Debt MeasuresModule 2

Gainful Employment

Final Rule

Agenda Final Rule published in the Federal

Register on June 13, 2011 Gainful Employment—debt measures

Measures that determine if a program prepares students for gainful employment in a recognized occupation

Final regulations are effective July 1, 2012 Resources

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Debt measures

To determine which programs do an adequate job of preparing students for gainful employment, ED has established two measures: Loan repayment rate Debt-to-earnings ratios (two separate but

related measures) Earnings rate Discretionary income rate

§ 668.7

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Loan repayment rate

Loan repayment rate Determines if former students who

entered repayment on their FFELP or FDLP loans for the program have reduced the outstanding principal balance of the loans from the beginning of the most recently completed fiscal year to the end of the same fiscal year Former students include both completers

and non-completers Includes Stafford and Grad PLUS loans

§ 668.7 (b)

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Terminology

Federal fiscal year (FY): October 1 - September 30 of the following year

Loans Paid in Full (LPF): Non-defaulted loans paid in full by the borrower except via a Consolidation loan

Original Outstanding Principal Balance (OOPB): Total loan balance, including capitalized interest, when a loan first entered repayment.

§ 668.7 (b)

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Terminology

Payments-Made Loans (PML): Borrower payments during the most recently completed FY reduced the loan’s outstanding balance (principal and interest) since the beginning of that FY by at least one cent; applicable to non-defaulted loans Typically includes loans in the 3rd and 4th

year of repayment

§ 668.7 (b)

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Terminology

Excluded loans: The following types of loans are excluded from the calculation: Loans in an in-school or military-related

deferment status during any part of the FY Loans that have been discharged due to a

borrower’s total and permanent disability, as well as loans that have been transferred or assigned to ED for this reason

Loans that have been discharged due to death of the borrower

§ 668.7 (b)8

Loan repayment rate A loan is successfully being repaid if:

Its balance is reduced over the course of the fiscal year or the loan is paid in full

It is on track for Public Service Loan Forgiveness

Borrower is making payments under an interest-only or income-based repayment plan, with certain limitations

For post-baccalaureate programs, the balance on a Consolidation loan is less than or equal to the balance at the beginning of the year

§ 668.7 (b)9

Loan repayment rate

Annual calculation for a GE program:

OOPB of LPF + OOPB of PML

OOPB of all FFELP and FDLP loans obtained by students enrolled in the

program

§ 668.7 (b)

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Debt-to-earnings ratios: earnings rate and discretionary income rate

Earnings rate Determines the percentage of a typical

program completer’s annual earnings needed for loan payment

Generally includes all students who completed the program during the prior 3rd and 4th fiscal years

Includes FFELP and FDLP loans, private education loans, and institutional financing debt

§ 668.7 (c)12

Earnings rate Key terminology:

Mean: the mathematical average of a set of numbers

Median: the “middle” value in a list of numbers To find the median, the list of numbers

has to be in numerical (ascending or descending) order

§ 668.7 (c)

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Earnings rate Key terminology

Median loan debt is based on either: The total amount of loan debt a student

incurred to complete the program, or The total tuition and fees charged to a

student to complete the program If the school reports both amounts, ED will

calculate median loan debt for the program using the lower of these two amounts

§ 668.7 (c)

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Earnings rate Annual Loan Payment (ALP) is calculated using

the median loan debt and the current 6.8% interest rate on unsubsidized Stafford loans, based on a: 10-year repayment schedule for a program that

leads to an undergraduate or post-baccalaureate certificate, or to an associate’s degree;

15-year repayment schedule for a program that leads to a bachelor’s or master’s degree; or

20-year repayment schedule for a program that leads to a doctoral or first professional degree

§ 668.7 (c)15

Earnings rate Annual Earnings (AE) is calculated using

the higher of the most recent mean or median wage data available to ED from the Social Security Administration (SSA) for a calendar year

Schools can verify the lists of individuals submitted to SSA. However, the earnings data will be subject to SSA’s strict protections on individual privacy

§ 668.7 (c)

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Earnings rate

Annual calculation for a GE program:

Average Annual Loan Paymentof program completers

Mean or Median Annual Earningsof program completers

§ 668.7 (c)

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Discretionary income rate

Determines the percentage of a typical program completer’s discretionary income that is needed for loan repayment

Generally includes all students who completed the program during the applicable 2-year (or 4-year) period Same exceptions noted in earnings rate apply

Includes FFELP and FDLP loans, private education loans, and institutional financing debt

§ 668.7 (c)

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Terminology

Refer to previously-defined terminology under the earnings rate

Discretionary Income (DI): Difference between Annual Earnings (AE) and 150% of current federal Poverty Guideline amount for a single person living in the continental U.S.

§ 668.7 (b); (c)

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Discretionary income rate

Annual calculation for a GE program:

Average Annual Loan Payment of program completers

Mean or Median Annual Earnings of program completers

minus 150% of Poverty Guideline Amount

§ 668.7 (c)

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Minimum standards

Minimum standards

A program adequately prepares students for gainful employment if it meets at least one of the three debt standards: Loan repayment rate is 35% or greater Earnings rate is 12% or less Discretionary income rate is 30% or less

§ 668.7 (a)

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Minimum standards

A program is a failing program for a year if it fails all of the debt standards: Loan repayment rate is less than 35% Earnings rate is greater than 12% Discretionary income rate is greater than

30% For a single fiscal year: failing program For three of four fiscal years: ineligible

program

§ 668.7 (a)

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Temporary comparison

For FYs 2012, 2013, and 2014, ED will calculate two loan repayment rates for a program using: 1st and 2nd FYs 3rd and 4th FYs

ED will use the higher of those rates to determine whether the program meets the 35% minimum standard

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§ 668.7 (b)(1)(iv)

Small numbers For a program with 30 or fewer students, the 2-

year period is extended to a 4-year period In lieu of minimum standards, program satisfies

the debt measures if the 4-year period represents: 30 or fewer borrowers whose loans entered

repayment; or 30 or fewer students who completed the program. SSA did not provide mean and median earnings; or Median loan debt is zero.

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§ 668.7(d)

Informational rates

For FY 2011, ED will provide informational-only data (no consequences) for each GE program offered by a school including: Loan repayment rate for the 2-year period

covering FYs 2007 and 2008 Earnings and discretionary income rates for

the same period Median loan debt and the mean and median

annual earnings based on SSA data Data will enable schools to assess programs

§ 668.7 (c)

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Review and challenge process

Review and challenge process

ED will issue draft results for the program debt measures, starting with the FY 2012 rates to be released in 2013

Schools can review and correct or update certain data before debt measures are finalized

§ 668.7 (e)

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Review and challenge process Pre-draft corrections process

ED provides a school with the list of students to be submitted to SSA to obtain data used for debt-to-earnings ratios

School has 30 days to review the list and provide evidence to ED if a student should be included on or removed from the list

If approved, ED updates the student list before requesting earnings information from SSA

§ 668.7 (e)29

Review and challenge process

Post-draft corrections process School may challenge the accuracy of the:

List of borrowers Borrower loan data used to calculate the

draft loan repayment rate Median loan debt used to calculate the

draft debt-to-earnings ratios School has 45 days to review the data and

provide evidence of incorrect data to ED

§ 668.7 (e)

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Review and challenge process

Recalculation of a draft rate If a school’s challenge is accepted, ED

recalculates the debt measures For a failing program, if SSA is unable to

provide earnings data for one or more students in the final list of program completers, ED adjusts the median loan debt by removing the highest loan debt for that number of students

Once updates are made, ED provides the school with the final debt measures for the program

§ 668.7 (e); (f)

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Review and challenge process

For a failing program, a school may demonstrate that the program would meet a debt-to-earnings standard using median loan debt and alternative earnings from: State data School survey data in accordance with NCES

standards that can be accessed at: http://nces.ed.gov/statprog/2002/stdtoc.asp

Bureau of Labor Statistics (BLS) earnings data, for FYs 2012, 2013, and 2014 only

§ 668.7 (g)

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Debt warnings

Debt warnings

If a school’s program fails to meet the minimum standards for all of the debt measures, the school must provide certain information to current and prospective students for the program in a “debt warning” notice: First-year warning Second-year warning

§ 668.7 (i)

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Debt warnings First-year warning

Must be issued the first time a program fails to meet all debt measure minimum standards

Must include: A plain-language explanation of the debt

measures The amount by which the program did

not meet the minimum standards The steps the school plans to take, if any,

to improve the program’s performance under the debt measures § 668.7 (i)

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Debt warnings Second-year warning

Must be issued after a program fails to meet all minimum standards for two consecutive FYs or for two of the three most recently completed FYs

Must include: The information required for a first-year

warning A plain-language explanation of the actions the

school plans to take in response to the second failure, including any plans to voluntarily discontinue the program

§ 668.7 (i)

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Debt warnings The second-year warning must also include:

Explanation of the risks to students associated with enrolling or continuing in the program (e.g., inability to receive Title IV funds)

Explanation of resources available, including www.collegenavigator.gov, that a student may use to research other options and compare costs; and

A “clear and conspicuous statement” that a student who enrolls or continues to enroll in the program should expect to have difficulty repaying loan debt

§ 668.7 (i) 37

Debt warnings

Timely first- or second-year warnings: Current students

Warnings must be provided no later than 30 days after the school is notified that the program failed all of the minimum standards

Prospective students Warnings must be provided at the time a

student first contacts the school requesting information about the program

§ 668.7 (i)

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Debt warnings

Enrolling a prospective student School may not enroll the student until

three days after the warnings are provided If more than thirty days elapse from the

date the warnings are first provided, the school must provide the warnings again School may not enroll the student until

three days after the warnings are provided again

§ 668.7 (i)

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Program improvement

Failing programs do not lose Title IV eligibility immediately

Standards help programs raise performance

ED analysis indicates that with the opportunities for improvement, it is estimated that— 8% of GE programs will fail at least once 2% of GE programs will ultimately lose

eligibility40

Restrictions for ineligible and voluntarily discontinued failing programs

Restrictions An ineligible program or a failing program

that a school voluntarily discontinues remains ineligible until the school reestablishes the eligibility of the program Effective on the date the school provides

written notice to ED that it relinquishes Title IV eligibility of that program

§ 668.7 (l)

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Periods of ineligibility Voluntarily discontinued failing program

School may not seek to reestablish eligibility of that program until the: End of the 2nd FY following the FY in which the

school discontinued the program’s eligibility once it was identified as failing, but not later than 90 days after the date ED notified the school that it was required to provide second-year debt warnings; or

End of the 3rd FY following the FY in which the school discontinued the program’s eligibility, if more than 90 days after the date ED notified the school that it was required to provide second-year debt warnings

§ 668.7 (l)43

Periods of ineligibility Ineligible program

School may not seek to reestablish eligibility of that program until the: End of the 3rd FY following the FY the

program became ineligible Substantially similar program also may not

be established during the 3-year period

§ 668.7 (l)

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Resources

Resources Final Rule published in the Federal

Register on June 13, 2011http://ifap.ed.gov/fregisters/FR061311GEDebtMeasures.html

ED’s Gainful Employment Information page

http://ifap.ed.gov/GainfulEmploymentInfo/index.html

To submit questions to ED, email:GE-Questions@ed.gov

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Resources NCHELP resources

GE Final Rule side-by-side analysishttp://www.nchelp.org/?page=e0198 Integrated regulations that include the

Program Integrity and GE Final Rules

http://www.nchelp.org/?page=e0053 GE training moduleshttp://www.nchelp.org/?page=e0032b

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