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The Biden administration is likely to revive the Gainful Employment (GE) Regulation, a federal rule intended to exclude low-value higher education programs from federal student aid. Critics of GE say the rule is unfair because it exempts public and private nonprofit college degree programs. Some argue that Congress should apply GE to all higher education. While this is a step in the right direction, “GE for all” is still insufficient to protect students from poor quality tertiary education, especially at the graduate level.
How paid employment is trying to hold programs accountable
As currently proposed, GE will put its higher education programs through a two-part test. Programs must go through both “prongs” to continue to receive federal funding. One section compares the earnings of program graduates to those of early-career high school diploma holders in the same state. This provision is enforced by the short-term certification program. As I explained in a previous post, this test unfairly penalizes post-secondary programs that offer students a moderate or better return on investment.
However, if Congress applied GE to all programs, the second part of the test would be more appropriate for newly GE covered degree programs. Estimate annual loan payments for degree holders, assuming bachelor’s and master’s degree borrowers repay over 15 years. For the program to continue to receive federal funding, a student’s estimated loan payments must be less than her 8% of her median annual income.
But the Biden administration’s version of GE includes “escape hatches” for high-debt programs such as master’s degrees.The Department of Education also divides the estimated annual loan payments by the student median any This is the median annual income minus $18,735. If this ratio is less than 20%, the program passes the test even if the “typical” pay-to-revenue ratio is over 8%.
Most Low-Quality Masters Survive ‘GE for All’
Consider Columbia University’s master’s degree in journalism. According to my return-on-investment estimates for higher education, a student who completes this program will make him over $90,000 worse. This is because the increase in lifetime earnings provided by this degree is not enough to make up for the student’s tuition fees and time spent outside of college. Labor force. This is a perfect example of a program that taxpayers should no longer fund.
Students in Columbia University’s journalism program graduate with a median debt of $72,000. With a median annual income of $56,000, the typical pay-to-income ratio is 12%, exceeding the 8% failure threshold.However, the loan paymentany The return is 18%, which is below the 20% pass threshold for this metric. The program passes GE regulations even though the Department of Education estimates that loan payments consume 12% of a student’s annual income.
A master’s degree is one of the worst investments in higher education. My estimate is that two-fifths of master’s degrees put students in worse financial situations. But thanks to GE’s discretionary income “escape hatch,” only 6% of master’s degrees would lose federal funding if GE applied to all programs.
These facts suggest that the accountability agenda for federally funded higher education programs must be more than “GE for all.”
Policy makers must deal with the master’s degree bubble
A master’s degree is one of the most important causes of problems in the student loan system. Graduate degrees account for an increasing share of federal student loans. (43% in 2020 vs. 33% in 2010), college graduate borrowers are expected to pay less on loan debt than undergraduates. In addition, enrollment in master’s programs is increasing as colleges make easy cash with federal student loan subsidies. To deal with the student loan crisis, you need to deal with graduate student loans.
As I argue in a new report, policymakers could make two incremental changes to the GE Framework to improve its ability to target low-value graduate degrees. 1. Annual master’s loan payments should be calculated over the current 15- to 10-year amortization period. This is more justified given the short duration of the MSc program. It would also increase the estimated annual loan payments and lead to more master’s degree programs failing GE. Second, policymakers should do away with the discretionary income “escape hatch” and require programs to prove their worth based solely on standard pay-to-return ratios. Both of these changes would void federal funding for master’s degree programs that have no monetary value.
But a bolder agenda would end the federal government’s role in graduate student financing once and for all. The argument for government control of student loans is based on the idea that her 18-year-old college student with no credit history cannot secure high-interest education loans in the private market. But this argument doesn’t apply to a graduate student in her 20s. A fully private market for graduate loans would increase accountability for low-value master’s degrees as private lenders refuse to fund programs where students have little chance of repaying loans.
While increased accountability for federally funded universities is welcome, the paid employment rules proposed by the Biden administration are flawed. As it stands, GE will unfairly penalize colleges and neutralize low-quality master’s degree programs. Policy makers should want the opposite: they should allow students to pursue quality vocational programs, but promote qualification inflation and discourage students from spending money on expensive master’s degrees that impart few useful skills. Subsidies must be limited. “Paid employment for all” is rooted in a laudable instinct. But the details need work.
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