The Biden administration is likely to restore the Profitable Employment Rule (GE), a federal regulation that aims to eliminate low-value higher education programs from federal student aid. Critics of GE rightly point out that the rule is unfair because it exempts undergraduate degrees at nonprofit public and private colleges. Some argue that Congress should apply GE to all higher education. While this would be a step in the right direction, “GE for all” would still fail to protect students from low-quality higher education, particularly at the graduate level.
How Gainful Employment seeks to hold programs accountable
As currently proposed, GE would submit higher education programs to a two-part test; programs must go through both “prongs” to continue receiving federal funding. One party compares the earnings of program completers with those of the median high school graduate early career in the same state. This provision is more applicable to short-term certification programs. As I explain in a previous post, the test unfairly penalizes some post-secondary certification programs that provide their students with a moderately positive return on investment.
But for graduate programs that would again be subject to GE if Congress applied it to all courses, the second part of the test is the most relevant. To carry out the second part, the Department of Education estimates the annual loan payments of graduates, assuming that borrowers with undergraduate and masters degrees pay off in 15 years. For a program to continue receiving federal funding, student estimated loan payments must be less than 8% of their median annual earnings.
However, GE’s version of the Biden administration includes an “escape” for high-debt programs like masters. The Department of Education also divides the estimated annual loan payments by the student median discretionary income, which equals your median annual income minus $ 18,735. If this ratio is below 20%, the program passes the test even if the “standard” pay-to-earnings ratio exceeds 8%.
Most low quality masters would survive “GE for all”
Consider a masters in journalism from Columbia University. My estimates of the return on investment in higher education indicate that students who complete this program are worse off by over $ 90,000, as the increase in vital earnings from this degree is not enough to compensate students for the cost of tuition. and time spent outside the workforce. This is a perfect example of a program that taxpayers should no longer be funding.
Columbia journalism program students graduate with an average debt of $ 72,000, which translates into an annual loan payment of $ 6,771. With an average annual earnings of $ 56,000, the standard pay-to-earnings ratio is 12%, above the bankruptcy threshold of 8%. But the loan payment a-discretionary the earning rate is 18%, which is below the 20% pass threshold for this metric. This program surpasses the GE rule despite the fact that the Department of Education estimates that loan payments will consume 12% of students’ annual income.
Masters are among the worst investments in higher education. According to my estimates, two out of five masters leave their students in worse financial conditions. But thanks in part to the discretionary “escape” gain in GE, only 6% of masters would lose federal funding if GE were applied to all programs.
These facts suggest that an accountability agenda for federally funded higher education programs must be more than “GE for all.”
Policy makers should face the masters bubble
Masters are one of the most important contributors to problems in our student loan system. Undergraduate degrees account for a growing share of federal student loans. (43% in 2020 versus 33% in 2010) and graduate borrowers are expected to repay less of their loan obligations than college students. Additionally, enrollments in master’s degree programs are on the rise as universities leverage federal student loan subsidies to make money easily. Addressing the student loan crisis must include addressing graduate student loans.
As I argue in a new report, policy makers could make two incremental changes to the GE framework to improve its power to target low-value degrees. Firstly, the annual loan installments for the master’s degree should be calculated with an amortization period of 10 years, down from the current 15. This is more justified given the short duration of the master’s degree courses; it would also increase estimated annual loan payments and lead to more master’s programs failing GE. Second, policymakers should abandon the “escape hatch” of discretionary profits and require programs to prove their worth based on the standard pay-to-earnings ratio alone. Both of these changes would revoke federal funding for multiple masters programs with no financial value.
However, a bolder agenda would end the federal role in graduate student loan. The argument for government scrutiny of student loans is based on the idea that 18-year-old college students with no credit history would not be able to secure non-usurious education loans in the private market. But this argument doesn’t apply to 20-year-old graduate students. A completely private market for graduate loans would provide greater responsibility for low-value masters, as private lenders would refuse to finance programs where students have little chance to repay their loans.
More accountability for federally funded colleges and universities is welcome, but the biden administration’s proposed profitable employment rule is flawed. As things stand, GE would unfairly penalize vocational schools by letting low-quality master’s programs off the hook. Policy makers should want the opposite: We should allow students to pursue high-quality professional programs, but limit subsidies for expensive masters that fuel credential inflation and impart few useful skills. “A profitable job for all” is rooted in laudable instincts. But the details need work.