New Gainful Employment Regulation Worse than Proposed

From Tom Netting AACS Lobbyist:

Initial Assessment of theInformal Gainful Employment Final Regulatory TextPosted 7AM, October 30, 2014
http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/gainfulemployment.html
It Is Worse Than Expected
Upon completion of only the first full read of only the new Gainful Employment FinalRegulatory Text (Final Rule), posted by the U.S. Department of Education early this morning onthe “Negotiated Rulemaking 2013-2014 — Gainful Employment” subsection of the Informationfor Financial Aid Professionals (IFAP) website, the final rule is worse, dare I say much worse,than the March 25, 2014 Official Notice of Proposed Rulemaking (NPRM).While there are some revisions that appear to be based upon portions of AACS’ recommendations and our pursuit of our primary concerns regarding the lack of complete and comprehensive data, which we are pleased to see incorporated into the final rule, the final rule isnot largely similar to the NPRM as the Administration and the Department have asserted in their messaging documents and the press have repeated based upon the initial stories published today.Here is just a sample of some of the significant modifications, revisions, and additions, notmentioned in the Administration’s press release and accompanying GE Fact Sheet, or mediaaccounts of the final rule.
GE Debt to Earnings Measures  OK, So They Maintained the Three-tiered
Approach, But Everything Else is the Same Right?
Wrong, very wrong!  Yes, as presented in the GE Fact sheet, the Administration and theDepartment maintained the GE framework, the three-tiered approach to determine a program’seligibility status, and the timelines used to determine when a program becomes ineligible asreproduced here.Metric: To maintain title IV eligibility, gainful employment programs will be required to meet minimum standards for the debt vs earnings of their graduates. 
Pass  Programs whose graduates have annual loan payments less than 8% of total earnings OR less than 20% of discretionary earnings. 
Zone  Programs whose graduates have annual loan payments between 8% and 12% of total earnings OR between 20% and 30% of discretionary earnings. 
Fail  Programs whose graduates have annual loan payments greater than 12% of total
earnings AND greater than 30% of discretionary earnings. 
Ineligible  Programs that fail in 2 out of any 3 consecutive years OR are in the zone for 4 consecutive years.
What the Administration and the Department didn’t present in their press release or theGE Fact Sheet, and the media has yet to learn or report, is that the final rule SIGNIFICANTLY REVISED the way in which the D/E rates are to be calculated.
The Key Differences: Loan Debt and Assessed Charges  The Department chose to add assessed charges to the calculation of loan debt thereby changing the way in which median loan debt is determined.Amortization of Median Loan Debt  While the Department maintained the application ofdifferent repayment periods (10, 15, and 20 years) to be used for the determination differenttypes of programs outcomes when determining the D/E rates, the NPRM applied the sameinterest rate based upon:
“the annual interest rate that is the average of the statutorily determined annualinterest rate on Federal Direct Unsubsidized Loans made during the six-yearperiod prior to the end of the applicable cohort period…”
However, the final rule is different.  Instead of using a single interest rate and applying it to all ofthe individualized repayment periods and programs, the final rule adds yet another change basedupon type of program.Under the final rule the interest rate for some programs (undergraduate certificate programs,associate degree programs, post-baccalaureate certificate programs) is now based upon a three-year, not six-year period, while others (bachelor’s degree) still use the original six-year window.Annual Loan Repayment  Ultimately the changes above are then factored into the calculationused to determine the annual loan repayment for each GE program.  Which has been changed aswell.The new calculation of median loan debt, as it was before, is based upon the lesser of the newLoan Debt and Assessed Charges output and the new Amortization of Median Loan Debt basedupon the total amount for tuition, fees and books, equipment, and supplies.Given the fact that both of the two key factors used to determine the calculation have changed,questions abound…
 Why wasn’t this possible alternative included in the Department’s “Methodology for2012 GE Informational Rates Data File Calculations”  which would have given the effected parties the ability to comment?
 What is the Department’s rationale for applying different interest rates for differenttypes of programs?  
 What effect does this have on the calculation of the different institutional programscompliance with the final rule given the fact that both of the factors used todetermine annual loan repayment have changed? As a result of these changes to the two criterion used to establish annual loan debt, isn’t all of the prior Informational Rate data obsolete? Did/Does the Department have and will it release new data showing the impact?
Programmatic Cohort Default Rates (pCDR)  Gone, But Not Forgotten.
While it is accurate that the Administration and the Department have chosen not to use pCDRs asa metric for purposes of determining eligibility, the Secretary will still be responsible forcalculating institution’s pCDRs and require their inclusion as one of the many GE disclosures.Also maintained, for better or for worse, is the entirely new Subpart R which: Establishes the purpose for maintaining this new disclosure; Explains how pCDRs are to be calculated by the Secretary, as well as how they will beapplied to institutions (including how they will be applied when an institution undergoes a change in status and the potential inclusion of loan debt from other institutions in a calculation if the institutions are under common ownership or control); Provides policies and procedures for institutions’ right to challenge and appeal the rates;and Details the forms of appeals rights available and process for appealing pCDRs.
This makes the second time the Department has either made the decision themselves toremove a metric from the criteria used to define GE or been directed to do so by the courts and yet both of them repealed metrics are now incorporated into the disclosures.  Why?
Disclosures  Which Ones, For What Timeframe, With What New Additions?
Speaking of the disclosures, the final regulation reverses field from the NPRM, which seemed toeliminate an institution’s responsibility to present the disclosures contained in GE 1.0 underSection 668.6(b) and the current disclosure template, replacing them with a new set ofdisclosures under Section 668.412 and a new disclosure template provided by the Secretary in afuture Federal Register following the development and consumer testing of the template in orderto make it as meaningful as possible.  The final regulations make it clear that institutions will be transitioning from one set ofdisclosures to another, maintaining institutions’ responsibility to comply with the GE 1.0disclosure requirements  including such disclosures as “on-time completion rates”  until theysunset on December 31, 2016.  While not made entirely clear, it appears that the GE 2.0 list of 16 new, and modifieddisclosures, plus any student warnings for each program that has received a notice from theSecretary that the program could become ineligible based on its final D/E rates for the nextaward year, will become effective January 1, 2017.Under the new disclosures, as it is with the current disclosure requirements, the final rule makesit clear that, in accordance with procedures and timelines established by the Secretary, theinstitution must update at least annually the information contained in the disclosure templatewith the most recent data available for each of its GE programs.
Student Warnings  Signed, Sealed, and Delivered.
A number of modifications were made in this area too  starting with the inclusion of languagethat extends the provision to students, prospective students, or “a third-party acting on theirbehalf.”
There is new language on exactly what the warning must say  which is an improvement, thesame regulations as in the NPRM which lay out in explicit detail how an institution potentially atrisk of losing eligibility must provide warnings to students and prospective students, oh yeah andthose all too familiar third-parties acting on their behalf.  All kidding aside, the final rule also retains the proposals in the NPRM related to the specialwarning criteria which prohibit enrollment of a student into an at-risk program for three businessdays, and must repeat this process if thirty days or more have passed between the time when theinformation was first provided, the three day cooling off period must be repeated.Moreover, the final rule includes enhanced requirements on how and what must be done if theinstitution seeks to provide the information via email and the acknowledgements which must bereceived for them to count.  It makes it clear that the student warning must be included in thedisclosures related to any program at risk, and must be added to the disclosure template within30 days.  
Unfortunately, the Administration and the Department did not provide any revisions inthis area based upon our concern that an institution could be forced to provide warnings toexisting students who would not be at risk of losing eligibility before completing theirprogram.
Definitions  Come On, At Least They Kept The Definitions the Same.
Wrong again.  The Department’s final rule removes the more finite categories of undergraduatecertificate and diploma programs (less than one year programs, one year or longer, but less thantwo year programs, two year and longer programs) previously contained under the definition ofCredential level.On its face this change seems rather benign, but it may result in unintended consequences both interms of the ability for the Department and/or the higher education community to assessproblems specific to one or more of the program length subsets if the Informational Rates do notmaintain the more finite categories and instead simply classify all certificate and diplomaprograms with a single qualifier.Moreover, this shift seems counter-intuitive given the final rules new policy related to thetransition period which we will explore next.
Transition Period  How Long Do We Have to Make Changes With Some
Protection?  It’s All Determined By the Length of the Program!
That’s right.  The number of years in which an institution that has a program either in the zone orfailing will be given the ability to have their D/E rates determined based upon the moreadvantageous of their draft D/E rates or transitional D/E rates based upon the most recent awardyear will determined by the length of program.A program that is one year or less in length = five award years of duel rate calculations;A program this is between one and two years = six award years of duel rate calculations; and A program that is more than two years = seven award years of duel rate calculations.And if that weren’t intriguing, yet perplexing enough for you given the previous summary,consider that, once again, the final rule changes the way in which the transitional D/E rates aredetermined as well.How/Why  because it is based upon the determination of median loan debt of the students whocompleted the program during the most recently completed award year  which is once againbased upon new calculation methodology.
Again you are left to wonder how the calculation revisions will impact the outcome?  But it is a clear statement of fact institutions with longer program lengths will have alonger time horizon to make changes in both the near- and long-term based upon onnothing more than the state prescribed length of program within our industry.  And ponder this one, how does this make rationale sense for an institution that has thesame or identical programs in states with different state required hours?It is not only conceivable   but probable  that some institutions could have the sameprogram receiving five, six, or even the full seven years of duel calculations for the sameprogram.
Outcomes of the D/E Rates  Believe It Or Not, At Least To Some Degree, WeThink The Administration and the Department Responded Favorably to OurLack of Complete and Comprehensive Data Concerns.
A new addition to the list of potential outcomes and their impact on an institution’s programeligibility has been added which is pretty interesting.  It says:“If the Secretary does not calculate or issue D/E rates for a program for an awardyear, the program receives no result under the D/E rates measure for that awardyear and remains in the same status under the D/E rates measure as the previousaward year; provided that if the Secretary does not calculate D/E rates for theprogram for four or more consecutive award years, the Secretary disregards the
program’s D/E rates for any award year prior to the four-year period indetermining the program’s eligibility.”
It sure seems to me, at least upon initial assessment, that this may be the Administrationand the Department’s way of dealing with all of those holes in the data we have been talking about!
It sure seems to at least address some portion of that type of concern, and makes it clear that the institution’s program eligibility is not put at risk based upon the unknown, but is determined based upon the last information available  with relief if the period of no results extends for four years.
FINAL NOTE
There is a great deal more in the way of minutia and less stark revisions to the final rule that wehave not attempted to present in this summary of what is now a 12-hour old publication.  We did however want to make you aware of the fact that the final rule is not as limited in thescope of its changes as presented in the Administration and the Department.And we wanted to assure you that your GRC is now, and will be between now and the AnnualConvention and Expo, undertaking a complete and comprehensive review of the entire final rule,including the Preamble and supporting information published in the Federal Register, willdevelop summaries based upon our review to be provided between now and the Convention andExpo, and will be preparing presentations and reports for lively discussion in Phoenix in just afew short weeks.
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