Debt Measures Module 2 Gainful Employment Final Rule

Agenda Final Rule published in the Federal Register on June 13, 2011 Gainful Employmentdebt measures Measures that determine if a program prepares students for gainful employment in a recognized occupation Final regulations are effective July 1, 2012 Resources 2

Debt measures To determine which programs do an adequate job of preparing students for gainful employment, ED has established two measures: Loan repayment rate Debt-to-earnings ratios (two separate but related measures) Earnings rate Discretionary income rate §

Loan repayment rate

Determines if former students who entered repayment on their FFELP or FDLP loans for the program have reduced the outstanding principal balance of the loans from the beginning of the most recently completed fiscal year to the end of the same fiscal year Former students include both completers and non-completers Includes Stafford and Grad PLUS loans § (b) 5

Terminology Federal fiscal year (FY): October 1 - September 30 of the following year Loans Paid in Full (LPF): Non-defaulted loans paid in full by the borrower except via a Consolidation loan Original Outstanding Principal Balance (OOPB): Total loan balance, including capitalized interest, when a loan first entered repayment. § (b) 6

Terminology Payments-Made Loans (PML): Borrower payments during the most recently completed FY reduced the loans outstanding balance (principal and interest) since the beginning of that FY by at least one cent; applicable to non-defaulted loans Typically includes loans in the 3 rd and 4 th year of repayment § (b) 7

Terminology Excluded loans: The following types of loans are excluded from the calculation: Loans in an in-school or military-related deferment status during any part of the FY Loans that have been discharged due to a borrowers total and permanent disability, as well as loans that have been transferred or assigned to ED for this reason Loans that have been discharged due to death of the borrower § (b) 8

Loan repayment rate A loan is successfully being repaid if: Its balance is reduced over the course of the fiscal year or the loan is paid in full It is on track for Public Service Loan Forgiveness Borrower is making payments under an interest- only or income-based repayment plan, with certain limitations For post-baccalaureate programs, the balance on a Consolidation loan is less than or equal to the balance at the beginning of the year § (b) 9

Loan repayment rate Annual calculation for a GE program: OOPB of LPF + OOPB of PML OOPB of all FFELP and FDLP loans obtained by students enrolled in the program § (b) 10

Debt-to-earnings ratios: earnings rate and discretionary income rate

Earnings rate Determines the percentage of a typical program completers annual earnings needed for loan payment Generally includes all students who completed the program during the prior 3 rd and 4 th fiscal years Includes FFELP and FDLP loans, private education loans, and institutional financing debt § (c) 12

Earnings rate Key terminology: Mean: the mathematical average of a set of numbers Median: the middle value in a list of numbers To find the median, the list of numbers has to be in numerical (ascending or descending) order § (c) 13

Earnings rate Key terminology Median loan debt is based on either: The total amount of loan debt a student incurred to complete the program, or The total tuition and fees charged to a student to complete the program If the school reports both amounts, ED will calculate median loan debt for the program using the lower of these two amounts § (c) 14

Earnings rate Annual Loan Payment (ALP) is calculated using the median loan debt and the current 6.8% interest rate on unsubsidized Stafford loans, based on a: 10-year repayment schedule for a program that leads to an undergraduate or post-baccalaureate certificate, or to an associates degree; 15-year repayment schedule for a program that leads to a bachelors or masters degree; or 20-year repayment schedule for a program that leads to a doctoral or first professional degree § (c) 15

Earnings rate Annual Earnings (AE) is calculated using the higher of the most recent mean or median wage data available to ED from the Social Security Administration (SSA) for a calendar year Schools can verify the lists of individuals submitted to SSA. However, the earnings data will be subject to SSAs strict protections on individual privacy § (c) 16

Earnings rate Annual calculation for a GE program: Average Annual Loan Payment of program completers Mean or Median Annual Earnings of program completers § (c) 17

Discretionary income rate Determines the percentage of a typical program completers discretionary income that is needed for loan repayment Generally includes all students who completed the program during the applicable 2-year (or 4-year) period Same exceptions noted in earnings rate apply Includes FFELP and FDLP loans, private education loans, and institutional financing debt § (c) 18

Terminology Refer to previously-defined terminology under the earnings rate Discretionary Income (DI): Difference between Annual Earnings (AE) and 150% of current federal Poverty Guideline amount for a single person living in the continental U.S. § (b); (c) 19

Discretionary income rate Annual calculation for a GE program: Average Annual Loan Payment of program completers Mean or Median Annual Earnings of program completers minus 150% of Poverty Guideline Amount § (c) 20

Minimum standards

A program adequately prepares students for gainful employment if it meets at least one of the three debt standards: Loan repayment rate is 35% or greater Earnings rate is 12% or less Discretionary income rate is 30% or less § (a) 22

Minimum standards A program is a failing program for a year if it fails all of the debt standards: Loan repayment rate is less than 35% Earnings rate is greater than 12% Discretionary income rate is greater than 30% For a single fiscal year: failing program For three of four fiscal years: ineligible program § (a) 23

Temporary comparison For FYs 2012, 2013, and 2014, ED will calculate two loan repayment rates for a program using: 1 st and 2 nd FYs 3 rd and 4 th FYs ED will use the higher of those rates to determine whether the program meets the 35% minimum standard 24 § (b)(1)(iv)

Small numbers For a program with 30 or fewer students, the 2- year period is extended to a 4-year period In lieu of minimum standards, program satisfies the debt measures if the 4-year period represents: 30 or fewer borrowers whose loans entered repayment; or 30 or fewer students who completed the program. SSA did not provide mean and median earnings; or Median loan debt is zero. 25 § 668.7(d)

Informational rates For FY 2011, ED will provide informational-only data (no consequences) for each GE program offered by a school including: Loan repayment rate for the 2-year period covering FYs 2007 and 2008 Earnings and discretionary income rates for the same period Median loan debt and the mean and median annual earnings based on SSA data Data will enable schools to assess programs § (c) 26

Review and challenge process

ED will issue draft results for the program debt measures, starting with the FY 2012 rates to be released in 2013 Schools can review and correct or update certain data before debt measures are finalized § (e) 28

Review and challenge process Pre-draft corrections process ED provides a school with the list of students to be submitted to SSA to obtain data used for debt-to-earnings ratios School has 30 days to review the list and provide evidence to ED if a student should be included on or removed from the list If approved, ED updates the student list before requesting earnings information from SSA § (e) 29

Review and challenge process Post-draft corrections process School may challenge the accuracy of the: List of borrowers Borrower loan data used to calculate the draft loan repayment rate Median loan debt used to calculate the draft debt-to-earnings ratios School has 45 days to review the data and provide evidence of incorrect data to ED § (e) 30

Review and challenge process Recalculation of a draft rate If a schools challenge is accepted, ED recalculates the debt measures For a failing program, if SSA is unable to provide earnings data for one or more students in the final list of program completers, ED adjusts the median loan debt by removing the highest loan debt for that number of students Once updates are made, ED provides the school with the final debt measures for the program § (e); (f) 31

Review and challenge process For a failing program, a school may demonstrate that the program would meet a debt-to-earnings standard using median loan debt and alternative earnings from: State data School survey data in accordance with NCES standards that can be accessed at: Bureau of Labor Statistics (BLS) earnings data, for FYs 2012, 2013, and 2014 only § (g) 32

Debt warnings

If a schools program fails to meet the minimum standards for all of the debt measures, the school must provide certain information to current and prospective students for the program in a debt warning notice: First-year warning Second-year warning § (i) 34

Debt warnings First-year warning Must be issued the first time a program fails to meet all debt measure minimum standards Must include: A plain-language explanation of the debt measures The amount by which the program did not meet the minimum standards The steps the school plans to take, if any, to improve the programs performance under the debt measures § (i) 35

Debt warnings Second-year warning Must be issued after a program fails to meet all minimum standards for two consecutive FYs or for two of the three most recently completed FYs Must include: The information required for a first-year warning A plain-language explanation of the actions the school plans to take in response to the second failure, including any plans to voluntarily discontinue the program § (i) 36

Debt warnings The second-year warning must also include: Explanation of the risks to students associated with enrolling or continuing in the program (e.g., inability to receive Title IV funds) Explanation of resources available, including that a student may use to research other options and compare costs; and A clear and conspicuous statement that a student who enrolls or continues to enroll in the program should expect to have difficulty repaying loan debt § (i) 37

Debt warnings Timely first- or second-year warnings: Current students Warnings must be provided no later than 30 days after the school is notified that the program failed all of the minimum standards Prospective students Warnings must be provided at the time a student first contacts the school requesting information about the program § (i) 38

Debt warnings Enrolling a prospective student School may not enroll the student until three days after the warnings are provided If more than thirty days elapse from the date the warnings are first provided, the school must provide the warnings again School may not enroll the student until three days after the warnings are provided again § (i) 39

Program improvement Failing programs do not lose Title IV eligibility immediately Standards help programs raise performance ED analysis indicates that with the opportunities for improvement, it is estimated that 8% of GE programs will fail at least once 2% of GE programs will ultimately lose eligibility 40

Restrictions for ineligible and voluntarily discontinued failing programs

Restrictions An ineligible program or a failing program that a school voluntarily discontinues remains ineligible until the school reestablishes the eligibility of the program Effective on the date the school provides written notice to ED that it relinquishes Title IV eligibility of that program § (l) 42

Periods of ineligibility Voluntarily discontinued failing program School may not seek to reestablish eligibility of that program until the: End of the 2 nd FY following the FY in which the school discontinued the programs eligibility once it was identified as failing, but not later than 90 days after the date ED notified the school that it was required to provide second-year debt warnings; or End of the 3 rd FY following the FY in which the school discontinued the programs eligibility, if more than 90 days after the date ED notified the school that it was required to provide second-year debt warnings § (l) 43

Periods of ineligibility Ineligible program School may not seek to reestablish eligibility of that program until the: End of the 3 rd FY following the FY the program became ineligible Substantially similar program also may not be established during the 3-year period § (l) 44

Resources

Final Rule published in the Federal Register on June 13, s.html EDs Gainful Employment Information page To submit questions to ED, 46

Resources NCHELP resources GE Final Rule side-by-side analysis Integrated regulations that include the Program Integrity and GE Final Rules GE training modules 47