The “Gainful Employment” Rule is Sheer Folly

Since the UNC athletic/academic scandal has faded, the hottest topic in the realm of higher education has been the so-called “gainful employment” regulations released by the Department of Education at the end of October.

An avalanche of articles have been written exploring the issue involved, namely the large percentage of students who graduate from occupational training schools who are unable to earn enough to pay their student loans without severe difficulty. Will the proposed rule (945 pages long!) solve this problem by cutting off schools from eligibility for federal student aid if graduates’ debt exceeds 8 percent of their total income or 20 percent of their discretionary income?

In the November 13th Wall Street Journal, Steve Gunderson, president of the Association of Private Sector Colleges and Universities, argues in “Making ‘Profit’ a Dirty Word in Higher Education” that the rule would harm many students by closing educational programs they could have benefited from. He also contends that the rule  is motivated by little more than hostility towards schools that are run for profit.

Gunderson notes that some well-known non-profit educational institutions would not pass under the rule, for example, the George Washington University law school, but that it impacts the for-profit sector. “The present administration,” he writes, “has targeted for-profit higher education for years.” That’s indisputably clear. The for-profit sector is a favorite whipping boy.

But whether the “gainful employment” rule is fair or not, would it do any good? I think not.

Suppose it were implemented, and as a result a substantial number of for-profit postsecondary schools that offer job training programs had to close because their graduates don’t earn enough to cover their student loan debts.  (The Education Department estimates that around 1,400 programs would fail if the rule were currently in force.) Students, who could no longer take their federal money to the schools that were declared ineligible, would then go elsewhere, to “passing” schools.

That, however, solves nothing.  The “passing” schools aren’t better, but just fortunate in having enrolled somewhat stronger or savvier students who were more successful in landing employment. Unless those schools turn away marginally weaker students, after graduation they will similarly have trouble in the labor market, thus putting those schools in jeopardy under the rule.

Perhaps that’s the Department’s end game – the progressive elimination of for-profit postsecondary education.

The essence of our student debt problem has nothing to do with the for-profit schools, however. It has everything to do with the fact that the Obama administration and particularly Obamacare has wrecked the job market for young people looking for full-time jobs. As long as the federal drag on full-time employment remains, we will continue to have a great surplus of young people — with and without college credentials — who can’t get a good start in a career.

The Department’s rule would merely shift some of those unfortunate people around to different job training programs, but that does not address the brute fact that America is producing too few good jobs for the number of people entering the labor force.

Federal policy keeps dangling lots of easy money in front of all high school graduates, encouraging them to enroll in college and worry about the costs later. That policy combined with the government’s impediments to a robust labor market inevitably causes the problem so many young people face, whether they went to a for-profit school or non-profit school: too little income and too much debt.

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George Leef

George Leef is Director of Research for the John W. Pope Center for Higher Education Policy.

4 thoughts on “The “Gainful Employment” Rule is Sheer Folly

  1. When the federal government claims that they can estimate discretionary income for anybody, it is easy to see the folly of government intervention.

    If a degree has value for employment in the private sector, then let the private sector handle the loans. In addition, let the colleges and universities make loans to the students that they judge will best be able to repay them — based on intelligent admissions screening and rigorous educational standards.

    With the private sector and the educating institutions handling the funding and the risk, taxpayers are off the hook. The number of college degrees will decrease, of course, but not every student is cut out for higher education, and I still cannot find the clause in the Constitution that established a right of ctizenship.

    Let the free market sort out the value propositions of for-profit and not-for-profit institutions.

  2. You had me until ” It has everything to do with the fact that the Obama administration and particularly Obamacare has wrecked the job market for young people looking for full-time jobs.”

    I am sure you have some data to back up that assertion, because the the January 2009 unemployment rate compared to the October 2014 unemployment rate does not support your analysis, at least at first glance.

    1. The only reason why unemployment has fallen during Obama’s administration is that so many people have dropped out of the labor force.

      There is abundant evidence of high unemployment but also underemployment among young Americans. They are having more trouble than at almost any time in our history finding good, career starting employment. The cause is the heavy federal drag on economic recovery and growth (as the Austrians explain, after a recession or depression, the government needs to get out of the way of market adjustments to put resources back to their optimal uses, but Obama has impeded that), exacerbated by the impact of Obamacare in making many employers stop hiring people for full-time work.

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