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

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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.”

So if DOE can’t do the simple math of counting the number of student loan defaults that occurred between two dates, how can it be trusted to do the complex, multi-step, algorithm calculations under the proposed gainful employment regulation?

Worse yet, Secretary Duncan allowed the biased policy-makers driving the drafting of the gainful employment regulation to substitute a transparent basis for determining the debt-to-income ratio test — using the Internet-accessible Bureau of Labor Statistics data on average income of particular occupations — for the totally non-transparent IRS and Social Security data of individual reported incomes, to which only the government would have access.

Can you imagine? In a Democratic administration standing for transparency and fairness, DOE substituted a black box method for determining a key test that could throw hundreds of thousands of minority and low-income students out of their opportunities for college education — meaning the colleges can’t know why they have violated the test because they can’t have access to its graduates’ earnings data, and are “convicted until proven innocent” — raising serious due process concerns.

Moreover the government will be intruding on the private financial and other data of all individual student borrowers without their permission. It is both discriminatory and far from clear that the DOE has the legal, much less the moral, right to do so. We wonder why privacy rights and civil liberties activists have not expressed more public opposition to this ill-thought-out gainful employment regulation. Perhaps they don’t understand it.

So once again, we join the many voices, including many leading House liberals, calling on Secretary Duncan to stop the rush to regulate, stop the sloppy math and sloppy thinking and “black box” and non-transparent processes that are the heart of this regulation.

Hit the pause button — the reset button — and join with the administration’s friends in Congress to re-think this regulation and do it right if you are going to do it at all and apply it across the board and address the serious problem of excessive student debt, especially among low-income students on a national basis, the only way it can be truly addressed.

Lanny Davis is a Washington attorney and represents the NBCC. Harry Alford is President of the National Black Chamber of Commerce (NBCC).