United States: How Can The For-Profit Education Industry Respond To New U.S. Government Regulations?

Introduction / Summary

As an estimated 25 million students¹ pursued higher education at domestic institutions this past fall, the U.S. Department of Education formalized its most recent set of rules and regulations aimed at protecting students from what it considers to be low-performing educational programs. These rules have two major components: 1) Gainful Employment (GE) regulations that could ultimately prevent some programs from accessing federal student loans, and 2) Financial Value Transparency (FVT) reporting — and, in some cases, student acknowledgement — requirements.

The complexity of the regulations makes it difficult for many people to fully understand their scope and implications. In addition, there may be an information gap between the voluminous regulations themselves and short articles or blogs that tend to omit important specifics or raise more questions than they answer. Given that GE only regulates the for-profit portion of the overall U.S. education sector, there are inescapable ramifications that some of those organizations will need to deal with. The for-profit sector should quickly assess each institution's bespoke level of risk, blunt the effects and steer organizations into more stable and profitable futures, but how they handle the challenges will impact investment decisions within the sector in the future.

This article will attempt to strike a balance between these two extremes by:

1. Providing a brief overview of the background and context, particularly on GE regulations;
2. Summarizing the most recent round of efforts that have led to the new rules;
3. Presenting the outcomes of data-driven assessments of:
   1. Comments on the proposed regulations that were posted publicly;
   2. The scope of coverage for the final regulations; and,
   3. At-risk programs;
4. Analyzing implications for U.S. higher education generally; and,
5. Offering guidance to for-profit educational institutions and their owners / investors.

1. Background / Context

GE regulations began circa 2010 during the Obama administration. These rules targeted perceived profiteering within the U.S. for-profit education sector by attempting to force certain programs to bring their tuitions and other fees more in line with students' expected earnings after graduation. Programs that were unwilling or unable to accomplish this objective risked losing access to Title IV federal loan dollars for their students. Importantly, even though graduates of non-profit schools may be axiomatically susceptible to some of the same underlying issues, such as high debt and low earnings, as their counterparts at for-profit schools, GE regulations largely apply only to for-profit institutions.

Regardless of one's political leanings or beliefs about the underlying benefits of higher education, it is reasonable to say that GE is controversial. Proponents feel that it is an essential form of consumer protection by routing students away from programs that would make it difficult for them to quickly repay their student loans. GE has also enjoyed some support from within the traditional non-profit higher education space — both public and private — which collectively often takes a dim view of for-profit players and, in some cases, may resent the competition these players present.

Opponents of GE have raised a body of objections that includes both the practical, including that graduates' earnings are often under-reported because they do not include tips, and the ideological, asserting that looking solely at earnings misses other benefits that graduates receive — particularly those who pursue alternative educational and career paths. Some have also argued that GE misses the opportunity to create sweeping reform of the entire U.S. higher education landscape, opting instead to target the small minority of institutions and programs that are for-profit. Others find it to be ultimately anticompetitive, attempting to remove a thorn in the collective side of non-profit institutions that historically have not faced market pressures to change and evolve.

2. GE Round Two

After Democrats retook the White House in 2021, the Department of Education began researching and evaluating ways to reinstate and build upon the previous GE regulations. This two-year effort culminated in May 2023 with the publishing of draft rules, which were then open for public comment for a period of roughly one month, concluding in late June.

The Department of Education spent the summer of 2023 reviewing and synthesizing the nearly 7,600 comments that were made, which are outlined in the next section. A late September bulletin announced that the rules had been finalized and highlighted the features that the Biden administration considered to be most relevant.² The full set of rules, 190 pages long, was published in the Federal Register on October 10 and goes into effect on July 1, 2024.³

While the timelines are unambiguous, the same cannot be said for the likely effects of the rules. No consensus viewpoint has emerged, and there also appears to be some uncertainty about the relative scope of coverage. The Assessment sections below will attempt to address that.

3a. Assessment – Public Comments

Nearly 7,600 public comments were received by the Department of Education during the open period. Our AI analysis of a large sample of the posted comments⁴ suggests that respondent categories were split as follows:

In reality, some commenters likely fall under multiple categories. However, from a content standpoint, many comments received from individuals expressed concern about the proposed rules — in particular, their potential effects on programs offering vocational training in fields such as cosmetology and massage therapy. A number of these responses argued that these types of programs not only benefit non-traditional students but also have positive overall economic effects in their communities.

Comments that were aggregated and / or from institutions, rather than individuals, tended to be much more positive about the regulations. For instance, a Boston-based group called The Project on Predatory Student Lending submitted a letter favoring the proposed rules that was signed by nearly 3,600 students who claimed to be victims of predatory lending in the past.⁵ Our analysis of the institutions previously attended by these signers revealed, perhaps tellingly, that roughly half of them attended schools that are now no longer operating:

It may also be worth noting that, when signers with no institution listed and non-profit schools are both taken into account, the percentage of signers who attended schools that will actually be affected by the new regulations goes down to only about 38 percent.

One institution with even less skin in the proverbial game nonetheless offered a viewpoint that was neutral-to-negative on the proposed rules. The National Association of Independent Colleges and Universities (NAICU) represents non-profit higher education, which is largely not being targeted by the regulations. Nonetheless, NAICU raised a number of concerns in its letter,⁶ concluding "A financial value metric is not — and can never be — a true measure of the value of a higher education. While we agree that protecting vulnerable students is critical, we question whether the proposed regulations would meet that goal."

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Footnotes

1. This figure is an A&M estimate based on public data from the U.S. Department of Education, the Integrated Postsecondary Education Data System (IPEDS) and Statista. The Department of Education inputs include the Final regulations from the 10-10-23 Federal Register (2023-20385), the nprm-2022ppd-public-suppressed data set, etc

2. Biden-Harris Administration Announces Landmark Final Rules to Protect Consumers from Unaffordable Student Debt and Increase Transparency (govdelivery.com)

3. 2023-20385.pdf (govinfo.gov)

4. Regulations.gov

5. Regulations.gov

6. Regulations.gov

Originally published 02 April 2024

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