Biden administration proposes new rule to prevent students from incurring crippling debt at for-profit colleges

By Katie Lobosco, CNN

(CNN) — The Biden administration proposed a new rule Wednesday meant to prevent students from taking on an unaffordable amount of student loan debt to attend for-profit colleges and certificate programs at nonprofit colleges.

An earlier version of the rule, known as “gainful employment,” was proposed under the Obama administration and later rescinded by the Trump administration in 2019.

The Biden administration’s version of the rule will be the “strongest” yet, said Education Secretary Miguel Cardona on a call with reporters.

Also on Wednesday, the Department of Education proposed a new regulation that aims to bring increased transparency to the true costs and financial outcomes of nearly all undergraduate and graduate degree programs, including both nonprofit and for-profit colleges.

The department expects to release the final regulations by October, following a public comment period. If successfully finalized by November 1, the rules will go into effect on July 1, 2024.

How would the gainful employment rule work?

The proposed rule aims to identify low-performing for-profit colleges and certificate programs at nonprofit colleges, meaning those whose graduates had high student loan payments relative to their income.

This would be measured in two ways under the proposed rule. First, the Department of Education would set a minimum threshold for students’ debt-to-earnings ratio. Second, at least half of graduates from a program will be required to have higher earnings than a typical high school graduate in their state’s labor force who never pursued a postsecondary education.

Programs that fail at least one metric would be required to warn students that the program is at risk of losing access to federal aid, like student loans and Pell grants for low-income students. Those programs that fail to meet the standards on the same metric twice in a three-year period would lose access to federal aid.

Career Education Colleges and Universities, a trade group that represents for-profit colleges, criticized the proposed rule for excluding the majority of programs at nonprofit colleges.

“The rule unfairly targets programs at proprietary institutions and fails to account for the unique challenges facing students and communities that career-oriented programs serve,” CECU’s president and CEO Jason Altmire said in a statement.

Biden’s student loan system overhaul

The proposed gainful employment rule is the latest change the Biden administration seeks to bring to the federal student loan system.

The Education Department has made it easier for borrowers who were misled by their for-profit college to apply for student loan forgiveness under a program known as borrower defense to repayment. To date, $14.5 billion has been canceled for nearly 1.1 million borrowers who were cheated by their for-profit colleges or whose schools suddenly closed, Cardona said.

The Biden administration has also made it easier for people to qualify for the Public Service Loan Forgiveness program. It is also working on a new income-driven repayment plan that will lower eligible borrowers’ monthly payments and reduce the amount they pay back over time.

Biden’s separate one-time, student loan forgiveness program has been taken up by the Supreme Court, which is expected to rule in late June or early July. If allowed to move forward, the program would cancel up to $20,000 in federal student loan debt for eligible low- and middle-income borrowers.

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