The Biden administration is developing regulations around gainful employment (GE) that would protect students from career-oriented college programs that don’t adequately serve their students. A draft GE rule released earlier this year would require that graduates of certificate programs at public and nonprofit colleges and nearly all programs at for-profit colleges meet a debt-to-earnings test to be eligible for federal aid. Using debt to measure value involves major limitations, however, and programs with poor outcomes can pass a debt-to-earnings test if students finance their tuition with federal grant aid or out-of-pocket funds instead of loans.
Using data to examine the effects of several thresholds, we analyze a tuition-to-earnings test for the GE rule and compare it with the effects of the Biden administration’s proposed debt-to-earnings test. This test more directly measures what a program costs, is not affected by the share of students borrowing, and measures prices charged to all students regardless of the type or amount of federal aid they received.
Key Findings
A tuition-to-earnings test can produce lower or higher fail rates than the Biden administration’s proposed debt-to-earnings test depending on where the threshold is set, and different programs are affected by the tuition-to-earnings test. The data show the following:
- A broader set of programs at a wider range of institutions fail a tuition-to-earnings test mainly because the debt-to-earnings test gives a pass to low-earning programs that charge high prices if graduates have low debt or few borrowed.
- Few programs other than those in cosmetology fail the debt-to-earnings test when looking at the five most prevalent undergraduate certificates covered by the GE rule, but under the tuition-to-earnings tests, programs offered at for-profit institutions in nursing, medical assisting, and health care administrative services are more likely to fail.
- Programs that fail a tuition-to-earnings test tend to enroll a larger share of Hispanic students than do programs that fail the debt-to-earnings test, with Hispanic students making up 34 percent of program awards at programs failing the tuition-to-earnings test but only 19 percent at programs that fail the debt-to-earnings test.
- There are no differences in the share of Black students enrolled at programs failing either test.
- Programs that fail a tuition-to-earnings test tend to enroll a smaller share of women than those that fail the debt-to-earnings test (76 percent and 84 percent, respectively).
Implications
Many proposals for accountability in higher education use student debt burdens to gauge whether a program is likely to pay off for graduates. At least for certificate programs, the data suggest that measuring the prices institutions charge through a tuition-to-earnings test can better identify low-value programs. The administration’s proposed debt-to-earnings test would benefit low-earning programs with high tuition where graduates had low debt, but a tuition-to-earnings test identifies programs with high tuition and poor outcomes regardless of debt burdens. Using tuition, rather than debt, as a measurement may also provide greater consumer and taxpayer protections at programs where students mainly use federal Pell grants, rather than loans, to pay for their education and protect Hispanic students who would have enrolled in these programs.