Biden Administration Releases New Rules to Curtail Student Loans and Hold Schools Accountable

The Biden Administration has released new regulations designed to prevent students from taking on significant student loan debt if their school is unable to provide them with a pathway to viable employment.

The new regulations, called a “Gainful Employment” rule, were finalized and released last month. The rule, “will protect approximately 700,000 students a year from career training programs that leave graduates with unaffordable loan payments or earnings no better than what someone who did not pursue postsecondary education earns in their state,” according to an Education Department statement.

“These protections are about ensuring career college programs live up to higher education’s promise as a pathway to a better a life,” said U.S. Department of Education Under Secretary James Kvaal. “Students overwhelmingly say that they’re going to college to find a good job and build financial security, but too often their programs leave them no better off financially than those with no postsecondary education at all. These rules will stop taxpayer dollars from going to schools that continually saddle students with unaffordable debt. Separately, we’re ensuring all students have increased information to make good choices.”

What the new rules do for student loan borrowers

The new gainful employment rule allows the Education Department to review whether degree and certificate programs offered by private, for-profit schools and other institutions meet legal requirements to prepare students for gainful employment in a recognized occupation. The Department will evaluate this using two broad criteria:

• The share of annual earnings a typical graduate needs to devote to paying their debt (their so-called “debt-to-earnings ratio”) must be less than or equal to 8%, or less than or equal to 20% of their discretionary earnings (which the rule defines as the borrower’s annual earnings minus 150% of the federal poverty limit). 
• At least half of graduates from the borrower’s program must have higher earnings than a typical high school graduate in that state’s labor force who never enrolled in postsecondary education. In other words, a graduate must be earning more than they would have if they had never enrolled in the program to begin with. 

“Programs will be assessed separately on each metric,” says the Department. “Programs that fail either will need to warn students that the program is at risk of losing access to the federal student aid programs. Those that fail to meet the standards on the same metric twice in a three-year period will not be eligible to participate in the Department's Federal student aid programs.” 

This could provide a powerful incentive for institutions to properly prepare students for the workforce and help connect graduates with well-paying jobs. Failure to do so could cut off the institutions from accessing federal student aid programs, often a critical source of revenue. This, in turn, could help prevent situations where students take on significant levels of student loan debt that they are ultimately unable to repay because of poor job prospects or low earnings. 

In conjunction with the new gainful employment rule, the Education Department also released a new “Financial Value Transparency” framework. This initiative is designed to provide detailed information to prospective students, “about the net costs of postsecondary programs, and the financial outcomes they can expect,” so that they are better equipped to decide whether or not to enroll in a particular degree or certificate program. 

Advocacy groups praise the new rules, but republicans are critical

Advocacy groups for students and student loan borrowers applauded the Biden Administration for enacting the new regulations. 

“The Gainful Employment rule is a common-sense first step to make sure schools participating in the federal student aid program do not leave their students worse off,” said Kyra Taylor, staff attorney at the National Consumer Law Center, in a statement. “Students enroll in postsecondary education programs with hopes of improving their employment prospects and creating a better financial future for themselves and their families. However, many programs at for-profit colleges, and some certificate programs at non-profit schools, have chronically failed to provide a good return on investment for their students, and too often these programs have targeted Black and Latino students, as well as low-income students of all races and ethnicities.” 

“The finalized Gainful Employment rule is a major step towards enacting more front-end protections to ensure students aren’t being taken advantage of by predatory schools and programs,” said Student Defense President Aaron Ament in a statement. “We’re glad to see a high school earnings benchmark included in the final rule, which we supported during the negotiated rulemaking process. We’re eager to see this rule move towards final implementation and urge the Department of Education to enact these regulations as quickly as possible.”

But Republicans criticized the new regulations as too harsh and intrusive for career schools.

“For an agency that purports to serve the needs of veterans, minorities, and other disadvantaged students, the Department’s announcement today is steeped in hypocrisy,” said Education and the Workforce Committee Chairwoman Virginia Foxx (R-NC) in a statement. “It has proven time and again that it would rather march to the beat of its own bureaucratic drum than work to foster both accountability and transparency in postsecondary education. Unfortunately, that means attacking proprietary institutions through flawed and arbitrary regulations while giving a pass to the thousands of low-value programs at institutions serving the vast majority of students.”

Efforts coincide with student loan forgiveness initiatives for defrauded borrowers

The new gainful employment rule buttresses separate efforts by the Biden Administration to remedy past harms incurred by students and borrowers due to school misconduct. 

The Administration has already approved $22.5 billion in student loan forgiveness for more than 1.3 million borrowers, “who were cheated by their schools, saw their institutions precipitously close, or are covered by related court settlements,” according to Department of Education data released this week. 

That $22.5 billion student loan forgiveness figure includes $6 billion in approved loan discharges under the Sweet v. Cardona settlement, which resolved a years-long class action lawsuit brought by borrowers over hundreds of thousands of stalled or improperly denied Borrower Defense to Repayment applications. The Borrower Defense to Repayment program gives borrowers a pathway to federal student loan forgiveness if their school lied or made false promises about key aspects of a degree or certificate program, like admissions selectivity or career prospects. 

The Administration has also approved group student loan discharges for former students of ITT Technical Institutes and Corinthian Colleges, national for-profit college chains that closed several years ago following allegations of widespread fraud.