# Program Integrity: Gainful Employment > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2014-25594 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** October 31, 2014 - **Citation:** 79 FR 64890 ## Text DEPARTMENT OF EDUCATION 34 CFR Parts 600 and 668 RIN 1840-AD15 [Docket ID ED-2014-OPE-0039] Program Integrity: Gainful Employment AGENCY: Office of Postsecondary Education, Department of Education. ACTION: Final regulations. SUMMARY: The Secretary amends regulations on institutional eligibility under the Higher Education Act of 1965, as amended (HEA), and the Student Assistance General Provisions to establish measures for determining whether certain postsecondary educational programs prepare students for gainful employment in a recognized occupation, and the conditions under which these educational programs remain eligible under the Federal Student Aid programs authorized under title IV of the HEA (title IV, HEA programs). DATES: These regulations are effective July 1, 2015. FOR FURTHER INFORMATION CONTACT: John Kolotos, U.S. Department of Education, 1990 K Street NW., Room 8018, Washington, DC 20006-8502. Telephone: (202) 502-7762 or by email at: gainfulemploymentregulations@ed.gov . If you use a telecommunications device for the deaf (TDD) or a text telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-800-877-8339. SUPPLEMENTARY INFORMATION: Executive Summary Purpose of This Regulatory Action: The regulations are intended to address growing concerns about educational programs that, as a condition of eligibility for title IV, HEA program funds, are required by statute to provide training that prepares students for gainful employment in a recognized occupation (GE programs), but instead are leaving students with unaffordable levels of loan debt in relation to their earnings, or leading to default. GE programs include nearly all educational programs at for-profit institutions of higher education, as well as non-degree programs at public and private non-profit institutions such as community colleges. Specifically, the Department is concerned that a number of GE programs: (1) Do not train students in the skills they need to obtain and maintain jobs in the occupation for which the program purports to provide training, (2) provide training for an occupation for which low wages do not justify program costs, and (3) are experiencing a high number of withdrawals or “churn” because relatively large numbers of students enroll but few, or none, complete the program, which can often lead to default. We are also concerned about the growing evidence, from Federal and State investigations and qui tam lawsuits, that many GE programs are engaging in aggressive and deceptive marketing and recruiting practices. As a result of these practices, prospective students and their families are potentially being pressured and misled into critical decisions regarding their educational investments that are against their interests. For these reasons, through this regulatory action, the Department establishes: (1) An accountability framework for GE programs that defines what it means to prepare students for gainful employment in a recognized occupation by establishing measures by which the Department will evaluate whether a GE program remains eligible for title IV, HEA program funds, and (2) a transparency framework that will increase the quality and availability of information about the outcomes of students enrolled in GE programs. Better outcomes information will benefit: Students, prospective students, and their families, as they make critical decisions about their educational investments; the public, taxpayers, and the Government, by providing information that will enable better protection of the Federal investment in these programs; and institutions, by providing them with meaningful information that they can use to help improve student outcomes in their programs. The accountability framework defines what it means to prepare students for gainful employment by establishing measures that assess whether programs provide quality education and training to their students that lead to earnings that will allow students to pay back their student loan debts. For programs that perform poorly under the measures, institutions will need to make improvements during the transition period we establish in the regulations. The transparency framework will establish reporting and disclosure requirements that increase the transparency of student outcomes of GE programs so that students, prospective students, and their families have accurate and comparable information to help them make informed decisions about where to invest their time and money in pursuit of a postsecondary degree or credential. Further, this information will provide the public, taxpayers, and the Government with relevant information to better safeguard the Federal investment in these programs. Finally, the transparency framework will provide institutions with meaningful information that they can use to improve student outcomes in these programs. Authority for This Regulatory Action: To accomplish these two primary goals of accountability and transparency, the Secretary amends parts 600 and 668 of title 34 of the Code of Federal Regulations (CFR). The Department's authority for this regulatory action is derived primarily from three sources, which are discussed in more detail in “Section 668.401 Scope and Purpose” and in the notice of proposed rulemaking (NPRM) published on March 25, 2014 (79 FR 16426). First, sections 101 and 102 of the HEA define an eligible institution, as pertinent here, as one that provides an “eligible program of training to prepare students for gainful employment in a recognized occupation.” 20 U.S.C. 1001(b)(1), 1002(b)(1)(A)(i), (c)(1)(A). Section 481(b) of the HEA defines “eligible program” to include a program that “provides a program of training to prepare students for gainful employment in a recognized profession.” 20 U.S.C. 1088(b). Briefly, this authority establishes the requirement that certain educational programs must provide training that prepare students for gainful employment in a recognized occupation in order for those programs to be eligible for title IV, HEA program funds—the requirement that the Department defines through these regulations. Second, section 410 of the General Education Provisions Act provides the Secretary with authority to make, promulgate, issue, rescind, and amend rules and regulations governing the manner of operations of, and governing the applicable programs administered by, the Department. 20 U.S.C. 1221e-3. Furthermore, under section 414 of the Department of Education Organization Act, the Secretary is authorized to prescribe such rules and regulations as the Secretary determines necessary or appropriate to administer and manage the functions of the Secretary or the Department. 20 U.S.C. 3474. These authorities, together with the provisions in the HEA, thus include promulgating regulations that, in this case: Set measures to determine the eligibility of GE programs for title IV, HEA program funds; require institutions to report information about the program to the Secretary; require the institution to disclose information about the program to students, prospective students, and their families, the public, taxpayers, and the Government, and institutions; and establish certification requirements regarding an institution's GE programs. As also explained in more detail in “Section 668.401 Scope and Purpose” and the NPRM, the Department's authority for the transparency framework is further supported by section 431 of the Department of Education Organization Act, which provides authority to the Secretary, in relevant part, to inform the public regarding federally supported education programs; and collect data and information on applicable programs for the purpose of obtaining objective measurements of the effectiveness of such programs in achieving the intended purposes of such programs. 20 U.S.C. 1231a. The Department's authority for the regulations is also informed by the legislative history of the provisions of the HEA, as discussed in the NPRM, as well as the rulings of the U.S. District Court for the District of Columbia in Association of Private Sector Colleges and Universities v. Duncan, 870 F.Supp.2d 133 (D.D.C. 2012), and 930 F.Supp.2d 210 (D.D.C. 2013) (referred to in this document as “ APSCU v. Duncan ). Notably, the court specifically considered the Department's authority to define what it means to prepare students for gainful employment and to require institutions to report and disclose relevant information about their GE programs. Summary of the Major Provisions of This Regulatory Action: As discussed under “Purpose of This Regulatory Action,” the regulations establish an accountability framework and a transparency framework. The accountability framework, among other things, creates a certification process by which an institution establishes a GE program's eligibility for title IV, HEA program funds, as well as a process by which the Department determines whether a program remains eligible. First, an institution establishes the eligibility of a GE program by certifying, among other things, that the program is included in the institution's accreditation and satisfies any applicable State or Federal program-level accrediting requirements and State licensing and certification requirements for the occupations for which the program purports to prepare students to enter. This requirement will serve as a baseline protection against the harm that students could experience by enrolling in programs that do not meet all State or Federal accrediting standards and licensing or certification requirements necessary to secure the jobs associated with the training. Under the accountability framework, we also establish the debt-to-earnings (D/E) rates measure 1 that will be used to determine whether a GE program remains eligible for title IV, HEA program funds. The D/E rates measure evaluates the amount of debt (tuition and fees and books, equipment, and supplies) students who completed a GE program incurred to attend that program in comparison to those same students' discretionary and annual earnings after completing the program. The regulations establish the standards by which the program will be assessed to determine, for each year rates are calculated, whether it passes or fails the D/E rates measure or is “in the zone.” 1 Please see “Section 668.404 Calculating D/E Rates” for details about the calculation of the D/E rates. Under the regulations, to pass the D/E rates measure, the GE program must have a discretionary income rate 2 less than or equal to 20 percent or an annual earnings rate 3 less than or equal to 8 percent. The regulations also establish a zone for GE programs that have a discretionary income rate greater than 20 percent and less than or equal to 30 percent or an annual earnings rate greater than 8 percent and less than or equal to 12 percent. GE programs with a discretionary income rate over 30 percent and an annual earnings rate over 12 percent will fail the D/E rates measure. Under the regulations, a GE program becomes ineligible for title IV, HEA program funds, if it fails the D/E rates measure for two out of three consecutive years, or has a combination of D/E rates that are in the zone or failing for four consecutive years. We establish the D/E rates measure and the thresholds, as explained in more detail in “§ 668.403 Gainful Employment Framework,” to assess whether a GE program has indeed prepared students to earn enough to repay their loans, or was sufficiently low cost, such that students are not unduly burdened with debt, and to safeguard the Federal investment in the program. 2 Please see § 668.404(a)(1) for the definition of the discretionary income rate. 3 Please see § 668.404(a)(2) for the definition of the annual earnings rate. The regulations also establish procedures for the calculation of the D/E rates and for challenging the information used to calculate the D/E rates and appealing the determination. The regulations also establish a transition period for the first seven years after the regulations take effect to allow institutions to pass the D/E rates measure by reducing the loan debt of currently enrolled students. For a GE program that could become ineligible based on its D/E rates for the next award year, the regulations require the institution to warn students and prospective students of the potential loss of eligibility for title IV, HEA program funds and the implications of such loss of eligibility. Specifically, institutions would be required to provide warnings to enrolled students that describe, among other things, the options available to continue their education at the institution if the program loses its eligibility and whether the students will be able to receive a refund of tuition and fees. The regulations also provide that, for a GE program that loses eligibility or for any failing or zone program that is discontinued by the institution, the loss of eligibility is for three calendar years. These provisions will: Ensure that institutions have a meaningful opportunity and reasonable time to improve their programs for a period of time after the regulations take effect, and ensure that those improvements are reflected in the D/E rates; protect students and prospective students and ensure that they are informed about programs that are failing or could potentially lose eligibility; and provide institutions and other interested parties with clarity as to how the calculations are made, how institutions can ensure the accuracy of information used in the calculations, and the consequences of failing the D/E rates measure and losing eligibility. In addition, the regulations establish a transparency framework. First, the regulations establish reporting requirements, under which institutions will report information related to their GE programs to the Secretary. The reporting requirements will facilitate the Department's evaluation of the GE programs under the accountability framework, as well as support the goals of the transparency framework. Second, the regulations require institutions to disclose relevant information and data about the GE programs through a disclosure template developed by the Secretary. The disclosure requirements will help ensure students, prospective students, and their families, the public, taxpayers, and the Government, and institutions have access to meaningful and comparable information about student outcomes and the overall performance of GE programs. Costs and Benefits: There are two primary benefits of the regulations. Because the regulations establish an accountability framework that assesses program performance we expect students, prospective students, taxpayers, and the Federal Government to receive a better return on the title IV, HEA program funds. The regulations also establish a transparency framework which will improve market information that will assist students, prospective students, and their families in making critical decisions about their educational investment and in understanding potential outcomes of that investment. The public, taxpayers, the Government, and institutions will also gain relevant and useful information about GE programs, allowing them to evaluate their investment in these programs. Institutions will largely bear the costs of the regulations: Paperwork costs of complying with the regulations, costs that could be incurred by institutions if they attempt to improve their GE programs, and costs due to changing student enrollment. See “Discussion of Costs, Benefits, and Transfers” in the regulatory impact analysis in Appendix A to this document for a more complete discussion of the costs and benefits of the regulations. On March 25, 2014, the Secretary published the NPRM for these regulations in the Federal Register (79 FR 16426). In the preamble of the NPRM, we discussed on pages 16428-16433, the background of the regulations, the relevant data available, and the major changes proposed in that document. Terms used but not defined in this document, for example, 2011 Prior Rule and 2011 Final Rules, have the meanings set forth in the NPRM. The final regulations contain a number of changes from the NPRM. We fully explain the changes in the Analysis of Comments and Changes section of the preamble that follows. Public Comment: In response to our invitation in the NPRM, we received approximately 95,000 comments on the proposed regulations. We discuss substantive issues under the sections of the proposed regulations to which they pertain. Generally, we do not address technical or other minor changes. Analysis of Comments and Changes: An analysis of the comments and of any changes in the regulations since publication of the NPRM follows. Section 668.401 Scope and Purpose Comments: A number of commenters stated that, in promulgating the regulations, the Department exceeds its delegated authority to administer programs under the HEA. Some commenters asserted that the legislative history of the gainful employment provisions in the HEA does not support the Department's regulatory action to define gainful employment and that the Department gave undue weight to testimony presented to Congress at the time the gainful employment provisions were enacted. Some commenters stated that Congress did not intend for the Department to measure whether a program leads to gainful employment based on debt or earnings. Several commenters argued that, even if the Department has the legal authority, the issues addressed by the regulations should be addressed instead as a part of HEA reauthorization or by other legislative action. One commenter contended that members of Congress have asked the Department to refrain from regulating on gainful employment programs pending reauthorization of the HEA and that the proposed regulations constitute a usurping of legislative authority. Other commenters asserted that identifying educational programs in the career training sector that do not prepare students for gainful employment and terminating their eligibility for title IV, HEA program funds is mandated by the HEA. Discussion: The Department's statutory authority for this regulatory action is derived primarily from three sources. First, sections 101 and 102 of the HEA define “eligible institution” to include an institution that provides an “eligible program of training to prepare students for gainful employment in a recognized occupation.” 20 U.S.C. 1001(b)(1), 1002(b)(1)(A)(i), (c)(1)(A). Section 481(b) of the HEA defines “eligible program” to include a program that “provides a program of training to prepare students for gainful employment in a recognized profession.” 20 U.S.C. 1088(b). These statutory provisions establish the requirement that certain educational programs must provide training that prepares students for gainful employment in a recognized occupation in order for those programs to be eligible for title IV, HEA program funds—the requirement that the Department seeks to define through the regulations. Second, section 410 of the General Education Provisions Act provides the Secretary with authority to make, promulgate, issue, rescind, and amend rules and regulations governing the manner of operations of, and governing the applicable programs administered by, the Department. 20 U.S.C. 1221e-3. Furthermore, under section 414 of the Department of Education Organization Act, the Secretary is authorized to prescribe such rules and regulations as the Secretary determines necessary or appropriate to administer and manage the functions of the Secretary or the Department. 20 U.S.C. 3474. These provisions, together with the provisions in the HEA regarding GE programs, authorize the Department to promulgate regulations that: Set measures to determine the eligibility of GE programs for title IV, HEA program funds; require institutions to report information about GE programs to the Secretary; require institutions to disclose information about GE programs to students, prospective students, and their families, the public, taxpayers, and the Government, and institutions; and establish certification requirements regarding an institution's GE programs. Third, the Department's authority for establishing the transparency framework is further supported by section 431 of the Department of Education Organization Act, which provides authority to the Secretary, in relevant part, to inform the public about federally supported education programs and collect data and information on applicable programs for the purpose of obtaining objective measurements of the effectiveness of such programs in achieving the intended purposes of such programs. 20 U.S.C. 1231a. The U.S. District Court for the District of Columbia confirmed the Department's authority to regulate gainful employment programs in Association of Private Sector Colleges and Universities (APSCU) v. Duncan, 870 F.Supp.2d 133 (D.D.C. 2012), and 930 F.Supp.2d 210 (D.D.C. 2013). These rulings arose out of a lawsuit brought by APSCU challenging the Department's 2010 and 2011 gainful employment regulations. In that case, the court reached several conclusions about the Department's rulemaking authority to define eligibility requirements for gainful employment programs that have informed and framed the Department's exercise of that authority through this rulemaking. Notably, the court agreed with the Department that the Secretary has broad authority to make, promulgate, issue, rescind, and amend the rules and regulations governing applicable programs administered by the Department, such as the title IV, HEA programs, and that the Secretary is “authorized to prescribe such rules and regulations as the Secretary determines necessary or appropriate to administer and manage the functions of the Secretary or the Department.” APSCU v. Duncan, 870 F.Supp.2d at 141; see 20 U.S.C. 3474. Furthermore, in answering the question of whether the Department's regulatory effort to define the gainful employment requirement falls within its statutory authority, the court found that the Department's actions were within its statutory authority to define the gainful employment requirement. Specifically, the court concluded that the phrase “gainful employment in a recognized occupation” is ambiguous; in enacting a requirement that used that phrase, Congress delegated interpretive authority to the Department; and the Department's regulations were a reasonable interpretation of an ambiguous statutory command. APSCU v. Duncan, 870 F.Supp.2d at 146-49. The court also upheld the disclosure requirements set forth by the Department in the 2011 Final Rule, which are still in effect, rejecting APSCU's challenge and finding that these requirements “fall comfortably within [the Secretary's] regulatory power,” and are “not arbitrary or capricious.” Id. at 156. Contrary to the claims of some commenters, the Department's authority to promulgate regulations defining the gainful employment requirement and using a debt and earnings measure for that purpose is also supported by the legislative history of the statutory provisions regarding gainful employment programs. The legislative history of the statute preceding the HEA that first permitted students to obtain federally financed loans to enroll in programs that prepared them for gainful employment in recognized occupations demonstrates the conviction that the training offered by these programs should equip students to earn enough to repay their loans. APSCU v. Duncan, 870 F.Supp.2d at 139. Allowing these students to borrow was expected to neither unduly burden the students nor pose “a poor financial risk” to taxpayers. Specifically, the Senate Report accompanying the initial legislation (the National Vocational Student Loan Insurance Act (NVSLIA), Pub. L. 89-287) quotes extensively from testimony provided by University of Iowa professor Dr. Kenneth B. Hoyt, who testified on behalf of the American Personnel and Guidance Association. On this point, the Senate Report sets out Dr. Hoyt's questions and conclusions: Would these students be in a position to repay loans following their training? . . . If loans were made to these kinds of students, is it likely that they could repay them following training? Would loan funds pay dividends in terms of benefits accruing from the training students received? It would seem that any discussion concerning this bill must address itself to these questions. . . . We are currently completing a second-year followup of these students and expect these reported earnings to be even higher this year. It seems evident that, in terms of this sample of students, sufficient numbers were working for sufficient wages so as to make the concept of student loans to be [repaid] following graduation a reasonable approach to take. . . . I have found no reason to believe that such funds are not needed, that their availability would be unjustified in terms of benefits accruing to both these students and to society in general, nor that they would represent a poor financial risk. Sen. Rep. No. 758 (1965) at 3745, 3748-49 (emphasis added). Notably, both debt burden to the borrower and financial risk to taxpayers and the Government were clearly considered in authorizing federally backed student lending. Under the loan insurance program enacted in the NVSLIA, the specific potential loss to taxpayers of concern was the need to pay default claims to banks and other lenders if the borrowers defaulted on the loans. After its passage, the NVSLIA was merged into the HEA, which in title IV, part B, has both a direct Federal loan insurance component and a Federal reinsurance component that require the Federal Government to reimburse State and private non-profit loan guaranty agencies upon their payment of default claims. 20 U.S.C. 1071(a)(1). Under either HEA component, taxpayers and the Government assume the direct financial risk of default. 20 U.S.C. 1078(c) (Federal reinsurance for default claim payments), 20 U.S.C. 1080 (Federal insurance for default claims). We therefore disagree that the legislative history does not support the Department's action here nor do we see any basis, and commenters have provided none, for us to question that history or the information Congress relied upon in enacting the statutory provisions. We appreciate that Congress may have a strong interest in addressing the issues addressed by these regulations in the reauthorization of the HEA or other legislation and we look forward to working with Congress on its legislative proposals. However, we do not agree that the Department should not take, or should defer, regulatory action on this basis until Congress reauthorizes the HEA or takes other action. In light of the numerous concerns about the poor outcomes of students attending many GE programs, and the risk that poses to the Federal interest, the Department must proceed now in accordance with its statutory authority, as delegated by Congress, to protect students and taxpayers. Changes: None. Comments: Some commenters suggested that the phrase “to prepare students for gainful employment” is unambiguous and therefore not subject to further interpretation. Commenters stated that the Department's interpretation of the phrase is incorrect because it is contrary to the ordinary meaning of the phrase “gainful employment,” to congressional intent, and to the rules of statutory construction. These commenters asserted that the dictionary definition of the phrase does not comport with the Department's proposed definition or the definition of the term “gainful employment” in other provisions of the HEA. Commenters also stated that Congress has not made any changes to the HEA triggering a requirement by the Secretary to define the term “gainful employment” and claimed that the term cannot now be defined since Congress left it undisturbed during its periodic reauthorizations of the HEA. Some commenters expressed the view that the framework of detailed program requirements under title IV of the HEA, including institutional cohort default rates, institutional disclosure requirements, restrictions on student loan borrowing, and other financial aid requirements, prevents the Department from adopting debt measures to determine whether a gainful employment program is eligible to receive title IV, HEA program funds. One commenter claimed that the Department has previously defined the phrase “gainful employment in a recognized occupation” in the context of conducting administrative hearings and argued that the Department did not adequately explain in the NPRM why it was departing from its prior use of the term. Discussion: As the court found in APSCU v. Duncan, Congress has not spoken through legislative action to the precise question at issue here: Whether the statutory requirement that programs providing vocational training “prepare students for gainful employment in a recognized occupation” may be measured by reference to students' ability to repay their loans. Congress did not provide a definition for the phrase “gainful employment” or “gainful employment in a recognized occupation” in either the statute or its legislative history. Thus, the phrase is ambiguous and Congress left further definition of the phrase to the Department. There also is no common meaning of the phrase, contrary to the assertion of the commenters. The commenters' argument that “gainful employment” has one meaning in all circumstances—“a job that pays”—is belied by other dictionaries that define “gainful” as “profitable.” See, e.g., Webster's New Collegiate Dictionary 469 (1975). “Profitable” means the excess of returns over expenditures, or having something left over after one's expenses are paid. Id. at 919. This definition supports the idea embodied in the regulations that “gainful employment in a recognized occupation” is not just any job that pays a nominal amount but a job that pays enough to cover one's major expenses, including student loans. Nor is there a common definition of the phrase in the HEA. Although Congress used the words “gainful employment” in other provisions of the HEA, the operative phrase for the purpose of these regulations is “gainful employment in a recognized occupation.” The modifying words “in a recognized occupation” qualify the type of job for which students must be prepared. “A recognized occupation” suggests an established occupation, not just any job that pays. In addition, the phrase “gainful employment” means different things based on its context in the statute. For example, the requirement that a recipient of a graduate fellowship not be “engaged in gainful employment, other than part-time employment related to teaching, research, or a similar activity” (20 U.S.C. 1036(e)(1)(B)(ii)) has a different meaning than the requirement that vocationally oriented programs “prepare students for gainful employment in a recognized occupation,” just as both requirements necessarily have a different meaning than a statutory requirement that a program for students with disabilities focus on skills that lead to “gainful employment” (20 U.S.C. 1140g(d)(3)(D)). As the court stated in APSCU v. Duncan, “[t]he power of an administrative agency to administer a congressionally created . . . program necessarily requires the formulation of policy and the making of rules to fill any gap left, implicitly or explicitly, by Congress. The means of determining whether a program `prepare[s] students for gainful employment in a recognized occupation' is a considerable gap, which the Department has promulgated rules to fill.” APSCU v. Duncan, 870 F. Supp. 2d 133, 146 (D.D.C. 2012) (internal quotations and citations omitted). The commenters are incorrect in their assertion that the HEA's provisions on loan default rates, student borrowing, and other financial aid matters prevent the Department from regulating on what it means for a program to provide training that prepares students for gainful employment in a recognized occupation. The Department's regulations are not an attempt to second guess Congress or depart from a congressional plan but rather will fill a gap that Congress left in the statute—defining what it means to prepare a student for gainful employment in a recognized occupation—in a manner consistent with congressional intent. The regulations supplement and complement the statutory scheme. And, although there are differences between the regulations and other provisions, such as those regarding institutional cohort default rates (CDR), the regulations do not fundamentally alter the statutory scheme. Rather than conflicting, as asserted by commenters, the CDR and GE regulations complement each other. Congress enacted the CDR provision as “one” mechanism—not the sole, exclusive mechanism—for dealing with abuses in Federal student aid programs. See H.R. Rep. No. 110-500 at 261 (2007) (“Over the years, a number of provisions have been enacted under the Higher Education Act to protect the integrity of the federal student aid programs. One effective mechanism was to restrict federal loan eligibility for students at schools with very high cohort loan default rates” (emphasis added).) Congress did not, in enacting the CDR provision or at any other time, limit the Department's authority to promulgate regulations to define what it means to “prepare students for gainful employment in a recognized occupation.” Compare 20 U.S.C. 1015b(i), concerning student access to affordable course materials (“No regulatory authority. The Secretary shall not promulgate regulations with respect to this section.”). Nor did it alter this existing statutory language when it passed the CDR provision. Indeed, the court in APCSU v. Duncan specifically addressed the issue of whether the CDR provisions would preclude the Department from effectuating the gainful employment requirement by relying on other debt measures at the programmatic level and concluded that the “statutory cohort default rule . . . does not prevent the Department from adopting the debt measures.” APSCU v. Duncan, 870 F. Supp. 2d at 147 (citing to Career Coll. Ass'n v. Riley, 74 F.3d 1265, 1272-75 (D.C. Cir. 1996), where the DC Circuit held that the Department's authority to establish “ `reasonable standards of financial responsibility and appropriate institutional capability' empowers it to promulgate a rule that measures an institution's administrative capability by reference to its cohort default rate—even though the administrative test differs significantly from the statutory cohort default rate test.”) The GE regulations are also consistent with other provisions of the HEA aimed at curbing abuses in the title IV, HEA programs. Prompted by a concern that its enormous commitment of Federal resources would be used to provide financial aid to students who were unable to find jobs that would allow them to repay their loans, Congress enacted several statutory provisions to ensure against abuse. Congress specified that participating schools cannot “provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance.” 20 U.S.C. 1094(a)(20). “The concern is that recruiters paid by the head are tempted to sign up poorly qualified students who will derive little benefit from the subsidy and may be unable or unwilling to repay federally guaranteed loans.” United States ex rel. Main v. Oakland City Univ., 426 F.3d 914, 916 (7th Cir. 2005). To prevent schools from improperly inducing people to enroll, Congress prohibited participating schools from engaging in a “substantial misrepresentation of the nature of its educational program, its financial charges, or the employability of its graduates.” 20 U.S.C. 1094(c)(3)(A). Congress also required a minimum level of State oversight of eligible schools. In sum, the GE regulations simply build upon the Department's regulation of institutions participating in the title IV, HEA programs and the myriad ways in which the Department, as authorized by Congress, protects students and taxpayers from abuse of the Federal student aid program. We further disagree that the Department has previously defined what “gainful employment in a recognized occupation” means for the purpose of establishing accountability and transparency with respect to GE programs and their outcomes. In support of this argument, the commenters rely on a 1994 decision of an administrative law judge regarding whether a program in Jewish culture prepared students enrolled in the program for gainful employment in a recognized occupation. As the district court noted, the administrative law judge did not fully decide what it means to prepare a student for gainful employment in a recognized occupation but merely stated that any preparation must be for a specific area of employment. APSCU v. Duncan, 870 F. Supp. 2d 133, 150 (D.D.C. 2012). Further, the Department did not depart from the administrative law judge's interpretation in the 2011 Final Rules, as the court in APSCU v. Duncan agreed. See id. Nor is the Department departing from that interpretation with these regulations. Changes: None. Comments: Some commenters claimed that the proposed regulations violate the HEA because they would require an institution to ensure a student is gainfully employed in a recognized occupation. The commenters stated that the HEA requires only that vocational schools “prepare” students for gainful employment in a recognized occupation and not that they ensure they obtain such employment. Commenters also stated that the HEA does not hold institutions responsible for a student's post-graduation employment choices but the proposed regulations would. The commenters stated that under the proposed regulations, an institution would be penalized if a student chose not to seek gainful employment after graduation or chose to seek employment in another field that did not result in sufficient earnings to repay their debt. Discussion: The commenters ignore the legislative history demonstrating that, in enacting the gainful employment statutory provisions, Congress intended that students who borrowed Federal funds to obtain such training would be able to repay the debt incurred because they would have been prepared for gainful employment in a recognized occupation. Contrary to commenters' claims, the D/E rates measure the Department adopts here neither requires a school to ensure that an individual student obtains employment nor holds schools responsible for a student's career decisions. Rather, the measure evaluates whether a particular cohort of students completing a program has received training that prepares those students for gainful employment such that they are able to repay their student loans, not whether each student who completed the program obtains a job that enables that student to pay back his or her loans. Changes: None. Comments: One commenter asked how the Department defines “recognized occupation.” According to the commenter, this question is of particular concern for schools offering cosmetology programs. The commenter said that there are many individuals who use their cosmetology degrees to obtain employment in a field that is indirectly related, such as beauty school administration. The commenter stated that some companies frequently hire beauty school graduates to work in their financial and student advisor offices; these students do not possess degrees in finance, career counseling, or administration, but their background and education in cosmetology has been found to be sufficient to properly fulfill the job requirements. The commenter asked whether these indirectly related jobs would be considered a recognized occupation. Discussion: The proposed and final regulations in § 600.2 define recognized occupation as an occupation that is either (a) identified by a Standard Occupational Classification (SOC) code established by OMB or an Occupational Information Network O*Net-SOC established by the Department of Labor or (b) determined by the Secretary in consultation with the Secretary of Labor to be a recognized occupation. Institutions are expected to identify a CIP code for their programs that represents the occupations for which the institution has designed its program. The Bureau of Labor Statistics (BLS) has developed a crosswalk that identifies the occupations (SOCs) associated with the education and training provided by a program ( www.onetonline.org/crosswalk ), and these would be “recognized occupations” for the purposes of these regulations. However, regardless of whether an occupation is associated with a particular program so long as the occupation is identified by a SOC code, it is a recognized occupation. Changes: None. Comments: Some commenters claimed that the proposed regulations would require institutions to lower their tuition in order to meet the D/E rates measure. Referencing a House of Representatives committee report from 2005, the commenter stated that this was contrary to Congress' decision not to regulate institutions' tuition. One commenter stated that the proposed regulations attempt to address the costs of deferments and other repayment options, but that Congress has already created mechanisms to address the issue of increasing student debt load and rising tuition costs. The commenter claimed that the proposed regulations would require institutions to reduce tuition and therefore are contrary to congressional action in this area. Discussion: The regulations do not require institutions to lower their tuition. Reducing tuition and fees may be one way for an institution to meet the D/E rates measure but it is not the only way. Institutions can also meet the D/E rates measure by having high-quality program curricula and engaging in robust efforts to place students. The regulations also are not contrary to Congress' findings in H.R. Rep. 109-231. That report states “[i]t is the Committee's position that . . . the Federal Government does not have the ability to set tuition and fee rates for colleges and universities.” H.R. Rep. 109-231, at 159 (emphasis added). Given that these regulations do not “set tuition and fee rates for colleges and universities,” there is no conflict with the congressional findings in this report. Changes: None. Comments: Several commenters contended that the Department failed to satisfy its obligations under the Administrative Procedure Act in conducting negotiated rulemaking. Specifically, the commenters asserted that representatives of for-profit institutions and business and industry, as well as representatives from law, medical, and other professional schools, were not adequately represented on the negotiating committee. They further argued that the Department did not listen to the views of negotiators during the negotiated rulemaking sessions. Some commenters stated that the Department did not conduct the negotiations in good faith because the negotiation sessions were held for seven days when other negotiated rulemaking sessions have taken longer. Discussion: The negotiated rulemaking process ensures that a broad range of interests is considered in the development of regulations. Specifically, negotiated rulemaking seeks to enhance the rulemaking process through the involvement of all parties who will be significantly affected by the topics for which the regulations will be developed. Accordingly, section 492(b)(1) of the HEA, 20 U.S.C. 1098a(b)(1), requires the Department to choose negotiators from groups representing many different constituencies. The Department selects individuals with demonstrated expertise or experience in the relevant subjects under negotiation, reflecting the diversity of higher education interests and stakeholder groups, large and small, national, State, and local. In addition, the Department selects negotiators with the goal of providing adequate representation for the affected parties while keeping the size of the committee manageable. The statute does not require the Department to select specific entities or individuals to be on the committee. As there was a committee member representing each of for-profit institutions and business and industry interests, we do not agree that these groups were not adequately represented on the committee. We also do not agree that specific areas of training, such as law and medicine, required specific representation, as institutions with such programs were represented at the sector level. While it is to be expected that some committee members will have interests that differ from other members and that consensus is not always reached, as in the case of these regulations, the negotiated rulemaking process is intended to provide stakeholders an opportunity to present alternative ideas, to identify areas where compromises can be reached, and to help inform the agency's views. In the negotiated rulemaking sessions for these regulations, there was robust discussion of the draft regulations, negotiators including those representing the commenters submitted a number of proposals for the committee to consider, and, as we described in detail in the NPRM, the views and suggestions of negotiators informed the proposed and these final regulations. With respect to the length of the negotiations, the HEA does not require negotiated rulemaking sessions to be held for a minimum number of days. Seven days was a sufficient amount of time to conduct these negotiations. Changes: None. Comments: A number of commenters stated that the proposed regulations were arbitrary and capricious and therefore violate the Administrative Procedure Act. Commenters raised this concern both generally and with respect to specific elements of the proposed regulations. For example, several commenters argued that the thresholds for the D/E rates measure lack a reasoned basis. As another example, some commenters claimed that the Department was arbitrary and capricious in proposing regulations that were different from those promulgated in the 2011 Final Rules. Discussion: We address commenters' arguments with respect to specific provisions of the regulations in the sections of this preamble specific to those provisions. However, as a general matter, in taking this regulatory action, we have considered relevant data and factors, considered and responded to comments, and articulated a reasoned basis for our actions. Marsh v. Oregon Natural Res. Council, 490 U.S. 360, 378 (1989); Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983); see also Pub. Citizen, Inc. v. Fed. Aviation Admin., 988 F.2d 186, 197 (D.C. Cir. 1993); PPL Wallingford Energy LLC v. FERC, 419 F.3d 1194, 1198 (D.C. Cir. 2005). Further, for those provisions of the regulations that differ from those established in the 2011 Final Rules, we have provided a reasoned basis for our departure from prior policy. Motor Vehicle, 463 U.S. at 57; see also Williams Gas Processing-Gulf Coast Co., L.P. v. FERC, 475 F.3d 319, 326 (D.C. Cir. 2006); Rust v. Sullivan, 500 U.S. 173, 187 (1991); F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 514-516 (2009); Investment Co. Inst. v. Commodity Futures Trading Comm'n, 720 F.3d 370, 376 (D.C. Cir. 2013). Changes: None. Comments: Various commenters argued that the regulations are impermissibly retroactive. These commenters contended that the accountability metrics reflect historical performance and not current program performance and, at least initially, would apply standards to measure a program's performance at a time when the standards were not in effect. Commenters suggested that this approach deprives institutions of any ability to make improvements that would be reflected in those programs' initial D/E rates. Some commenters noted that this issue is more significant for programs that are of longer duration, as there will be a longer period after implementation of the regulations during which the D/E rates are based on student outcomes that predate the regulations. Some commenters also noted that the manner in which program performance is measured could result in programs being required to provide warnings to students that would depress enrollment at times when the program had already been improved. Commenters proposed that the Department lengthen the transition period to avoid any sanctions against low-performing programs based upon periods when the new regulations were not in effect. Other commenters urged that some mechanism be used to take more recent program performance into consideration. Discussion: Eligibility determinations based on past program performance, even performance that predates the effective date of the regulations, does not present a legal impediment to these regulations. A law is “not retroactive merely because the facts upon which its subsequent action depends are drawn from a time antecedent to the enactment.” Reynolds v. United States, 292 U.S. 443, 449 (1934). This principle applies even when, as is the case with these regulations, the statutes or regulations at issue were not in effect during the period being measured. Career College Ass'n v. Riley, No. 94-1214, 1994 WL 396294 (D.D.C. July 19, 1994). This principle has been confirmed in the context of the Department's use of institutional cohort default rates. Ass'n of Accredited Cosmetology Schools v. Alexander, 979 F.2d 859, 860-62 (D.C. Cir. 1992); Pro Schools Inc. v. Riley, 824 F.Supp. 1314 (E.D. Wis. 1993). The courts in these matters found that measuring the past default rates of institutions was appropriate because the results would not be used to undo past eligibility, but rather, to determine future eligibility. See, e.g., Ass'n of Accredited Cosmetology Schools, 979 F.2d at 865. As with the institutional cohort default rate requirements, as long as it is a program's future eligibility that is being determined using the D/E rates measure, the assessment can be based on prior periods of time. Indeed, the court in APSCU v. Duncan rejected this retroactivity argument with respect to the 2011 Prior Rule. 870 F. Supp. 2d at 151-52. We discuss the comments relating to the transition period under “Section 668.404 Calculating D/E Rates.” Changes: None. Comments: We received many comments in support of the proposed regulations, including both general expressions of support and support with respect to specific aspects of the proposed regulations. Commenters stated that the proposed regulations would help ensure that more students have the opportunity to enter programs that prepare them for gainful employment and that students would be better positioned to repay their educational loans. Several commenters also believed that the regulations will help curtail the abusive recruiting tactics that were revealed by the Senate Permanent Subcommittee on Investigations and the Senate Committee on Health, Education, Labor and Pensions (HELP) in 2012. One commenter expressed support on the basis that, by preventing students from enrolling in low-performing programs, the regulations would curb predatory recruiting practices that target veterans in particular. Discussion: We appreciate the support of these commenters. Changes: None. Comments: We received a number of comments suggesting that the regulations were not sufficiently strong to ensure programs prepare students for gainful employment and to protect students. One commenter argued that the regulations set a low bar for compliance and would do little to stem the flow of Federal dollars to poorly performing institutions. This commenter argued that Federal investment in a program carries an implied endorsement that the program has been “approved” and that the Department has determined it worthwhile. Similarly, several commenters advocated for stronger regulations that close loopholes by which programs could “game” the accountability metrics. Discussion: We disagree that the regulations set too low a bar for compliance. We believe that the accountability framework strikes a reasonable balance between holding institutions accountable for poor student outcomes and providing institutions the opportunity to improve programs that, if improved, may offer substantial benefits to students and the public. The Department acknowledges the concern among several commenters about potential loopholes in the proposed accountability metrics and notes that many of these concerns related to program cohort default rates, which in the final regulations will not be used as an accountability metric but, rather, will be used only as a potential disclosure item. We address the commenters' other specific concerns in the sections of the preamble to which they pertain. As a general matter, however, although we cannot anticipate every situation in which an institution could potentially evade the intent of the regulations, we believe the regulations will effectively hold institutions accountable for a program's student outcomes and make those outcomes transparent to students, prospective students, the public, taxpayers, and the Government. Changes: None. Comments: Several commenters argued that the regulations create overly burdensome reporting and compliance requirements that will be an enormous drain on programs and result in higher tuition costs. One commenter asserted that the regulations add 1.65 million additional hours of workload for institutions. Commenters contended that the regulations would harm community colleges by creating heavy regulatory and financial burdens and stifle innovation and employment solutions for both students and businesses. One commenter argued that, to avoid the administrative burden created by the regulations, foreign institutions with a small number of American students would likely cease to participate in the title IV, HEA programs. Discussion: We appreciate the commenters' concerns. Throughout the regulations, we have balanced our interest in minimizing burden on institutions with our interest in achieving our dual objectives of accountability and transparency. The reporting and disclosure requirements are integral to achieving those goals. We discuss concerns about burden throughout this preamble, including in “Section 668.411 Reporting Requirements for GE Programs,” “Section 668.412 Disclosure Requirements for GE Programs,” and Paperwork Reduction Act of 1995. Changes: None. Comments: Commenters expressed several concerns about specific elements of the definition of “gainful employment (GE) program.” Commenters recommended that graduate programs be excluded from the definition and, specifically, from evaluation under the accountability metrics. One commenter suggested that the HEA framework relating to gainful employment programs was established at a time when most qualifying programs were short term and job focused. The commenter asserted that it is unfair to apply this framework to graduate-level programs where the same program, for example, a Masters of Business Administration program, may be offered by a for-profit institution—and qualify as a GE program—and by a public institution—but not qualify as a GE program. Another commenter argued that a stated purpose of the regulations is to focus on the employability of students enrolled in entry-level postsecondary programs, and that evaluating graduate programs, where there are not the same employment challenges and return-on-investment considerations, would be inconsistent with this purpose. One commenter asserted that based on its analysis, graduate programs would be minimally affected by the proposed metrics and therefore should be exempt from them. Commenters also argued that graduate students are mature students and often experienced workers familiar with the debt and earnings potential of various educational and career paths who do not require the protections offered by the regulations. Commenters argued that the D/E rates measure and program Cohort Default Rate (pCDR) 4 measure are not reliable metrics for many graduate programs because, according to the commenters, there tends to be a longer lag in time between when students enter these programs and when they experience increased earnings gains. 4 Please see the “Analysis of the Regulations: Methodology for pCDR Calculations” in the Regulatory Impact Analysis. One commenter recommended that the Department exempt all law programs accredited by the American Bar Association because, according to the commenter, students who complete accredited law programs rarely have difficulty in avoiding default on loans. We received similar comments with respect to graduate medical programs. One commenter recommended that the Department conduct a study on the impact of the D/E rates measure on medical programs and release that with the final regulations. Some commenters argued generally that it is unfair for the Department to set requirements for some programs and not others. One commenter, focusing on degree programs, questioned treating for-profit institutions and public institutions differently based on whether the degree programs are subject to the gainful employment requirements. Some commenters suggested that “GE programs” should be defined more narrowly. These commenters suggested that, instead of grouping programs by classification of instructional program (CIP) code and credential level, GE programs should be evaluated by campus location, or at the individual program level, because program performance may vary by campus location or program format due to differences in, for example, student demographics, local market conditions, and instructional methods. One commenter noted that community colleges may offer programs where certificates and associate degrees are conferred concurrently upon completion, and recommended excluding these types of programs from the definition of “GE program” as they are primarily degree programs offered by a public institution, which would not otherwise constitute GE programs. Discussion: To the extent a program constitutes an “eligible program” that “provides a program of training to prepare students for gainful employment in a recognized profession” under the HEA, the program by statute constitutes a “GE program,” and we do not have the authority to exclude it from the regulations. We note, for example, that Congress amended the HEA in 2008 to exempt from the gainful employment provisions programs leading to a baccalaureate degree in liberal arts that had been offered by a regionally accredited proprietary institution since January 1, 2009. We view this relatively recent and very specific amendment as an indication that the Department lacks discretion to exempt other types of programs. This applies to graduate programs, including ABA-accredited law schools or medical schools, regardless of the results of such programs under the D/E rates measure. The Department is not providing a separate study analyzing the impact of the D/E rates measure on medical programs with these regulations. As the regulations are implemented, we will monitor the impact of the D/E rates measure on all GE programs, including graduate medical programs. We also do not agree that the purposes of the regulations are served by excluding graduate programs. Specifically, the issues of accountability for student outcomes, including excessive student debt, and transparency are as relevant to graduate programs and students as they are to undergraduate programs and students. Whether or not it is the case that many graduate programs prepare students for occupations where earnings gains are delayed, we do not believe that this justifies an exemption from the regulations. As discussed in the NPRM, earnings must be adequate to manage debt both in the early years after entering repayment and in later years. Future earnings gains are of course a desirable outcome, but borrowers could default on their loans soon after entering repayment, or experience extreme hardship that leads to negative consequences, well before these earnings gains are realized. Further, as discussed in the NPRM, borrowers may still be facing extreme hardship in repaying their loans even though they have not defaulted, and so, a low default rate by itself is not necessarily an indication that a program is leading to manageable student debt. In response to commenters' concerns that similar programs offered by for-profit institutions and public institutions would be treated differently under the regulations, we note that this reflects the treatment of these programs under the HEA and a policy decision made by Congress. We firmly believe that implementing this policy decision through these regulations is necessary and appropriate and that students, prospective students, their families, the public, taxpayers, and the Government will benefit from these efforts. Regarding the commenters' request that we evaluate GE programs at the campus level, we do not agree that it would be beneficial to break down the definition of “GE program” beyond CIP code and credential level. A GE program's eligibility for title IV, HEA program funds is determined at the institutional level, not by location; thus a program's eligibility applies to each of the locations at which the institutions offers the program. We note also that § 668.412 permits institutions offering a GE program in more than one location or format to create separate disclosure templates for each location or format. Thus, the institution has the discretion to provide information about its programs by location or format if it chooses to do so. With respect to the commenter's request that we exclude from the definition of “GE program” programs at public institutions that concurrently confer an associate degree and a certificate, we do not believe a specific exclusion is required. A degree program at a public institution is not a “GE program,” even though enrolled students may also earn a certificate as part of the degree program. Of course, if the student is separately enrolled in a certificate program that student is included in that GE program for purposes of the D/E rates measure and disclosures. Changes: None. Comments: One commenter suggested that the Department should exempt small businesses that offer GE programs or, if the regulations do not provide an exemption based on size, that the Department should consider an additional or alternate requirement that institutions must meet (such as spending 2.5 times on instruction and student services than on recruitment). Another commenter stated that the Department should exempt institutions that have an enrollment of less than 2,000 students because of the burden that would be imposed on small institutions. Discussion: We disagree that programs at institutions that might be considered small businesses or institutions with an enrollment of less than 2,000 students should be exempted from the regulations. In addition to the limitations in our statutory authority, an institution's size has no effect on whether the institution is preparing students for gainful employment in a recognized occupation. We also see no basis for establishing an alternative metric based on the amount of revenues an institution spends on instruction compared to recruiting because it would not indicate when a program is resulting in high debt burden. We believe that any burden on institutions resulting from these regulations is outweighed by the benefits to students and taxpayers. We discuss the burden on small institutions in the Final Regulatory Flexibility Analysis. Changes: None. Comments: One commenter suggested that in the final regulations, the Department should commit to evaluating whether the regulations result in the cost savings for the government estimated in the NPRM and the impact of the regulations on Federal student aid funding. The commenter also suggested that the Department commit to reviewing the estimated costs of implementing the regulations, including costs for meeting the information collection requirements. The commenter said the Department should commit to measuring whether the certification criteria for new programs are effective at ensuring whether those programs will remain eligible and pass the accountability metrics. Additionally, the commenter suggested that the Department affirm that it will measure whether the disclosure and reporting requirements improve market information as evidenced by increased enrollment in passing GE programs and decreased enrollment in failing and zone programs. Discussion: We appreciate the commenters' suggestions and, as with all of our regulations, we intend to review the regulations as we implement them to ensure they are meeting their intended purposes and to evaluate the impact on students, institutions, and taxpayers. Changes: None. Comments: A number of commenters raised concerns about the definition of “student,” specifically the limitation of the term “students” to those individuals who receive title IV, HEA program funds for enrolling in the applicable GE program. These commenters believed that “student” should be defined, for all or some purposes of the regulations, more broadly. Some commenters proposed that “student” be defined to include all individuals enrolled in a GE program, whether or not they received title IV, HEA program funds. These commenters argued that the purpose of the regulations should be to measure, and disclose, the outcomes of all individuals in a program. They argued that limiting the definition of “student” to students who receive title IV, HEA program funds is arbitrary and would present inaccurate and unrepresentative program outcomes, particularly for community colleges. According to these commenters, many of the individuals attending GE programs at community colleges do not receive title IV, HEA program funds and any accountability measures and disclosures that exclude their debt and earnings would not accurately reflect the performance of the GE program. They claimed that individuals who receive title IV, HEA program funds are disproportionally from underserved and low-income populations and tend to have higher debt and lower earnings outcomes. Other commenters stated that the definition should include all students with a record in the National Student Loan Database System (NSLDS) because these individuals either filed a Free Application for Federal Student Aid (FAFSA) or have previously received title IV, HEA program funds for attendance in another eligible program. According to the commenters, including these individuals would more accurately reflect the title IV, HEA program population at an institution and provide more relevant information for both eligibility determinations and consumer information. In making these suggestions, commenters were mindful of the court's interpretation in APSCU v. Duncan of relevant law regarding the Department's authority to maintain records in its NSLDS. Under these alternative proposed definitions, the commenters suggested that the Department could collect and maintain data regarding these individuals in a manner consistent with APSCU v. Duncan as they would already have records in NSLDS for these individuals. Some commenters requested that the term “student” include individuals who did not receive title IV, HEA program funds for only specific purposes of the regulations. Some commenters argued that the definition of “student” for the purpose of the D/E rates measure should include all individuals who completed the program, whether or not they received title IV, HEA program funds, on the grounds that earnings and debt levels at programs are to some extent derived from differences in student characteristics and borrowing behavior between students receiving title IV, HEA program funds and individuals who do not receive title IV, HEA program funds. One commenter suggested that individuals who do not receive title IV, HEA program funds should be included in the calculation of D/E rates because otherwise, according to the commenter, institutions would encourage students who do not otherwise plan to take out loans to do so in order to improve a program's performance on the D/E rates measure. Other commenters argued that the definition should be broadened only for certain disclosure requirements. For example, some of the commenters suggested that the completion and withdrawal rates and median loan debt disclosures should include the outcomes of all individuals enrolled in a GE program, both those who receive title IV, HEA program funds and those who do not in order to provide students, prospective students, and other stakeholders with a complete picture of a GE program's performance. Discussion: We continue to believe that it is necessary and appropriate to define the term “student” for the purposes of these regulations as individuals who received title IV, HEA program funds for enrolling in the applicable GE program for two reasons. First, as discussed in more detail in the NPRM, this approach is aligned with the court's interpretation in APSCU v. Duncan of relevant law regarding the Department's authority to maintain records in its NSLDS. See APSCU v. Duncan, 930 F. Supp. 2d at 220. Second, by limiting the D/E rates measure to assess outcomes of only students who receive title IV, HEA program funds, the Department can effectively evaluate how the GE program is performing with respect to the students who received the Federal benefit that we are charged with administering. Because the primary purpose of the D/E rates measure is determining whether a program should continue to be eligible for title IV, HEA program funds, we can make a sufficient assessment of whether a program prepares students for gainful employment based only on the outcomes of students who receive those funds. Although we appreciate the commenters' interest in expanding the definition of “student” to consider the outcomes of all individuals enrolled in a GE program, our goal in these regulations is to evaluate a GE program's performance for the purpose of continuing eligibility for title IV, HEA program funds. Our proposed definition of “students” is directly aligned with that goal. In addition, this approach is consistent with our goal of providing students and prospective students who are eligible for title IV, HEA program funds with relevant information that will help them in considering where to invest their resources and limited eligibility for title IV, HEA program funds. We understand that some GE programs may not have a large number of individuals receiving title IV, HEA program funds, but given the overall purpose of the regulations—determining a GE program's eligibility for title IV, HEA program funds—we do not believe it is necessary to measure the outcomes of individuals who do not receive that aid. For the same reasons, we do not believe it is necessary to include individuals who do not receive title IV, HEA program funds in the calculation of D/E rates or in the disclosures the Department calculates for a program. Finally, the Department does not agree that limiting its analysis to only students receiving title IV, HEA program funds would create an incentive for institutions to encourage more students to borrow. We do not think it would be common for a student to take out a loan that the student did not otherwise plan to take on. Changes: None. Comments: One commenter stated that the Department had not adequately explained its departure from the approach taken in the 2011 Final Rules, which considered the outcomes of all individuals enrolled in a GE program rather than just individuals receiving title IV, HEA program funds. Discussion: We have adequately justified the Department's decision to base the D/E rates measure only on the outcomes of individuals receiving title IV, HEA program funds. Our analysis of this issue is described in the previous paragraphs, was set forth in considerable detail in the NPRM, and, additionally, as noted in the NPRM, is supported by the court's decision in APSCU v. Duncan. The justifications presented meet the reasoned basis standard we must satisfy under the Administrative Procedure Act and relevant case law. Changes: None. Comments: We received a number of comments about the definition of “student” in the context of the mitigating circumstances showing in § 668.406 of the proposed regulations. As proposed in the NPRM, an institution would be permitted to demonstrate that less than 50 percent of all individuals who completed the program during the cohort period, both those individuals who received title IV, HEA program funds and those who did not, incurred any loan debt for enrollment in the program. A GE program that could make this showing would be deemed to pass the D/E rates measure. In this context, some commenters argued against allowing institutions to include individuals who do not receive title IV, HEA program funds for enrollment in the GE program. These commenters noted that including individuals who do not receive these loans is at odds with the legal framework that the Department established in order to align the regulations with the district court's decision in APSCU v. Duncan. They suggested that permitting institutions to include individuals who do not receive loans under the title IV, HEA programs in a mitigating circumstances showing would be inconsistent with the court's decision and as a result would violate the HEA. Several commenters also asserted that permitting mitigating circumstances showings or providing for a full exemption would discriminate in favor of institutions, such as community colleges, where less than 50 percent of individuals enrolled in the program receive title IV, HEA program funds. According to these commenters, many of these public institutions have higher costs than institutions in the for-profit sector but have lower borrowing rates because the higher costs are subsidized by States. The commenters stated that if these institutions' programs are considered exempt from the D/E rates measure, programs that perform very poorly on other measures like completion would continue merely because they are low cost even though they do not reflect a sound use of taxpayer funds. Some commenters stated that permitting a mitigating circumstances showing would result in unfair and unequal treatment of similar institutions in different States. The commenter said that, for example, in some States, cosmetology programs are eligible for State tuition assistance grants, while in other States these programs are not eligible for such grants. Schools charging the same tuition and whose graduates are making the same amount in one State would pass the D/E rates measure while those in another would not. Finally, some commenters asserted that only a fraction of programs at public institutions would fail the D/E rates measure, and that this small number does not support an exemption or permitting a mitigating circumstances showing. A number of commenters supported the proposed mitigating circumstances showing, and specifically the inclusion of individuals who do not receive title IV, HEA program funds. As noted previously, commenters argued that these individuals should be considered because the number of students receiving title IV, HEA program funds and incurring debt to enroll in many community college programs is typically very small and these students do not represent the majority of individuals who complete the program. According to these commenters, a program in which at least 50 percent of individuals enrolled in the program have no debt is unlikely to produce graduates whose educational debts would be excessive because tuition and costs are likely to be low and require little borrowing. Commenters further noted that including these individuals in the calculation would be consistent with the 2011 Prior Rule, where a program with a median loan debt of zero passed the debt-to-earnings measures based on the borrowing activity of individuals who receive title IV, HEA program funds and those who do not. These commenters stated that even though the Department is largely limiting the accountability measures to an analysis of the earnings and debt of students receiving title IV, HEA program funds due to the concerns expressed by the district court in APSCU v. Duncan, a program with a median loan debt of zero, whether or not the calculation is limited to students receiving title IV, HEA program funds, should still pass the D/E rates measure. Finally, these commenters noted that the D/E rates measure is designed to help ensure that students are receiving training that will lead to earnings that will allow them to pay back their student loan debts after they complete their program. According to these commenters, many GE programs, including many programs offered by community colleges, have low tuition and many of their students can pay the costs of the program solely through a Pell Grant, rather than incurring debt. Some of the commenters who supported allowing an institution to make a showing of mitigating circumstances under § 668.406 of the proposed regulations also argued that, instead of requiring such a showing, the Department should completely exempt from the D/E rates measure any GE program for which less than 50 percent of the individuals who completed the program incurred loan debt for enrollment in the program. The commenters proposed several methodologies the Department could use to determine which programs qualify for the exemption. These commenters made similar arguments to those discussed previously—that these programs should not be subject to the administratively burdensome process for calculating the D/E rates, when ultimately these programs will have a median loan debt of zero and therefore will be determined to be passing the D/E rates measure. One of these commenters suggested that, if a program is failing or in the zone with respect to the D/E rates measure, the institution should have the ability to recalculate its median loan debt based on all graduates, to evaluate the overall quality of a program. The commenter proposed that, if the program passes on the basis of that recalculation, the notice of determination issued by the Department would be annotated to reflect that the institution made a showing of “mitigating circumstances” and the program would be deemed passing. Some of the commenters also argued that an exemption based on a borrowing rate of less than 50 percent should apply across the board to all GE program requirements, including the reporting and disclosure requirements. Commenters asserted that, absent an exemption, many low-cost programs with a low borrowing rate would be inclined to leave the Direct Loan program or close their programs, even those programs that were effective. The commenters further stated that these closures would disproportionately affect minority and economically disadvantaged students, many of whom enroll in these programs, and that without these programs, these students would not have available economically viable options for furthering their education. Discussion: We appreciate the commenters' responses to our request for comment on the definition of “student” and the mitigating circumstances provision in proposed § 668.406. None of the commenters, however, presented an adequate justification for us to depart from our proposed definition of “students” and the purpose of the regulations, which is to evaluate the outcomes of individuals receiving title IV, HEA program funds and a program's continued eligibility to receive title IV, HEA program funds based solely on those outcomes. We do not agree that a borrowing rate below 50 percent necessarily indicates that a program is low cost or low risk. A program with a borrowing rate of under 50 percent, particularly a large program, could still have a substantial number of students with title IV loans and, additionally, those students could have a substantial amount of debt or insufficient earnings to pay their debt. We also note that, if a GE program is indeed “low cost” or does not have a significant percentage of borrowers, which commenters claimed is the case with many community college programs, it is very likely that the program will pass the D/E rates measure because most students will not have any debt. NPSAS data show that, of all students completing certificate programs at two-year public institutions who received title IV, HEA program funds, 77 percent received only Pell Grants and only 23 percent were borrowers. 5 Program results in the 2012 GE informational D/E rates data set reflects the findings of the NPSAS analysis. Of the 824 programs at two-to-three-year public institutions in the 2012 GE informational D/E rates data set, 823 pass under the D/E rates measure. Further, of the 824 total programs at two-to-three-year public institutions, 504 (61 percent) have zero median debt, which means that, for these programs, less than half of the students completing the program are borrowers and that the majority of their students completing the program received title IV, HEA program funds in the form of Pell Grants only. Accordingly, we do not believe there is adequate justification to depart from our definition of “student,” by permitting a showing of mitigating circumstances based on individuals who do not receive title IV, HEA program funds for enrollment in a program, or to make a greater departure from our accountability framework, by permitting a related up-front exemption. 5 NPSAS:2012. Changes: We have revised the regulations to remove the provisions in § 668.406 that would have permitted institutions to submit a mitigating circumstances showing for a GE program that is not passing the D/E rates measure. Comments: A number of commenters recommended revisions to the definition of “prospective student.” One commenter recommended that the Department use the definition of “prospective student” in § 668.41(a), which provides that a “prospective student” is an individual who has contacted an eligible institution for the purpose of requesting information concerning admission to that institution. The commenter argued that using this definition would maintain consistency across the title IV, HEA program regulations. Some of the commenters stated that the proposed definition is too broad. Specifically, they noted that an institution would not be able to identify, for example, to whom it was required to deliver disclosures and student warnings if anyone who had passive contact with an institution's advertising constituted a “prospective student” under the regulations. They suggested that if “prospective student” is defined that broadly, they would not be able to meet their obligations with respect to these students under the regulations or that compliance would be very burdensome, potentially requiring the development of new admissions and marketing materials annually. These commenters recommended that we revise the definition of “prospective student” to include only individuals who actively seek information from an institution about enrollment in a program. Another commenter expressed concern about the definition because, according to the commenter, a prospective student would include anyone who has access to the Internet. Other commenters stated that the definition is too narrow and recommended that the term include anyone in contact with an institution about “enrollment,” rather than “enrolling.” According to these commenters, with this change, the definition would include family members, counselors, and others making enrollment inquiries on behalf of someone else. Discussion: We believe that it is appropriate to establish a definition of “prospective student” that is tailored to the purpose of these specific regulations. In that regard, the definition will account for the various ways that institutions and prospective students commonly interact and target interactions that are specific to enrollment in a GE program, rather than more general contact about admission to an institution. Specifically, unlike the existing definition of “prospective student” in § 668.41(a), the definition in the GE regulations applies without regard to whether an individual or the institution initiates contact. We agree, however, that an individual's passive interaction with an institution's advertising should not result in that individual being considered a “prospective student” for the purposes of the regulations. Accordingly, we are removing the reference to indirect contact through advertising from the definition of “prospective student.” Recognizing that institutions sometimes engage third parties to recruit students, we have also revised the definition to capture this type of direct contact with prospective students. The commenters' proposed alternative definition, which would include individuals other than those in contact with the institution about enrolling in a program, is too broad for each of the purposes for which the definition is used. However, as we discuss in “Section 668.410 Consequences of the D/E Rates Measure,” we agree that, where an initial inquiry about enrolling in a program is made by a third party on behalf of a prospective student, the third party, as a proxy for the prospective student, should be given the student warning, as that is when a decision is likely to be made about whether to further explore enrolling in that program. We do not believe that the same reasoning applies, for example, with respect to the requirement in § 668.410 that a written warning be given to a prospective student at least three, but not more than 30, days before entering into an enrollment agreement. Thus, the changes to the definition and to the related requirements that we have described balance the need to provide prospective students with critical information at a time when they can most benefit from it with ensuring that the administrative burden for institutions is not unnecessarily increased. Changes: We have revised the definition of “prospective student” to exclude indirect contact through advertising and to include contact made by a third party on an institution's behalf. Comments: One commenter asked that we clarify whether credential level is determined by academic year or calendar year. Discussion: After further review of the proposed regulations, we have made several changes to the definition of “credential level” that make the commenter's concern moot. First, we are revising the definition to accurately reflect the treatment of a post-baccalaureate certificate as an undergraduate credential level under the title IV, HEA programs. This certificate was inappropriately listed as a graduate credential level in the proposed regulations. We also are simplifying the definition by treating all of an institution's undergraduate programs with the same CIP code and credential level as one “GE program,” without regard to program length, rather than breaking down the undergraduate credential levels according to the length of the program as we proposed in the NPRM. To do so would be inconsistent with other title IV, HEA program reporting procedures and would unnecessarily add complexity for institutions. We note that, under § 668.412(f), an institution that offers a GE program in more than one program length must publish a separate disclosure template for each length of the program. Although D/E rates will not be separately calculated, several of the other required disclosures, including the number of clock or credit hours or equivalent, program cost, placement rate, and percentage of students who borrow, must be broken down by length of the program. Thus, students and prospective students will have information available to make distinctions between programs of different lengths. Changes: We have revised the definition of “credential level” to include post-baccalaureate certificates as an undergraduate, rather than graduate, credential level and to specify that undergraduate credential levels are: Undergraduate certificate or diploma, associate degree, bachelor's degree, and post-baccalaureate certificate. Section 668.402 Definitions Comments: We received a number of comments regarding defined terms in the proposed regulations. Discussion: Consistent with our organizational approach in the NPRM, we describe the comments received relating to a specific defined term in the section in which the defined term is first substantively used. Changes: We have made changes to the following defined terms. The changes are described in the section or sections indicated after the defined term. Credential level (§ 668.401) Classification of instructional program (CIP) code and, within that definition, the term “substantially similar” (§§ 668.410 and 668.414) Cohort period (§ 668.404) GE measures (§ 668.403) Program cohort default rate (§ 668.403) Prospective student (§ 668.401) Section 668.403 Gainful Employment Program Framework Impact on For-Profit Institutions Comments: Some commenters asserted that the poor outcomes identified by the D/E rates measure—high debt and low earnings—are problems across higher education and that, as a result, it would be unfair to hold only GE programs accountable under the D/E rates measure. Commenters cited data that, they argued, showed that this is the case for a large fraction of four-year programs operated by public and non-profit institutions. One commenter contended that between 28 percent and 54 percent of programs operated by the University of Texas would fail the Department's accountability metrics. 6 6 Schneider, M. (2014). American Enterprise Institute. Are Graduates from Public Universities Gainfully Employed? Analyzing Student Loan Debt and Gainful Employment. Several commenters alleged that the regulations are a Federal overreach into higher education. A number of these commenters believed that the regulations unfairly target for-profit institutions. They stated that while a degree program at a for-profit institution must meet the D/E rates measure to remain eligible for title IV, HEA program funds, a comparable degree program at a public or private non-profit institution, which may have low completion rates or other poor outcomes, would not be subject to the regulations. Some commenters asserted that for-profit institutions play an important role in providing career training for students to enter into jobs that do not require a four-year bachelor's degree. In that regard, one commenter contended that, because the regulations apply only to GE programs offered primarily by for-profit institutions, the regulations reflect a bias in favor of traditional four-year degree programs not subject to the regulations. This bias, the commenter argued, cannot be justified in light of BLS data showing that nearly half of bachelor's degree graduates are working in jobs that do not require a four-year degree. These degree-holders, according to the commenter, are actually employed in what can be described as “middle-skill” positions, for which the commenter believed for-profit institutions provide more effective preparation. These commenters all asserted that traditional institutions are ill-suited to provide students with training for middle-skill jobs compared to for-profit institutions. Other commenters argued that enrollment growth at non-profit and public institutions has not kept up with demand from students and for-profit institutions have responded to this need by offering opportunities for students. One commenter presented data showing that a majority of degrees in the fastest growing occupations are awarded by for-profit institutions. Several commenters asserted that the regulations would have a substantial and disproportionate impact on programs in the for-profit sector and the students they serve. Commenters cited an analysis by Mark Kantrowitz claiming that, of GE programs that would not pass the D/E rates measure, a large and disproportionate portion are operated by for-profit institutions compared to programs operated by non-profit and public institutions, while other commenters relied on Department data to draw the same conclusion. 7 7 Kantrowitz, M. (2014). Edvisors Network Inc., Student Aid Policy Analysis. U.S. Department of Education Proposes Stricter Gainful Employment Rule. Commenters said the Department is targeting for-profit programs because of an incorrect assumption that student outcomes are worse at for-profit institutions. They said the Department has ignored studies showing that, when compared to institutions that serve similar populations of students, for-profit institutions achieve comparable outcomes for their students. Another commenter cited a study that showed that first-time enrollees at for-profit schools experience greater unemployment after leaving school, but among those working, their annual earnings are statistically similar to their counterparts at non-profit institutions. Several commenters asserted that the student body profiles at for-profit institutions could significantly affect program performance under the D/E rates measure. Charles River Associates analyzed NPSAS:2012 data and found that for-profit institutions serve older students (average age of 30.0 years compared to 24.6 years at private non-profit and 26.0 years at public institutions), veterans (7 percent of students compared to 3 percent at private non-profit and public institutions), students that are not exclusively full-time (30 percent of students compared to 29 percent at private non-profit and 57 percent at public institutions), independent students (80 percent at private for-profit institutions to 34 percent at private non-profit institutions and 49 percent at public institutions), single parents (33 percent at private for-profit institutions to 9 percent at private non-profit institutions and 13 percent at public institutions), students with dependents (51 percent at private for-profit institutions to 18 percent at private non-profit institutions to 25 percent at public institutions), students working more than 20 hours per week (48 percent at private for-profit institutions to 29 percent at private non-profit institutions to 44 percent at public institutions), students who consider their primary role to be an employee rather than a student (52 percent at private for-profit institutions to 23 percent at private non-profit institutions to 31 percent at public institutions), and students less likely to have a parent with at least a bachelor's degree (22 percent at private for-profit institutions to 52 percent at private non-profit institutions to 37 percent at public institutions). 8 They also found that minority students make up a higher percentage of the student body at for-profit institutions, with African-Americans making up 26 percent of students compared to 15 percent at public institutions and 14 percent at private non-profit institutions and Hispanic students comprising 19 percent of students at for-profit institutions, similar to the 17 percent at public institutions but higher than the 10 percent at private non-profit institutions. Additionally, commenters stated that 65 percent of students at for-profit institutions receive Pell Grants, while at private non-profit and public institutions, the percentage of Pell Grant recipients averages 36 percent and 38 percent, respectively. In addition, one commenter suggested that the Department should have considered that for-profit institutions are more likely to be open-enrollment institutions. 8 National Postsecondary Student Aid Study (NPSAS) 2012. Unpublished analysis of restricted-use data. Commenters asserted that for-profit institutions do not in fact cost more for students and taxpayers than public institutions, particularly community colleges, when State and local appropriations and other subsidies received by public institutions are taken into account. One commenter said that for-profit two-year institutions cost less per student than public two-year institutions and that completion rates are somewhat higher at for-profit institutions. Commenters pointed to a number of studies estimating taxpayer costs across types of institutions. One found that associate degree programs at public institutions cost $4,000 more per enrollee and $35,000 more per graduate than associate degree programs at for-profit institutions, while another found that the direct cost to taxpayers on a per-student basis is $25,546 lower at for-profit institutions than at public two-year institutions, and a third found that taxpayer costs of four-year public institutions averaged $9,709 per student compared to $99 per student at for-profit institutions. Another study estimated that public institutions receive $19.38 per student in direct tax support and private non-profit institutions receive $8.69 per student for every $1 received by for-profit institutions per student. Commenters also referenced research estimating the total costs to State and local governments if students affected by the regulations shift to public institutions, with results ranging from $3.6 to $4.7 billion to shift students from nine for-profit institutions in four States to public two-year or four-year institutions. Similarly, one commenter referenced a study estimating the total cost of shifting students to public institutions among all States would be $1.7 billion in State appropriations to support one cohort of graduates from failing or zone programs at public 2-year or least selective four-year institutions. Other commenters referred to budget data related to the title IV, HEA programs to state that student loans do not constitute costs to taxpayers because the recovery rate for these loans is over 100 percent, and asserted that any cost reductions in the title IV, HEA programs would be offset by reduced tax revenues at all levels of government and increased demand for capacity in the public sector. Others noted a GAO Report indicating Federal student loans originated between 2007 and 2012 will bring in $66 billion in revenue and that Congressional Budget Office projections from 2013 indicate that loans originated in the next ten-year period would generate $185 billion. Whether approaching the issue on a per-student, per-graduate, or overall taxpayer cost basis, the commenters stated that the rationale that the regulations will protect taxpayer interests does not withstand scrutiny. One commenter said that the NPRM overstated the cost of for-profit institutions relative to public two-year institutions, because many programs at for-profit institutions offer advanced degrees and their students accrue more debt. Other commenters said the Department ignores the comparable tuition costs of non-profit private institutions, which, like for-profit institutions, generally do not benefit from direct appropriations from State governments. One commenter asserted that the 150 percent of normal time graduation rate for public and private non-profit open‐enrollment colleges is 28.3 percent and 39.7 percent respectively while for‐profit colleges graduated 35.2 percent of students within 150 percent of normal time. Additionally, the commenter contended, more than half (55.7 percent) of for-profit colleges were open enrollment institutions in 2011-12, compared to less than 18 percent of public and 12 percent of private not‐for‐profit schools. Based on these findings, the commenter argued that while the for‐profit graduation rate is lower than the average of all public and private nonprofit institutions, it is higher than the average of all open‐enrollment public and private nonprofit institutions, which the commenter stated is likely to be a more appropriate comparison group. Several commenters claimed that the Department's reference in the NPRM to qui tam lawsuits and State Attorneys General investigations into for-profit institutions evidence bias. In particular, commenters suggested such investigations were politically driven, based on bad-faith attacks, and failed to produce evidence of wrongdoing. Some commenters said the Department's reference in the NPRM to a GAO report on the for-profit sector also demonstrates bias against for-profit institutions. Commenters asserted that the GAO investigation in particular contained errors and relied on false testimony, which required the GAO to correct and reissue its report. 9 Commenters said it was also inappropriate for the Department to rely on what the commenters called a “deeply flawed” partisan report by the Senate HELP committee majority staff, because the report partially relied on evidence presented in the GAO report, was actually issued by the committee majority staff for the committee, and was not adopted by vote of the whole committee. 10 9 Postsecondary Education: Student Outcomes Vary at For-Profit, Nonprofit, and Public Schools (GAO-12-143), GAO, December 7, 2011. 10 “For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success,” Senate HELP Committee, July 30, 2012. On the other hand, several commenters suggested that the Department should focus regulatory efforts on for-profit institutions because they have been engaged in predatory recruitment practices that hurt students and divert taxpayer funds away from higher-quality education programs. One commenter said that for-profit institutions increased recruiting of veterans by over 200 percent in just one year. Many commenters described the disproportionate distribution of government benefits to the for-profit sector, contending that for-profit institutions enroll only 10 percent of students, but account for 25 percent of Pell Grants and Stafford loan volume and account for half of defaults; that for-profit schools collected more than one-third of all G.I. Bill funds, but trained only 25 percent of veterans, while public colleges and universities received only 40 percent of G.I. Bill benefits but trained 59 percent of veterans; and that for-profit colleges cost taxpayers twice the tuition as non-profits. Several commenters described the high proportion of students who drop out of or withdraw from programs at for-profit institutions—about half of students who enroll. On the other hand, several commenters cited an analysis of IPEDS data by Charles River Associates that found that the difference in FY 2010 institutional cohort default rates (iCDR) among for-profit (22 percent), private non-profit (8 percent), and public (13 percent) institutions was significantly reduced when institutions were grouped into two categories of Pell Grant recipient concentration. The High Pell group had at least 50 percent of students receiving Pell Grants and the Low Pell group had less than 50 percent of students with Pell Grants. The Charles River Associates analysis found that among two-year institutions, in the High Pell Group, the iCDR at for-profit institutions is 20.6 percent compared to 24.2 percent at public institutions and, in the Low Pell Group, the iCDR is 16.6 percent at for-profit institutions and 20.4 percent at public institutions. Several commenters asserted that the Department has clear justification for limiting application of the regulations to institutions in the for-profit sector and other institutions offering programs that purport to prepare students for gainful employment. One commenter cited a study that found that students at for-profit institutions were twice as likely to default on their student loans as students at other types of schools and another study that found that graduation rates at for-profit colleges were less than one-third the rates at non-profit colleges. By comparison, the commenter cited economic research that found that students in non-profit and public certificate programs had lower debt burdens, higher earnings, lower unemployment, and lower student loan default rates and were more satisfied with their programs, even after controlling for student demographic factors. One commenter said the Department has a specific legislative mandate to regulate gainful employment programs, which include the programs offered by for-profit institutions, and, as a result, the Department is correct to apply the regulations to those programs. Some commenters added that for-profit institutions are subject to less regulation and accountability than non-profit institutions because for-profit institutions are not governed by an independent board composed of members without an ownership interest. Consequently, they argued, the Department should particularly regulate programs operated by for-profit institutions. Discussion: The regulations do not target for-profit programs for loss of eligibility under the title IV, HEA programs. To the contrary, the Department appreciates the important role for-profit institutions play in educating students. The for-profit sector has experienced tremendous growth in recent years, 11 fueled by the availability of Federal student aid funding and an increased demand for higher education, particularly among non-traditional students. 12 The share of Federal student financial aid going to students at for-profit institutions has grown from approximately 13 percent of all title IV, HEA program funds in award year 2000-2001 to 19 percent in award year 2013-2014. 13 11 National Center for Education Statistics (NCES) (2014). Digest of Education Statistics (Table 222). Available at: http://nces.ed.gov/programs/digest/d12/tables/dt12_222.asp . This table provides evidence of the growth in fall enrollment. For evidence of the growth in the number of institutions, please see the Digest of Education Statistics (Table 306) available at http://nces.ed.gov/programs/digest/d12/tables/dt12_306.asp . 12 Deming, D., Goldin, C., and Katz, L. (2012). The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators? Journal of Economic Perspectives, 26(1), 139-164. 13 U.S. Department of Education, Federal Student Aid, Title IV Program Volume Reports, available at https://studentaid.ed.gov/about/data-center/student/title-iv . The Department calculated the percentage of Federal Grants and FFEL and Direct student loans (excluding Parent PLUS) originated at for-profit institutions (including foreign) for award year 2000-2001 and award year 2013-2014. The for-profit sector plays an important role in serving traditionally underrepresented populations of students. For-profit institutions are typically open-enrollment institutions that are more likely to enroll students who are older, women, Black, Hispanic, or with low incomes. 14 Single parents, students with a certificate of high school equivalency, and students with lower family incomes are also more commonly found at for-profit institutions than community colleges. 15 14 Deming, D., Goldin, C., and Katz, L. (2012). The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators? Journal of Economic Perspectives, 26(1), 139-164. 15 Id. For-profit institutions develop curriculum and teaching practices that can be replicated at multiple locations and at convenient times, and offer highly structured programs to help ensure timely completion. 16 For-profit institutions “are attuned to the marketplace and are quick to open new schools, hire faculty, and add programs in growing fields and localities,” 17 including occupations requiring “middle-skill” training. 16 Id. 17 Id. At least some research suggests that for-profit institutions respond to demand that public institutions are unable to handle. Recent evidence from California suggests that for-profit institutions absorb students where public institutions are unable to respond to demand due to budget constraints. 18 19 Additional research has found that “[c]hange[s] in for-profit college enrollments are more positively correlated with changes in State college-age populations than are changes in public-sector college enrollments.” 20 18 Keller, J. (2011, January 13). Facing new cuts, California's colleges are shrinking their enrollments. Chronicle of Higher Education. Retrieved from http://chronicle.com/article/Facing-New-Cuts-Californias/125945/ . 19 Cellini, S. R. (2009). Crowded Colleges and College Crowd-Out: The Impact of Public Subsidies on the Two-Year College Market. American Economic Journal: Economic Policy, 1(2): 1-30. 20 Deming, D.J., Goldin, C., and Katz, L.F. (2012). The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators? Journal of Economic Perspectives, 26(1), 139-164. Other evidence, however, suggests that for-profit institutions are facing increasing competition from community colleges and traditional universities, as these institutions have started to expand their programs in online education. According to the annual report recently filed by a large, publically traded for-profit institution, “a substantial proportion of traditional colleges and universities and community colleges now offer some form of . . . online education programs, including programs geared towards the needs of working learners. As a result, we continue to face increasing competition, including from colleges with well-established brand names. As the online . . . learning segment of the postsecondary education market matures, we believe that the intensity of the competition we face will continue to increase.” 21 21 Apollo Group, Inc. (2013). Form 10-K for the fiscal year ended August 31, 2013. Available at www.sec.gov/Archives/edgar/data/929887/000092988713000150/apol-aug312013x10k.htm . These regulations apply not only to programs operated by for-profit institutions, but to all programs, across all sectors, that are subject to the requirement that in order to qualify for Federal student assistance, they must provide training that prepares students for gainful employment in a recognized occupation. Under the HEA, for these purposes, an eligible program includes non-degree programs, including diploma and certificate programs, at public and private non-profit institutions such as community colleges and nearly all educational programs at for-profit institutions of higher education regardless of program length or credential level. Our regulatory authority in this rulemaking with respect to institutional accountability is limited to defining the statutory requirement that these programs are eligible to participate in the title IV, HEA programs because they provide training that prepares students for gainful employment in a recognized occupation. The Department does not have the authority in this rulemaking to regulate other higher education institutions or programs, even if such institutions or programs would not pass the accountability metrics. The regulations establish an accountability framework and transparency framework for GE programs, whether the programs are operated by for-profit institutions or by public or private non-profit institutions. However, we are particularly concerned about high costs, poor outcomes, and deceptive practices at some institutions in the for-profit sector. With respect to comments that the NPRM overstates the cost of for-profit institutions relative to public two-year institutions because many for-profit programs offer advanced degrees, the data do not support this contention. A comparison of costs at institutions offering credentials of comparable levels shows that for-profit institutions typically charge higher tuition than do public postsecondary institutions. Among first-time full-time degree or certificate seeking undergraduates at title IV, HEA institutions operating on an academic calendar system and excluding students in graduate programs, average tuition and required fees at less-than-two-year for-profit institutions are more than double the average cost at less-than-two-year public institutions and average tuition and required fees at two-year for-profit institutions are about four times the average cost at two-year public institutions. 22 23 Because less than two-year and two-year for-profit institutions largely offer certificates and associate degrees, rather than more expensive four-year degrees or advanced degrees, 24 it is unlikely to be the case that higher tuition at for-profit institutions is the result of advanced degree offerings as argued by some commenters. 23 Id. 24 NCES, Digest of Education Statistics 2013 (Table 318.40) available at http://nces.ed.gov/programs/digest/d13/tables/dt13_318.40.asp . Indicates that in 2011-12, of 855,562 degrees and certificates awarded at for-profit institutions, approximately 75% (637,565) were certificates or associate degrees. At public institutions in 2011-12, approximately 45%, or 1,280,470 of 2,846,394 degrees and certificates awarded, were certificates or associate degrees. Comparing tuition at for-profit institutions and private non-profit institutions reveals similar results. Although the differential between for-profit institutions and private non-profit institutions that offer similar credentials is smaller than the difference between for-profit institutions and public institutions, for-profit institutions still charge more than private non-profit institutions when comparing two-year and less-than-two-year institutions, which includes the majority of institutions offering GE programs within the non-profit sector. 25 25 Id. The Department acknowledges that funding structures and levels of government support vary by type of institution, with public institutions receiving more direct funding and public and private non-profit institutions benefiting from their tax-exempt status. However, as detailed in “Discussion of Costs, Benefits, and Transfers” in the Regulatory Impact Analysis, we do not agree that the regulations will result in significant costs for State and local governments. In particular, we expect that many students who change programs as a result of the regulations will choose from the many passing programs at for-profit institutions or that State and local governments may pursue lower marginal cost options to expand capacity at public institutions. With respect to revenues generated by the Federal student loan programs, we note that the estimates presented reflect a low discount rate environment and that returns vary across different segments of the portfolio. Currently, the Direct Loan program reflects a negative subsidy. Subsidy rates represent the Federal portion of non-administrative costs—principally interest subsidies and defaults—associated with each borrowed dollar over the life of the loan. Under Federal Credit Reform Act (FCRA) rules, subsidy costs such as default costs and in-school interest benefits are embedded within the program subsidy, whereas Federal administration costs are treated as annual cash amounts and are not included within the subsidy rate. Annual variations in the subsidy rate are largely due to the relationship between the OMB-provided discount rate that drives the Government's borrowing rate and the interest rate at which borrowers repay their loans. Technical assumptions for defaults, repayment patterns, and other borrower characteristics would also apply. The loan subsidy estimates are particularly sensitive to fluctuations in the discount rate. Even small shifts in economic projections may produce substantial movement, up or down, in the subsidy rate. While the Federal student loan programs, especially Unsubsidized loans and PLUS loans, generate savings in the current interest rate environment, the estimates are subject to change. In any event, although the regulations may result in reduced costs to taxpayers from the title IV, HEA programs, the primary benefits of the regulations are the benefits to students. Because aid received from grants has not kept pace with rising tuition in the for-profit sector, in contrast to other sectors, the net cost to students who attend GE programs has increased sharply in recent years. 26 Not surprisingly, “student borrowing in the for-profit sector has risen dramatically to meet the rising net prices.” 27 Students at for-profit institutions are more likely to receive Federal student financial aid and have higher average student debt than students in public and private non-profit institutions, even taking into account the socioeconomic background of the students enrolled within each sector. 28 26 Cellini, S. R., and Darolia, R. (2013). College Costs and Financial Constraints: Student Borrowing at For-Profit Institutions. Unpublished manuscript. Available at www.upjohn.org/stuloanconf/Cellini_Darolia.pdf . 27 Id. 28 Deming, D.J., Goldin, C., and Katz, L.F. (2012). The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators? Journal of Economic Perspectives, 26(1), 139-164. In 2011-2012, 60 percent of certificate students who were enrolled at for-profit two-year institutions took out title IV student loans during that year compared to 10 percent at public two-year institutions. 29 Of those who borrowed, the median amount borrowed by students enrolled in certificate programs at two-year for-profit institutions was $6,629, as opposed to $4,000 at public two-year institutions. 30 In 2011-12, 20 percent of associate degree students who were enrolled at for-profit institutions took out student loans, while only 66 percent of associate degree students who were enrolled at public two-year institutions did so. 31 Of those who borrowed in 2011-12, for-profit two-year associate degree enrollees had a median amount borrowed during that year of $7,583, compared to $4,467 for students at public two-year institutions. 32 29 National Postsecondary Student Aid Study (NPSAS) 2012. Unpublished analysis of restricted-use data using the NCES PowerStats tool available at http://nces.ed.gov/datalab/postsecondary/index.aspx . 30 Id. 31 Id. 32 Id. Although student loan default rates have increased in all sectors in recent years, they are highest among students attending for-profit institutions. 33 34 Approximately 19 percent of borrowers who attended for-profit institutions default on their Federal student loans within the first three years of repayment as compared to about 13 percent of borrowers who attended public institutions. 35 Estimates of “cumulative lifetime default rates,” based on the number of loans, rather than borrowers, yield average default rates of 24, 23, and 31 percent, respectively, for public, private, and for-profit two-year institutions in the 2007-2011 cohort years. Based on estimates using dollars in those same cohort years (rather than loans or borrowers, to estimate defaults) the average lifetime default rate is 50 percent for students who attended two-year for-profit institutions in comparison to 35 percent for students who attended two-year public and non-profit private institutions. 36 Although we included a regression analysis on pCDR and student demographic characteristics, including the percentage of Pell students attending each program, in the NPRM, we do not respond to comments on this subject because the regulations no longer include pCDR as an accountability metric to determine eligibility for title IV, HEA program funds. 33 Darolia, R. (2013). Student Loan Repayment and College Accountability. Federal Reserve Bank of Philadelphia. 34 Deming, D.J., Goldin, C., and Katz, L.F. (2012). The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators? Jou [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2014-25594. Public record. Not legal advice.