Sometimes a proposed piece of legislation or new rule can catalyze debate about a key issue. That seems to be the case for the ‘gainful employment’ rule currently being proposed by the Department of Education (DOE). The rule addresses a very real problem: The large amounts of debt being taken on by some students, mainly those attending for-profit colleges. However, if enacted in its current form, the new rule would require many institutions—for-profit, non-profit, and public alike—to follow complicated new procedures that could greatly limit their flexibility in offering new programs and potentially reduce the educational options open to students.
Are the benefits of the gainful employment rule worth the costs? DOE’s narrow cost-benefit analysis says they are, but its analysis fails to address a broader issue: How should higher education institutions be expected to deal with an uncertain and rapidly changing economic environment? In a world where tomorrow’s labor market may be very different than today’s, should colleges be encouraged to anticipate the changes, or should they stick to the steady teaching of accumulated knowledge and skills for existing jobs?
This policy brief will make one observation about today’s economy, and then draw three implications for policy. The observation is simple: Young educated workers face vastly more uncertainty in the labor market than recent generations of graduates. Young workers with a bachelor’s, associate degree, or other postsecondary education must deal with much higher unemployment rates, falling real wages, and a job landscape that keeps shifting.
The first implication: The increased uncertainty means that colleges have to take more responsibility for informing students about what their education dollar is buying them. In particular, the for-profit sector needs major reforms to deal with what a recent GAO report called “deceptive and questionable marketing practices.” With students facing a tougher time in the job market, for-profit institutions must move away from high-pressure sales tactics, increase transparency about potential outcomes, pay more attention to debt levels, and raise admissions standards. Non-profits and public institutions must bite the bullet as well by offering more information about estimated payback periods and making sure that their students don’t graduate with excess debt.