Obama Administration Proposes Student Aid Rules to Protect Borrowers and Taxpayers; Key Elements of Gainful Employment on a Sepa

The Obama administration today proposed a broad set of rules and definitions to strengthen the federal student aid programs by protecting students from aggressive or misleading recruiting practices, providing consumers with better information about the effectiveness of career college and training programs, and ensuring that only eligible students or programs receive aid.

Formally known as a Notice of Proposed Rulemaking (NPRM), today’s action followed a year-long negotiation between the U.S. Department of Education and the higher education community around 14 specific issues (outlined below).  Education Secretary Arne Duncan thanked the higher education community for working with the administration to strengthen student aid programs, adding, "We share a goal of ensuring that all Americans get the education and training needed to find meaningful and rewarding work.  Every institution of higher education is our partner in that effort."

Today’s notice addresses 13 of the 14 issues in their entirety, and partially addresses the 14th issue, which involves the definition of "gainful employment."  To qualify for federal aid, most career college and training programs must show they are preparing students for gainful employment in recognized occupations.

The Department is proposing to require proprietary institutions of higher education and postsecondary vocational institutions to provide prospective students with their programs’ graduation and job placement rates, and that colleges provide the Department with information that will allow it to determine student debt levels and incomes after program completion.  The Department is still developing metrics to hold programs accountable for preparing their students for gainful employment.  A separate NPRM will be published later in the summer.

Education Secretary Arne Duncan said: "We have many areas of agreement where we can move forward.  But some key issues around gainful employment are complicated and we want to get it right so we will be coming back with that shortly."

The NPRM is subject to public comment, and the Department encourages institutions of higher education and other entities to comment both on these rules and their impact.  The Department plans to closely review all the comments it receives, with the goal of publishing a final rule by November 1 so it would take effect beginning July 2011.

The over 6000 institutions of higher education supported by federal aid – community colleges, state universities, private nonprofit colleges and universities, and for-profit institutions – play an increasingly important role in training young people and adults for jobs and are critical to helping to meet the President’s goal of America leading the world in the number of college graduates by 2020.

The Department’s proposed regulations will help ensure that consumers and taxpayers are well served.  Additional information on the Department’s negotiated rulemaking efforts may be found on the web at:


The issues covered in this NPRM are the following:

Ensuring that only eligible students receive federal funds.  Generally students are eligible for aid only if they have a high school diploma or pass an “ability to benefit” test, and only if their academic standing is satisfactory.  The NPRM proposes some clarifications:

n High School Diploma: The proliferation of high school diploma mills has called the validity of some secondary school credentials into question. The proposed regulations would require institutions to develop and follow procedures to evaluate the validity of a student’s high school diploma if the institution or the Secretary has reason to believe that the diploma is not valid or was not obtained from an entity that provides secondary school education.

n College Credits: The proposed regulations would extend eligibility for federal student aid to students without high school diplomas after they successfully complete six credits of college work.  This implements a provision that was included in the Higher Education Opportunity Act of 2008.

n Ability To Benefit: The Department is responsible for approving test materials developed by testing companies. The Government Accountability Office recommended a number of ways that the Department could improve its oversight of how ATB tests are approved and administered.  The NPRM follows up on those recommendations.

n Satisfactory Academic Progress: Every institution is required to have satisfactory academic progress policies. Audits and institutional program reviews have uncovered policies that meet the current regulatory standards but permit students to receive funds even though they may not be meeting the institution’s progress standards.  The proposed regulations would require a structured and consistent approach to evaluating a student’s academic work, while continuing to provide flexibility to institutions in establishing their policies.

n Verification: Each year, a number of students are required to confirm the information on their Free Application for Federal Student Aid (FAFSA). Due to changes in the law and a new data retrieval process with the Internal Revenue Service, the proposed changes would, in many cases, reduce the amount of information students would have to provide to institutions.

Protecting consumers from misleading or overly aggressive recruiting practices, and clarifying State oversight responsibilities.  The NPRM strengthens three current rules that are designed to protect students and taxpayers:

n Misrepresentation: During public hearings and negotiated rulemaking sessions, the Department heard numerous complaints from students enrolled in programs where they felt misled on what was and was not being offered, the way programs could be paid for, and their job prospects upon completion. To protect consumers, the proposed regulations strengthen the Department’s authority to take action against institutions engaging in deceptive advertising, marketing, and sales practices.

n Incentive Compensation: The Department heard reports of aggressive recruiting practices resulting in students being encouraged to take out loans they could not afford, or enroll in programs where they were either unqualified or could not succeed. Though current laws prohibit schools from compensating admissions recruiters based solely on success in securing student enrollment, regulations known as “safe harbors” allowed this practice to go on under certain circumstances, which we believe violate the spirit of the law.  The proposed regulations will remove all the “safe harbor” provisions.

n State Authorization: State authorization is required by the Higher Education Act for a postsecondary institution to participate in federal student aid, and other federal funding programs. Some states have failed to establish how they approve and monitor postsecondary programs. The proposed regulations would clarify this important State responsibility.

Clarifying the courses that are eligible for federal aid, and the amount of aid that is appropriate.

n Credit Hour: Credit hours are the metric used by the Department to measure eligibility for federal funding. Currently there is no standard definition for a credit hour, which has led to reports of institutions awarding more credits (and drawing down more federal funds) than are deserved. To address this issue, the regulations define a credit hour and establish procedures for accrediting agencies to determine whether an institution’s assignment of a credit hour is acceptable. Recognizing that “seat time” is not the goal, the proposal allows for equivalent measurement of learning outcomes.

n Written Agreements: A postsecondary institution is allowed to deliver a portion of another institution’s educational program through a written arrangement. Problems have surfaced when the two institutions are controlled by the same entity or do not meet certain participation requirements.  The proposed regulations limit the amount of a program that can be provided by a school in an arrangement and prohibit arrangements between ineligible institutions that have had their Federal student aid participation revoked.

n Retaking Coursework: Currently students who repeat coursework cannot have the course they repeat count towards the calculation of a full-time course load.  The proposed regulations would expand the definition of full-time student by allowing such courses to count if the student is in a program that registers by the term or semester.

n Determining When a Student Has Withdrawn: Currently, loopholes complicate the measure of how much federal funding must be paid back if a student drops out of a program. The proposed regulations would eliminate loopholes and clarify the calculation of returning federal funds to the Department by defining when a student is considered to have withdrawn from a program. It will also clarify the circumstances under which an institution is required to take attendance for the purpose of calculating a return of federal funds.

n Disbursing Federal Student Aid Funds: As it stands now, many students are not receiving their Federal student aid funds in enough time to obtain their books and before the start of school.  The proposed regulations would ensure that the neediest recipients can acquire books and supplies by the seventh day of their payment period.

n Disclosures regarding Gainful Employment: The Department is proposing that proprietary institutions of higher education and postsecondary vocational institutions provide prospective students with each eligible program’s graduation and job placement rates, and that colleges provide the Department with information that will allow determination of student debt levels and incomes after program completion.  The Department is still developing metrics to hold programs accountable for meeting federal requirements.  A separate NPRM on this topic will be published later in the summer.


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