Archive for January, 2016

Gainful Employment Update

Gainful Employment Impact

 

The new gainful employment regulations promulgated by the Department of Education under the direction of the current administration is projected to wipe out the majority of cosmetology schools in the United States. Cosmetology school graduates work in the Salon and Spa industry, a $21 Billion industry with over 900,000 establishments in the United States. It is one of the few growing and flourishing industries in the country and has outperformed the overall economy in job growth in 9 of the past 11 years.   Thirty Percent of the individuals working in the salon and spa industry are self-employed. They are educated in beauty schools.

 

The Accrediting agency NACCAS currently has 1402 accredited cosmetology schools. If each accredited school graduates an average of 80 students per year that equals 112,160 graduates per year.

 

The average tuition for all cosmetology schools is $13,750. More than half of the accredited beauty schools in the United States will probably lose their NACCAS accreditation under the new Gainful Employment regulations. For the most part it will be the higher end schools that devote a greater number of educational resources to their programs. Sub-standard schools that minimize their educational investment should meet the new standard.  It is hard to predict the status of the rest of the schools that are just providing a good education.

 

What government in its right mind would pass a regulation that would undermine a flourishing industry that contributes so much to the economy, to single mothers, and to small business owners? As with health care, one of the biggest problems is that few understand this regulation and its impact. Many in congress are shocked to find out the impact of this regulation.

 

Here is an example of how the regulation works. If your school graduates 100 students, you would look at student number 50 and see how much money that student took out in federal loans. Many students qualify for a PELL grant so that covers $5,500 of their tuition. Most students then have to borrow most of the rest of their tuition. If the average school charges $13,750, the average student would have to borrow $8,250 in government loans. At 6.75% interest, amortized over 10 years the payment on those loans would be $95 a month or $1,140 a year. Two years later student number 50 would have to report 12.5 times $1,140 ($14,250) on their federal income tax return for their personal separate income. If they do not report this income, the school does not pass and is on the path to lose its accreditation.

 

The brand name schools, which invest far more in their educational content and facilities, all charge more than the average of $13,750. If the tuition is $16,500 the student would have to borrow $11,000 in federal loans. Using the same calculation, student number 50 would have to report $18,946.50 on their federal income tax return in order to pass the new federal standard for the school to maintain accreditation. Accreditation is not easy to achieve and is critical for the success of any cosmetology school.

 

One of the criticisms of this new regulation is that it is based on the performance of the median student. As with most anything in life, human performance is often based on a grading curve. In most schools of any kind about 20% of the students get an A grade. Performance after school is no different.

 

Another criticism is that the gainful employment regulations apply mainly to private “for profit” schools and not to the public school sector. Major public universities can continue to charge enormous tuitions, dwarfing that of cosmetology school tuitions issuing degrees in social sciences or antiquated arts and racking up federal borrowing, without any consequences.

 

Another criticism is that the school cannot control the work ethic or ethics of the student after they have left the school. The school cannot even know what the student reported on their federal income tax return, which is where the department of education gets its information to make the gainful employment calculation. For this reason no school actually knows whether it is meeting the standard or not until the government releases its numbers based on what the student actually reported.

 

The United States has grown into its greatness by providing opportunity for success. No average student until this current administration has been guaranteed a certain level of gainful employment stemming from his or her education. Schools have been judged by their performance in providing an opportunity for success. It is ridiculous to assert that the school can have control over the level of energy, the work ethic or the life circumstances of a student two years after leaving the school.

 

Many in the cosmetology industry are calling upon Congress to carve out an exception from the Gainful Employment regulation for this major industry that has outperformed the economy, is growing jobs and income for an entrepreneurial class of workers consisting mostly of women who are trying to provide for their families. If this carve our does not occur tens of thousands will not receive the high quality education and career base that the cosmetology schools are now providing.

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