Private Higher Education to be Hurt by Gainful Employment Rule

Private Higher Education Crippled by Gainful Employment Rule
Department of Education pushes forward with gainful employment rule amidst accusations of foul play

The Office of Management and Budget (OMB) today published the now infamous “gainful employment” rule, written by the Department of Education. This new rule, which emerged amidst a cloud of scandal and controversy, places incredible and unfair burdens on the nation’s bustling for-profit higher education sector.

It requires that for-profit schools meet at least one of three criteria for their students to qualify for federal aid: at least 35% of graduates must actively be paying down their loans; graduates must spend less than 30% of their discretionary income on paying off loans; finally, graduates must spend 12% or less of their total income on loan payments. Fail to pass one of these tests three times in four years, and the school must close its doors for good.

Enrollment in for-profit education institutions has skyrocketed nearly 418% since 2000, and for good reason. Tuition averages about $10,000 per year less than private not-for-profit schools. These innovative schools consistently lead the way in online education and cater to the needs of local employment markets in ways that traditional schools do not. Notably, and most importantly, these institutions serve a distinct demographic. Minority students constitute 45% of for-profit colleges’ total enrollment compared to 33% and 27% for public and private non-profit colleges, respectively.

Eliminating choice and competition is hardly an effective way to ensure opportunity for so many that are traditionally shutout of higher education. Colleges enrolling mostly minority students are more likely to demonstrate loan re-payment rates in the new rule’s restricted zone, and would likely be forced to close their doors. Realizing the implications of the new gainful employment rule, 289 members of the House of Representatives, including 58 Democrats, voted in February to block funding for its enforcement. The Senate, however, rejected the plan.

Further muddying the water, the circumstances surrounding the rulemaking are shrouded in controversy. Back in February, Citizens for Responsibility and Ethics in Washington (CREW) asked the Securities and Exchange Commission (SEC) to investigate a known Wall Street short-seller, Steve Eisman. Eisman testified before the Senate HELP committee arguing for implementation of the gainful employment rule despite having no expertise in education policy. Even more problematic, a FOIA by CREW revealed that Eisman was in close contact with Education officials and may have even helped write the new gainful employment rule.

This is especially troubling since Eisman and other financial firms bet that for-profit schools—publically traded companies—stock price would plummet, a practice called short-selling. DOE is yet to sufficiently address the elephant in the room—why were they working so closely with Eisman and others who stood to profit from the gainful employment rulemaking.

On April 28, DOE’s Office of Inspector General launched a probe into the possible influence of Wall Street short sellers on the rule. Despite this probe and serious questions left unanswered the Office of Management and Budget codified and published the gainful employment rule. The haste at which this rule was rammed through is disconcerting, especially given the warranted allegations from Senators, Representatives, and non-partisan outside groups. Until the dust settles and Americans concerns are alleviated, DOE should suspend implementation of the gainful employment rule. Anything else would be imprudent.