Regulatory Discrimination: Why NAS Opposes the Gainful Employment Rule

The National Association of Scholars has submitted a comment to the Department of Education, expressing support for the Department’s proposal to rescind the Gainful Employment (GE) Rule. This rule unfairly targeted for-profit and certain nontraditional programs with onerous regulations that accomplished no discernible gain. NAS urged Secretary DeVos to repeal the GE Rule in order to restore equitable treatment of all institutions of higher education.

In the comment, NAS also opposed the Department of Education’s proposal to replace the GE Rule with extensive mandatory disclosure requirements from all programs of higher education. The compliance costs associated with expanding these disclosures would excessively burden colleges and universities, which are already overregulated. Colleges would pass on the increased costs to students in the form of higher tuition and fees.

We urge NAS members to submit their own comments on the Gainful Employment Rule to the Department of Education, via the online portal. (Click “Comment Now.”) The deadline to submit comments is September 13.

Read below NAS’s complete comment on the Gainful Employment Rule.

 

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September 4, 2018

 

The Honorable Betsy DeVos

Secretary

U.S. Department of Education

400 Maryland Avenue, S.W.

Washington, DC 20202

 

Dear Secretary DeVos,

I support the Department of Education’s proposal to rescind the Gainful Employment (GE) Rule. This rule unfairly targets a narrow subsection of higher education with burdensome regulations that accomplish no discernible gain.

However, I urge the Department not to proceed with its proposal to replace the Gainful Employment Rule with mandatory disclosures from all institutions of higher education of a broad range of data, including programmatic student outcomes. The compliance costs associated with expanding these disclosures would excessively burden colleges and universities, which are already overregulated, and would also require a costly expansion of their administrative staff.

I write as President of the National Association of Scholars (NAS). NAS is a network of scholars and citizens united by our commitment to intellectual freedom, the pursuit of truth, and virtuous citizenship. As part of our mission, we support policies that promote marketplace competition, institutional autonomy, and innovation in higher education. We especially champion policies that reduce the numbers and the power of higher education’s regulatory bureaucracies.

Inequitable Application

The GE Rule at present unfairly targets a narrow subset of educational institutions—proprietary institutions and vocational programs at non-profit institutions that train students for “gainful employment in a recognized occupation.” The Department of Education acts inequitably by holding these institutions to higher standards than those required of traditional programs, and serves to protect establishment institutions from their proprietary competitors.

The GE Rule wrongly presumes that proprietary and other GE programs are, as a class, uniquely predatory. Some GE programs do exhibit predatory behavior, trapping students in high tuition, unmanageable debt, and low-value degrees. So too do some nonprofit programs. Some nonprofit colleges and universities knowingly admit ill-prepared students, incapable of graduating, so as to collect a semester of federal student aid dollars before the students drop out.

I am heartened to see that the Department, in proposing to rescind the GE Rule, now recognizes the presence of predatory behavior by some traditional institutions:

Well-publicized incidents of non-profit institutions misrepresenting their selectivity levels, inflating the job placement rates of their law school graduates, and even awarding credit for classes that never existed demonstrate that bad acts occur among institutions regardless of their tax status.[1]

Further, when developing the GE Rule, the Department appears to have misused social science research and other evidence on debt to income ratios. The Department now acknowledges that the Rule’s requirement that that GE programs have a graduate debt-to-annual earnings ratio of less than or equal to 8 percent

cited as justification for the 8 percent D/E rates threshold a research paper published in 2006 by Baum and Schwartz that described the 8 percent threshold as a commonly utilized mortgage eligibility standard. (2) However, the Baum & Schwartz paper makes clear that the 8 percent mortgage eligibility standard “has no particular merit or justification” when proposed as a benchmark for manageable student loan debt.[2]

The Department is committed to equitable treatment of all institutions of higher education, as well as to high standards concerning its use of research data. The Department’s rescission of the GE rule will act to confirm the Department’s commitment to these ideals.

Burdensome Regulation

The Gainful Employment Rule requires both the Department of Education and the regulated institutions to perform burdensome data collection and analysis. The disclosure requirements mire institutions in extensive bureaucratic labor for little apparent gain. The enforcement mechanism—the threat to remove access to Title IV student aid—holds institutions responsible for factors beyond their control, such as the state of the national economy and the personal financial responsibility of their students.

The Department of Education has documented the annual savings that would accrue by rescinding this rule—$209 million in economic benefits; $173.9 million in reduced compliance costs to institutions of higher education; $35.3 million in reduced compliance costs to students; and $25.0 million in reduced administrative costs to the Department of Education itself.[3]

Rescission of the GE Rule will also confirm the Department’s commitment to reducing, as much as practicable, the economic burden of its regulations.

Reduce Disclosure Requirements

The Department’s commitment to reducing the economic burden of its regulations indicates that it should not put into practice its proposal to recast the GE Rule’s disclosure requirements as a universal requirement applied to all institutions of higher education that receive federal funding.

The Department would impose enormous costs on institutions of higher education if it required individual programs to track and disclose information such as programmatic outcomes, program size, completion rates, and net price—costs which the institutions would then pass on to students in the form of higher tuition and fees. This expansion of data collection would also require institutions to enlarge their already oversized administrations—and therefore increase tuition to pay for new administrative salaries. Student pocketbooks will pay the cost of a universal disclosure requirement.

Expanding the disclosure requirements will also create further administrative costs for the Department of Education, since it will need to compile and verify the new data, ensure that programs post it to their websites, and expand the College Scorecard. Given the Department of Education’s admission that the GE Rule proved of little value to higher education, it should abandon the idea of retaining and expanding the GE Rule’s data collection process.

The Department argues that retaining and expanding the disclosure requirements will permit students and parents to “compare the institutions and programs available to them and make informed enrollment and borrowing choices.”[4] Yet the Department also states that it is difficult to set a standard metric to measure value, and in part justifies its rescission of the GE Rule on “a troubling degree of inconsistency and potential error [that] exists in job placement rates reported by GE programs that could mislead students in making an enrollment decision.”[5]

The Department itself further articulates a convincing list of reasons why programs might charge higher than average tuition—including the expense of providing a better-than-average program. It also details a number of reasons, apart from the quality of the program, why students might choose to obtain higher levels of debt or delay finding high-wage work, including an economic recession, the age of adult learners who need to balance their pursuit of a career with family responsibilities, and the prospect of vocational students seeking to build up their own businesses.

The uncertain benefits and the substantial known costs of disclosure requirements together argue that the Department of Education should not transform the GE Rule’s disclosure requirements into a universal rule.

Enact Complementary Reforms to Control Costs

The Department’s analysis of net budget impacts indicates that rescinding the GE Rule will cost the government an increased amount in disbursements of Pell Grants and other forms of federal tuition support.[6] The Department should address this impact by properly targeted reforms, such as measures to limit Pell Grant fraud or to make educational institutions co-responsible for a portion of federal student loans.

Conclusion

NAS believes that the Department should rescind the GE Rule, but that it should not substitute a universal disclosure requirement on universities. Any negative budgetary impacts of this rescission should be addressed by further rounds of targeted regulatory reform.

 

                                                                                                Sincerely yours,

 

                                                                                                Peter Wood

                                                                                                President

                                                                                                National Association of Scholars