Why the Department of Education cannot be trusted on gainful employment regulations — Part 1

Last February, 58 Democrats in the House of Representatives — including major members of the Congressional Black Caucus, the then-speaker of the House, Nancy Pelosi, the current chair of the Democratic National Committee, Rep. Debbie Wasserman Schultz, and such leading progressive members as Reps. Carolyn McCarthy, Rob Andrews and Elliot Engel, and many others — voted to block funding of the implementation of the Department of Education’s (DOE) “gainful employment” (GE) regulation. The GE regulation makes programs ineligible for federal financial aid (grants and loans) if they fail to meet certain debt-service-to-income thresholds or a repayment rate and disproportionately impact minority and lower-income students who predominantly attend for-profit, career colleges, to which the proposed GE regulation virtually exclusively applies.

A substantial majority of the House supported that amendment to the continuing budget resolution. Yet the House measure was dropped in the last minutes of the budget deal, apparently opposed by Secretary of Education Arne Duncan, who was willing to ignore the wishes of these leading House Democrats.

These Democratic leaders have good reasons to oppose this regulation. It targets for-profit, career colleges, which predominantly serve minorities and lower-income students, the Democratic Party’s base. More importantly, DOE has shown that it cannot be trusted to develop a regulation with such far-reaching impact. It still has no idea of the actual impact of the proposed regulation on these students. And it continues to make basic errors on the simple things.

For example, last fall DOE attempted to predict the impact of the regulation nationwide by using Missouri for-profit colleges’ data. It predicted that only 5% of “programs” representing 8% of “student enrollments” would be rendered ineligible for student loans based on the Missouri data. But those percentages turned out to be grossly misleading. In fact, financial aid expert Mark Kantrowitz noted that the GE regulation as proposed would render ineligible more than one-fourth of all for-profit college programs, meaning substantial numbers of minorities and lower-income students wishing to enroll in those programs would not be eligible for federal grants or loans.

The difference between 5% and 26% is significant, especially when you consider that career schools enroll more than 1.2 million students. Yet DOE made this huge mistake, leaving the misleading impression that the impact on career colleges would be minimal (could that have been intentional?). And yet no one seemed to notice or call them on it.

Now just last week, DOE was forced to admit to making an error so obvious, showing such gross incompetence, that it should reasonably cause even the staunchest proponents of the GE rule to halt the GE regulatory process and reassess where it is going and whether DOE could be trusted to pull it off.

Specifically, DOE admitted that in its trial three-year default rate calculations, it had inadvertently counted students who had defaulted after the appropriate cut-off date (September 30, 2010) as defaults, thereby increasing the numerator of its simple calculation and causing the default rates of colleges to be “incorrectly inflated.” Had this not been just a “trial,” this could have resulted in erroneous disqualification of career colleges across the country from eligibility for any federal aid, and thus, the minority and lower-income students who rely on them. Thankfully, colleges have access to the same data and were able to point this mistake out to DOE.

Aside from providing fodder to Senator Tom Harkin and others for the further demonization of career schools, DOE’s inexplicable mistake had no immediate effect on federal aid since these were “trial” calculations. It did, however, have a real effect in California. The California legislature, in the context of the state’s ongoing budget crisis, decided to limit its grants to students using this three-year “trial” FY08 default rate — now admitted by DOE to be “incorrectly inflated.” Schools previously excluded from the grant program will now be included, causing the state’s budget to be in further disarray.

Even after admitting its mistake, DOE was disingenuous. It reported that the mistake “incorrectly inflated” a school’s default rate in only “some” cases. That was not true. It necessarily erroneously inflated most of the data, since any data included after September 30, 2010, by definition would have caused “incorrect inflation.”