University Business - September 2012 - (Page 28)

financial aid The Gainful Employment Ruling Continuing efforts to improve financial literacy for borrowers By Jessica Sondgeroth D espite Federal District Court Judge Rudolph Contreras’ ruling that negates a primary metric of the U.S. Department of Education’s “gainful employment” regulations, the DOE still has authority to regulate gainful employment programs and schools should continue to look for ways to promote the financial success of their students. While it remains unknown what will become of the gainful employment regulations, it doesn’t hurt to continue operating as though the gainful employment measures are in effect by strengthening default prevention, financial literacy, counseling and other efforts to reduce borrowing and improve loan repayment. The Obama administration published the gainful employment metrics last year, amid criticism that some for-profit colleges were piling students with debt in exchange for low-value or incomplete credentials and degrees. The DOE established these regulations to tie an academic program’s eligibility for Title IV federal student aid funds to whether it can “prepare students for gainful employment in a recognized occupation.” The rules were due to be implemented July 1, 2012, with the first set of meaningful metrics to be released during 2013. The rule included three metrics to evaluate the performance of academic programs. Contreras’ ruling overturns the loan repayment rate, on the basis that the 35 percent repayment rate threshold was too arbitrarily contrived by the DOE as a performance standard for compliance. Helping students succeed academically is one way institutions can improve student loan repayment rates. “The Department does not identify any expert studies or industry practices indicating that a repayment rate of 35 percent would be a ‘meaningful performance standard,’ but rather emphasizes that the number was chosen because approximately one quarter of gainful employment programs would fail a test set at that level,” Contreras writes in his ruling. “Because one of the debt measures lacks a reasoned basis, that regulation will be vacated as arbitrary and capricious. Because the majority of the related rules cannot stand without the debt measures, they will be vacated, as well.” The ruling leaves the DOE with the choice to appeal the decision or create new metrics, but it does not overturn its authority to regulate certain programs and institutions to ensure they are preparing students for gainful employment. “Concerned about inadequate programs and unscrupulous institutions, the Department has gone looking for rats in rat holes [sic.]—as the statute empowers it to do,” Contreras wrote in his ruling. Institutional leaders would be prudent to continue to address the gainful employment requirements by establishing a default prevention plan, either adopting the DOE’s sample plan (available at or customizing their own. Schools should also engage borrowers, work to better identify at-risk students and improve loan counseling efforts. Research shows that many factors affect borrowers’ chances of successfully repaying their student loan and avoiding default. These factors include: • Borrower characteristics like family income and academic preparedness in high school. Jessica Sondgeroth is the web reporter and editor at the National Association of Student Financial Aid Administrators, 28 | September 2012

Table of Contents for the Digital Edition of University Business - September 2012

University Business - September 2012
Editor’s Note
College Index
Ad Index
Behind the News
Independent Outlook
Financial Aid
Virtual Viewbooks: Ready? Or Not?
Technology Changes Everything
Connecting Learners, On Campus and Off
The Changing Face of the CIO
Efficiency Greats
The Administrator's Bookshelf
Oceans of Data
Education Innovators
Internet Technology
End Note

University Business - September 2012