Biden’s Flawed Attempt to Stem Rising Tuition Costs

FREOPP.org

Preston Cooper

October 11, 2022

Key Points

• An effort to hold institutions accountable for poor outcomes. The Biden administration has proposed a framework to restore the Gainful Employment rule (GE), which aims to revoke federal funding for certain higher education programs with poor outcomes.

• Biden’s rule is imprecise, and imprecision is problematic. FREOPP’s estimates of return on investment (ROI) show that GE’s targeting of programs without financial value is imprecise. That imprecision is problematic, given the severity of the penalties that GE imposes.

• Case in point: GE’s treatment of medical assistance programs. Almost 70 percent of certificate programs in medical assisting would fail GE, despite producing real financial value for their students.

• GE provides little accountability for public and private nonprofit institutions. GE only applies to certificate programs and for-profit colleges, but not public or private non-profit colleges. If GE were applied to all programs, it would fail to hold most low-value master’s degrees accountable.

Executive Summary

The Biden administration has proposed a framework to restore the Gainful Employment rule (GE), a federal regulation aimed at holding postsecondary certificate programs and for-profit colleges accountable for student outcomes. GE terminates programs’ eligibility for federal aid funding if students in those programs have a high debt-to-earnings ratio or fail to realize earnings above the median high school level. Without federal funding, most programs would not continue operating, meaning GE has the potential to reshape American higher education.

This report compares programs’ performance on GE to FREOPP’s estimates of return on investment (ROI) to evaluate whether GE effectively targets programs that fail to produce a financial return for their students. Most programs that pass GE have positive ROI and vice versa. However, there are exceptions. Nearly 70 percent of certificate programs in medical assisting would fail GE, even though most of these programs have positive ROI. Fortunately, some straightforward changes to the GE framework would go a long way toward addressing this problem.

Some have proposed applying GE to all higher education programs — “GE for all” — including the degree programs at public and private nonprofit institutions that are currently exempt. This would be a significant step forward for higher education accountability. However, many master’s degree programs with negative ROI would survive “GE for all” even as hundreds of positive-ROI certificates at trade schools fail. “GE for all” would also adversely affect professional programs in law and medicine.

While no accountability system would be perfect, policymakers could improve the design of “GE for all” by replacing its termination enforcement mechanism with a system of graduated financial penalties. Programs with worse outcomes would pay larger fines. While this would result in de facto termination for the worst programs, others with less extreme outcomes would face a financial incentive for improvement. Finally, GE should not be a substitute for sensible limitations on the scope of federal student aid, such as capping or eliminating federal loans for graduate school.

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