New Gainful Employment Rule May Take a Year to See Impact

For-profit schools have been waiting to see the final version of the new gainful employment rule that was made public on Thursday.  Many are relieved to see that the final design was not as strict as originally anticipated.  However, how it actually impacts these schools won’t be truly known until next year when the U.S. Department of Education releases information about how students are paying off their loans. 

The new gainful employment rule goes into effect July 2, 2012. This rule was set up to restrict students from using government aid to pay for schooling that doesn’t include occupations that have a strong entry-level salary.  This rule affects the big schools like University of Phoenix but it also has an impact on the smaller cosmetology and other private sector colleges. 

Federal financial aid has been a big factor in financing students’ education. This has caused concern for-profit schools should this funding should be cut off.

The Arizona Republic Reported, “Under the gainful-employment rule, students can’t use federal aid for programs that fail three tests: at least 35 percent of former students in that program must be paying down their loan balance, the student loan payment must not exceed 30 percent of typical graduates’ discretionary income, or the annual loan payment does not exceed 12 percent of typical graduates’ total earnings. If a school’s program fails the test three times in four years, it is cut off from federal financial-aid funding. For the first time, starting in July, the rule requires schools to disclose total program costs, graduation rates, job placement rates, loan repayment rates and other information to students. Earlier versions of the rule had tougher student repayment standards, took effect faster and did not have the “three strikes” provision. The final version gives schools more time to correct deficiencies and makes it likely that fewer will lose access to federal student aid dollars.”

Click here for the new Gainful Employment Rule guidelines.