Biden Administration Releases Sweeping New Rules for Career Schools That Can Saddle Borrowers With Crippling Student Loan Debt

The Biden administration has released sweeping new regulations designed to protect students who enroll in career and vocational programs, some of which have been known to saddle borrowers with crippling student loan debt and little financial benefit.

The proposed rules, called “gainful employment” regulations, would, “establish the strongest set of safeguards ever to protect students from unaffordable debt or insufficient earnings from career training programs, along with new measures to increase transparency across all postsecondary programs,” said the Education Department in a statement.

“President Biden has taken unprecedented steps to fix our broken student loan system and help millions of Americans struggling with student debt, creating new opportunities for borrowers, their families, and their communities. At the same time, we need to hold colleges accountable for unaffordable costs and better protect students from programs that fail to deliver real value and upward mobility,” said U.S. Secretary of Education Miguel Cardona last week. “The [new] rules… are about helping ensure that when students invest in a postsecondary education, they get a solid return on investment and a greater shot at the American dream.”

Gainful employment regulations designed to protect borrowers from crippling student loan debt

The Higher Education Act, a massive federal statute that regulates much of the federal student loan and higher education system, requires private for-profit colleges offering certificates and degrees, to provide training that prepares students for gainful employment in a recognized occupation. The newly proposed regulations by the Biden administration mandate that programs covered by this requirement would need to meet certain standards to maintain their access to federal financial aid.

According to an Education Department fact sheet, the proposed new gainful employment regulations would establish two primary, independent metrics to determine whether a career training program meets the Higher Education Act requirements to prepare students for gainful employment in a recognized occupation:

• “A debt-to-earnings ratio that compares the median earnings of graduates who received Federal financial aid to the median annual payments on loan debt borrowed for the program. To pass, a program must either show that debt payments are no more than 8% of annual earnings or 20% of discretionary earnings… Programs that do not meet the debt-to-earnings standards are considered ‘high-debt-burden.’”
• “A new earnings premium test that measures whether the typical graduate from a program that received Federal aid is earning at least as much as a typical high school graduate in the labor force (i.e., either working or unemployed) in their State between the ages of 25 and 34… Programs that have typical earnings lower than the median high school graduate are considered ‘low-earnings.’”

Failing to meet these standards could result in an institution being cut off from federal student aid. 

“Programs that fail either or both metrics in a single year would be required to provide warnings to students that the programs could be at risk of losing eligibility for Federal aid in subsequent years,” says the department’s fact sheet. “Programs that fail the same metric in two of three consecutive years would have their eligibility to participate in Federal aid programs revoked.”

Without students being able to finance the costs of their education through federal student loans and grants, some schools that don’t meet the updated standards could ultimately be forced to close.

Republicans criticize Biden administration's student debt relief and gainful employment proposals

Republican congressional leaders were swift to criticize the proposed new rules.

“I welcome accountability and transparency in postsecondary education,” said Education and the Workforce Committee Chairwoman Virginia Foxx (R-NC) in a statement last week. “It is desperately needed. But this regulatory package is simply the same witch hunt we’ve seen the Biden administration carry out over the last two years to undercut an entire sector of institutions that serves the needs of veterans, minorities, and other disadvantaged students that Democrats claim they care about.”

But advocacy groups for borrowers offered some praise to the Biden administration for taking steps to hold career colleges accountable. 

“Ever since the Trump Administration illegally repealed the 2014 Gainful Employment rule, students have been left unprotected from predatory higher ed profiteers,” said the National Student Legal Defense Network in a statement. “The Department’s proposed regulation is an important step toward restoring basic rules of the road for career college programs. It’s a strong proposal.”

The new rules, once finalized, will not be effective until July 2024.

Latest effort by Biden Administration, in conjunction with student loan forgiveness, to help borrowers harmed by school practices

The proposed new gainful employment regulations are just the latest effort in a string of initiatives by the Biden administration to address longstanding financial harms incurred by students and borrowers who attended schools that have at times been accused of problematic and even predatory conduct.

The Education Department said in a statement earlier this month that it has approved $13.3 billion in student loan forgiveness through Borrower Defense to Repayment, a federal program that can allow borrowers to request a discharge of their student debt if their school misrepresented key elements of the applicable degree or certificate program. New Borrower Defense regulations that will go into effect this summer will expand the definition of school misconduct and make it easier for some borrowers to request relief.

The administration has also granted group discharges for hundreds of thousands of borrowers impacted by the closures of Corinthian Colleges and ITT Technical Institutes. These national, for-profit colleges collapsed following widespread allegations of fraud and misconduct.

And earlier this year, the Supreme Court allowed a sweeping settlement agreement between the Biden administration and a class of student loan borrowers to proceed. That settlement will result in $6 billion in student loan discharges for hundreds of thousands of borrowers harmed by their schools.