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Steps Institutions Should Take With DoE’s New Gainful Employment Rule

We offer tips for higher education institutions to help meet DoE reporting requirements.
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By this point, every administrator in higher education should know that the U.S. Department of Education (DoE) has imposed new regulations on institutions that are designed to protect students from unsustainable financial burdens associated with high-cost programs. Some variants of these regulations were in place in 2009 and successfully challenged thereafter. Only time will tell if the latest version of the rule has the same fate. However, many administrators are taking the regulations seriously.

Specifically, the new guidance requires proprietary schools and non-degree certificate programs across all sectors to demonstrate that graduates can become gainfully employed, which is captured by two metrics: (1) graduates earn enough money to pay off their loans, i.e., their monthly debt burden does not exceed some percentage of their earnings, and (2) graduates earn more than they would have otherwise earned with a high school diploma. If a program or institution fails to meet these criteria for two consecutive years, students enrolling in those programs will not qualify for federal financial aid.

In addition, the DoE has implemented a reporting requirement for financial value transparency (FVT), which will require institutions across all sectors to provide comprehensive cost estimates for each program they offer, which will be made available in a public database alongside income estimates for graduates. Those income estimates will be provided and reported by the DoE, independently of institutions. Institutions reporting costs that outweigh earnings won’t immediately lose funding but may be at risk for discretionary funding loss if they are facing other challenges, as determined by the DoE.

All reporting requirements will begin in July 2024, with the potential for funding loss starting in 2026. In short, these regulations place many institutions at risk of severe enrollment disruption and will further highlight the value proposition challenges facing higher education.

To help mitigate any negative outcomes associated with the new regulations, institutions should consider taking immediate action to assess program-level and institutional risk and begin implementing new cost and curricular models that will help meet students’ needs.

Proprietary institutions and those offering certificate programs should consider doing the following as soon as possible:

  1. Conduct an assessment to determine which programs will be affected. This will require substantial effort. While most institutions can easily report the cost of their programs, many don’t have a system for tracking the income earned by their graduates. Understanding where your alumni are working and their earning potential relative to high school graduates will be necessary for understanding your immediate risk.
  2. Once those high-risk programs are identified:
    1. Complete financial scenario modeling to determine how your institution would fare should some programs have to close.
    2. Identify ways to cut costs for interested students by exploring new models for delivery and instruction, as you won’t have the same degree of control over what graduates earn.
    3. Ensure that each at-risk program has learning outcomes that prepare graduates for gainful employment. If your students have historically struggled to earn licensure or certification, for instance, now is the time to get serious about understanding how you can improve your curriculum to help meet their needs.
  3. Operationalize how you will explain the new regulations to prospective students and their families and articulate the value of the degree or certificate.

Given the FVT reporting requirements, all institutions should prepare for significant questions about the value of their programs. Consider taking the following steps to this end:

  1. Understand how the DoE will calculate expected income for all programs and use this metric to identify those programs that will be met with the most skepticism.
  2. Conduct a rigorous accounting of the value of the college experience at your institution beyond earned income and begin to think about how you will communicate this value to prospective students and their families.
  3. Determine ways to optimize program costs for students and modify your curricula to distinguish your graduates’ earning potential from those of your peers.
  4. Use financial scenario modeling to understand a “worst-case scenario” and plan accordingly.
  5. Assess other factors that may put your institution on the DoE’s radar and consider them in concert with the financial value your institution is adding for graduates.

If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.

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