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How Betsy DeVos’ Change to the Gainful Employment Rule May Affect You

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Betsy DeVos, the United States Secretary of Education, is nothing if not controversial. On July 1, 2019, she made a decision that has American citizens and politicians up in arms: She canceled the Gainful Employment Rule that President Obama put into effect in 2015. This rule held colleges to certain standards so that students would be more financially stable after graduating.

The Department of Education claims that the rule unfairly targeted for-profit schools. Rather than make adjustments to the regulations, Secretary DeVos chose to repeal the Gainful Employment Rule completely. This repeal will become effective July 1, 2020.

People may be divided on this issue, but most can agree that DeVos’ decision will impact not only the colleges that had to comply with the Gainful Employment Rule, but also students who attend those schools.

Are you curious about how this decision could affect you or your college-aged child? Read on to learn about what the Gainful Employment Rule accomplished, why DeVos appealed the rule, and how canceling the legislation could affect students.

What Did the Gainful Employment Rule Do?

The Gainful Employment Rule is part of the Higher Education Act (HEA) of 1965 . The HEA stated that career educational programs receiving federal funding must provide students with gainful employment opportunities.

There were a couple problems with the HEA’s gainful employment requirements, though. First, the wording was vague. Second, the HEA only referred to public and non-profit colleges, not for-profit schools or vocational colleges.

The Obama administration created the Gainful Employment Rule to provide clear guidelines for how schools should provide the means for recent graduates to make a living, and then to hold more schools to these standards.

There are two components to the Gainful Employment Rule: accountability and transparency.

The rule held schools accountable by using a formula to measure students’ debt-to-earnings ratio, or the amount of debt they graduate with compared to how much they earned upon leaving school. Colleges had to track students’ debt-to-earnings ratio to ensure that students didn’t pay an arm and a leg for their education, only to land a job that paid low wages.

Colleges were also required to be transparent with the public about graduates’ financial situations, including the average student’s debt-to-earnings ratio and how many students have a job related to their area of study. In addition, schools had to provide information about how their students’ debt, income, and employment rates compared with those of similar programs.

What happened if a college didn’t meet these accountability and transparency requirements? They could lose federal funding if they didn’t make the necessary adjustments within two years.

How Could Canceling the Gainful Employment Rule Affect Students?

How did a loss of funding affect students, though? If you attended a school that was ineligible federal financial funding, then you were ineligible to receive federally-funded financial aid, including federal student loan or grant money.

Not receiving financial aid may sound scary. However, one of two things usually happened if a school failed to meet the debt-to-earnings ratio requirements and lost federal funding. They either stopped accepting new students or found a way to adjust their debt-to-earnings ratio.

Many institutions offered more scholarships, lowered tuition rates, or lengthened program durations so that students were better prepared for their career fields. If students were more prepared, it makes sense that they were more likely not just to get a job, but to get a job that paid relatively well.

To put it simply, the Gainful Employment Rule’s purpose was to help students either graduate with less debt or earn more money after graduating so they could more easily pay off that debt.

The rule applied to any non-profit or public colleges that offered non-degree programs, and to all for-profit colleges. For-profit schools aren’t necessarily the same thing as private schools. Owners and investors run for-profit schools like businesses, while most private schools are non-profits.

Some Students Might Accumulate More Debt

Betsy DeVos believes that the Gainful Employment regulations were unfair in that they put for-profit schools at a disadvantage. In 2017, the Department of Education released its first statistics regarding career education following the implementation of the Gainful Employment Rule.

Of the schools that failed the Gainful Employment requirements, 98% were for-profit schools. However, 65% of the failing for-profit schools stopped accepting new students voluntarily.

Without regulations to keep those failing schools accountable, they have the freedom to enroll new students again even though their debt-to-earnings ratio is relatively high. Not only can students enroll, but they may apply for federal financial aid to attend these schools. This means that if students take out student loans to enroll in these programs, they might not earn enough to pay back their loans.

It’s true that people don’t have to enroll in these schools. However, students without proper guidance (e.g., first generation college students) may not have enough information to make an informed decision about such programs.

Students Could Miss Out on Certain Benefits

Remember our mentioning that many schools fixed the debt-to-income problem by offering more student scholarships, lowering the cost of tuition, or lengthening program durations? Well, now there is no need for them to take any of these actions.

As of July 2020, the Gainful Employment Rule will no longer be in place to help stop those schools from raising tuition again. Plus, if the Gainful Employment Rule had stayed in place, schools that may have failed to meet debt-to-earnings requirements in the future would have had to make changes that could have benefitted students. Now these colleges have little incentive to do so, if any.

As a result, students may face higher tuition rates at these schools, fewer scholarship opportunities, and potentially less preparation for their career field. All these factors could lead some students to accrue more student debt they may struggle to pay off.

How Students Can Find A School’s Financial Information

DeVos does not appear to believe that colleges should abide by the two standards the rule held them to, accountability and transparency—she only seems to see the need for transparency.

Schools are no longer required to provide information to the public about students’ debt or income after graduation, or how their statistics compare to those of similar programs. Instead, DeVos wants to consistently update College Scorecard .

College Scorecard is a government website operated by the Department of Education. Let’s say you want to find a construction trade program in Alabama. You’d go to the College Scorecard website and filter your school search by factors such as program, location, and school size.

College Scorecard will pull up all the construction trade programs in Alabama that meet your criteria. Click on a school to view information like costs, financial aid and debt, graduation and retention, and earnings after school.

Currently students can browse this site and compare schools including their earnings after graduation and financial aid and debt. In addition, DeVos claims that adding more information to the website is on her to-do list. Unfortunately, there still isn’t a formula to hold colleges directly accountable for keeping students’ financial interests in mind.

Is your student debt making life difficult? See if refinancing your student loans with SoFi could help.

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