The Flawed Reasoning and Evidence for the Department of Education's Gainful Employment Regulation of Private, For-Profit Colleges and Universities

Abstract

This study examines the basis and implications of the “Gainful Employment Regulations” (GER) issued by the Department of Education (DoED) October 31, 2014. DoED intends to use these regulations to identify programs at colleges and universities which it determines should be ineligible to receive Title IV student aid funds. While claiming that the regulations will apply “equally to public, private and for-profit programs” that accept Title IV funds, the DoED has limited the purview of the GER to vocational programs that prepare students for “gainful employment in a recognized occupation.” As a result, an estimated 98 percent of students likely to be affected by the GER are enrolled in programs at for-profit institutions. Further the GER establish a set of standards based on rates of student loan repayments and the earnings of graduates from particular programs and institutions. Our analysis found that demographic factors such as low family income and minority status have large effects on student loan debt levels, repayment rates and subsequent earnings. The result is that the GER systematically discriminate against low-income and minority students and the for-profit institutions that educate disproportionate numbers of “at-risk” students. The analysis produced the following additional findings. 1) Graduation rates from two-year for-profit institutions are three times higher than from two-year public institutions and slightly higher than two-year private not-for-profit institutions, although graduation rates from four-year for-profits are lower than those of four-year public or private not-for-profit institutions. 2) Students at for-profit institutions account for a disproportionate share of federal student loans, because those students are more likely to be from low-income, minority families than students at public or private not-for-profit institutions. 3) After controlling for family income and race/ethnicity, the repayment rates for students from for-profit institutions are 3.9 percentage-points higher, and their default rates are 0.6 percentage-points lower, than students who attended public institutions. 4) DoED data show that graduates of two-year for-profit institutions earn 4.2 percent more than graduates of two-year public institutions and about the same as graduates of two-year private not-for-profit institutions. 5) While DoED data show that graduates of four-year for-profits institutions earn on average 5 percent less than graduates of four-year not-for-profit private institutions and 8 percent less than graduates of four-year public institutions, our regression analysis found that nearly 90 percent of the gap between these earnings gaps reflect demographic characteristics -- family income, minority status and SAT scores -- unrelated to the institution they attended. 6) If the GER is applied as written, we estimate it will deny 1,172,000 students at for-profit institutions access to Title IV federal loans; and an estimated 716,000 of those students will drop out of college, including 430,000 to 544,000 minority students.