The so-called “gainful employment” rule currently being proposed by the Department of Education (DOE) has generated extensive controversy. The rule, designed to crack down on widespread recruiting frauds that can lead to huge student loan debts and ultimately put taxpayers on the hook, has drawn 90,000 comments.
DOE announced recently that it would implement the new regulations on July 1, 2011, as planned, though it may make a few changes in finalizing the rules.
Today, PPI is releasing a new memo by PPI senior fellow Michael Mandel on how to understand the new “gainful employment’ rule. You can read the full memo here.
But here’s the quick summary:
Mandel argues that in an uncertain economic environment like the one we are currently facing, it’s really hard to make specific rules about debt-to-income ratios or to predict in what sectors there is going to be demand for employment even a few years down the line. (Mandel shows how poorly the Bureau of Labor Statistics “hot job” list has predicted the future in recent years.)
Mandel also worries that too much focus on debt-to-income ratios is going to disproportionately hurt those students who most need education – poorer students from hard-hit states who don’t look like a great investment given the formulas drawn up by the DOE guidelines, but need the most help if they are going get the training they need to be part of any economic recovery.
The big point is that given the current economic uncertainty, you want institutions that are capable of reacting quickly to market demand for training and skills-acquisition. And while there are obviously needed reforms to prevent for-profit colleges from taking advantage of students and student loan programs, too many rules and regulations are going to make it difficult if not impossible for for-profit colleges to respond quickly to market needs for skills.
As Mandel writes: “When the economy starts growing again, we want our educational institutions to be able to react quickly, not drag behind. DOE’s proposed approval process is a disaster, hurting the parts of the educational system that are the most flexible.”
