two out of the five borrowers were repaying their 
loans).
    Changes: None.

Threshold for the Loan Repayment Rate and Debt-to-Earnings Ratios

    Comment: Some commenters expressed concern that there was no 
reasoned basis to support the Department's selection of 45 percent and 
35 percent as the repayment rate thresholds for determining, in part, 
if programs are fully eligible, restricted, or ineligible to 
participate in the title IV, HEA programs. The commenters believed that 
this approach was simply a way for the Department to try to close as 
many private sector schools as possible by adjusting the thresholds 
based on the market's ability to absorb displaced students from private 
sector schools.
    On the other hand, some commenters opined that the proposed loan 
repayment rate needed to be strengthened, and recommended that the 
Department increase the threshold for each tier by at least 10 
percentage points. Consequently, a program would have to achieve a 
repayment rate of at least 55 percent to remain fully eligible for 
title IV, HEA funds. Other commenters recommended a threshold of 50 
percent for the loan repayment rate. Some commenters suggested that 
programs with repayment rates below 25 or 35 percent should lose 
eligibility. The commenters believed that it is important to recognize 
that the proposed thresholds are likely to overstate actual repayment 
rates because the proposed repayment rate excludes both private loans 
and parent PLUS loans and many students and families may have accrued 
substantial amounts of these types of debt for which repayment is not 
being measured. The commenters noted that in 2008-09, these two forms 
of debt accounted for 20 percent of all postsecondary education loans. 
The commenters believed that these circumstances demonstrated both the 
need to increase the repayment rate thresholds and the importance of 
including private loans in the debt-to-earnings measure.
    Other commenters believed that no changes should be made in the 
proposed thresholds. Others argued that if a program satisfied the 
debt-to-earnings threshold, then it should be eligible for title IV, 
HEA funds. These commenters believed the loan repayment rate metric 
would not be a quality test of the program's results.
    Another commenter argued that the proposed standards for the loan 
repayment rate were not strict enough for ``low-value programs,'' which 
the commenter identified as programs where the percentage increase of 
post-graduate income is less than the program's debt-to-earnings ratio 
as a percentage of annual earnings for the program's graduates. The 
commenter recommended that the Department require a low-value program 
to maintain a 65 percent loan repayment rate in order for the program 
to maintain full eligibility.
    A number of commenters noted that the mean repayment rate for all 
institutions is 48 percent and that an overwhelming majority of 
minority-serving institutions and community colleges, as well as many 
urban public and independent colleges and universities, would fail to 
meet the 45 percent repayment rate threshold if adopted by the 
Department. The commenters questioned the use of this standard of 
quality that almost one-half of all colleges would fail to meet. In 
addition, the commenters b