Gainful Employment rule: What happens when you pay for a worthless degree?

You’ve taken out loans, paid tuition, attended classes and finally completed your program. The only problem? You can’t afford to pay off your student debt with the job you’ve found — the pay is simply too low. The problem of students paying for worthless degrees or for programs that don’t give them the skills they need to find a reasonably paying job in comparison to the debt they’ve taken on has become all too common with the rise in for profit colleges.

In July 2015, the Obama administration ushered in a new version of the Gainful Employment rule, which has caused a stir.  But first, what is the gainful employment rule, and how does it impact college students?

What is the Gainful Employment rule?

The Gainful Employment rule is a piece of legislation that addresses college enrollment and preparation practices. The goal is to help ensure that students make enough money after graduating to pay off their school loans. Vocational and for-profit institutions, as well as non-degree programs offered at community colleges, must meet the required debt-to-income rates among its graduates.

Under the new rules, a graduate must spend no more than 20% of their discretionary earnings on paying off his or her student loans, or more than 8% of their total income. If a graduates from particular schools pay above these thresholds, the schools are to be held responsible.

The intent of the new Gainful Employment rule is to protect vulnerable students who are or have attended for-profit schools. The rule is aimed at making these schools responsible for the “end product” — students who graduate with enough skills to gain employment in their field of education — rather than simply generating profit from students’ tuition and increasing enrollment.

Why target for-profit schools?

For-profit colleges are the natural target of such measures. Although the for-profit institutions are responsible for only 11% of total enrolled students, they are accountable for at least 44% of all federal student loan defaults, according to the U.S. Department of Education.

Overall, it is estimated that approximately 90% of the total revenue of for-profit schools is from the taxpayers’ pockets, as students can use federal loans and grants to help pay their tuition. More than 80% of students at for-profit colleges take out loans to pay for tuition, while fewer than half the students at public institutions borrow.

The Gainful Employment rule seeks to address this problem by making such institutions accountable for their methods of teaching and their success or lack of same record.

What is at stake?

For schools, a lot is at stake. Failure to produce the expected results could result in the loss of federal funding. The inability to create measures that will ensure the students are not mislead or ill-prepared when it comes to employment means the school or college could lose its access to any student aid that is currently funded by the federal government.

With so much at stake, it is no wonder several institutions have challenged the Gainful Employment rule in court. Among them was the representative of some of the larger and more influential private colleges – the national organization of the Association of Private Sector Colleges and Universities.

Programs that do not meet the standards will have a chance to improve before funding is revoked.