New CEI Study Challenges Department of Education’s “Gainful Employment” Rule

Washington, D.C., March 24, 2011 – In a new study released today by the Competitive Enterprise Institute (CEI), author Kara Cheseby challenges the Department of Education’s (DOE) proposed “Gainful Employment” regulations, which have generated considerable controversy. Cheseby, who has years of experience analyzing the industry, makes the case that the new rules would cripple the career college sector, which has provided vital opportunities for post-secondary education and upward mobility for underserved student populations.

Currently, the Higher Education Act requires that a career college must prepare students for gainful employment in order for these institutions to enroll students who are eligible for federal financial aid. The DOE’s new rules would create new narrow metrics to define “gainful employment” based on student debt-to-income levels and loan repayment rates. In the report, Cheseby explains why the DOE would be making a mistake by establishing these new gainful employment rules.

– The DOE claims that the new rules are necessary because graduates of career colleges currently account for a disproportionate number of federal loan defaults. But as Cheseby notes, the DOE neglected to take students’ socioeconomic status into account in its evaluation of federal loan defaults and loan repayment rates. Career colleges serve student communities with significant risk factors such as low incomes, full-time employment, and delayed enrollment which adversely impact degree attainment and account for their having a higher loan default rate than public institutions or private non-profit colleges.

– The DOE claims that evaluating a newly employed graduate’s debt-to-income level is a fair assessment of whether he or she is gainfully employed. However, as Cheseby argues, students often attend career colleges in order to obtain entry-level positions in their chosen profession. Career colleges enable students with poor secondary school records to gain access to industries that might otherwise be closed to them. Therefore, a student’s career college education might prove extremely valuable in the long run, with a low entry-level income being just the first rung in a career ladder.

– As Cheseby notes, career colleges have a far better record of graduating low-income and minority populations than public institutions and private, not-for-profit schools, at a substantially lower total government and taxpayer cost. Rewriting federal student aid rules to discriminate against career college students will unfairly disadvantage these communities without providing taxpayers any significant savings.

Ultimately, Cheseby argues that the DOE’s proposed rules are a misuse of the agency’s regulatory power.

“The gainful employment proposal represents a philosophical shift in the country’s approach to higher education from one of creating opportunity and choice for as many students as possible to micromanaging students’ career paths by dictating that only tuition price reductions and specific near-term salary results make a post-secondary education at a career college worthwhile,” Cheseby writes.

“The proposed gainful employment rules will limit choice and access to postsecondary education for this underserved population under the guise of consumer protection, as well as damage an important education channel that is providing postsecondary education at a lower true taxpayer cost than public institutions and private not-for-profit schools.”

Read Kara Cheseby’s full study, “Class Conflict: Gainful Employment Proposal Penalizes At-Risk Student Populations and Hurts the Economy,” here.