This analysis was prepared by Venable, LLP, on behalf of AACOM.

On May 19, 2023, the U.S. Department of Education (Department) published in the Federal Register proposed regulations to establish a new iteration of a Gainful Employment (GE) rule, which would terminate access to federal financial aid for career training programs that leave graduates with high debt burdens compared to their earnings or earnings that are no higher than workers without any education beyond high school. The public may submit comments on the proposed rule through June 20, 2023. After reviewing comments received, the Department plans to publish a final rule by November 1, 2023, with an effective date of July 1, 2024.

Summary of the Proposed GE Rule

The proposed GE Rule applies to all Title IV eligible program offered by proprietary (i.e., for-profit) institutions of higher education—including osteopathic medical programs at for-profit institutions—and less than 2-year (i.e., certificate) programs at public and private non-profit institutions. Covered programs would be subject to two independent metrics to determine whether they satisfy the statutory requirement to prepare students for gainful employment in a recognized occupation:

• A debt-to-earnings (D/E) ratio that compares the median earnings of graduates who received federal financial aid to the median annual payments on loan debt borrowed for the program. To pass, a program must either show that debt payments are no more than 8 percent of annual earnings or 20 percent of discretionary earnings, which is defined as annual earnings minus 150 percent of the federal poverty guideline for a single individual (about $21,870 in 2023). Covered programs that fail the debt-to-earnings standards are considered “high-debt-burden.”
• A new earnings premium test that measures whether the typical graduate from a covered program that received federal student aid is earning at least as much as a typical high school graduate in the labor force (i.e., either working or unemployed) in their state between the ages of 25 and 34. This is equal to roughly $25,000 nationally but varies across states. Covered programs that have typical earnings lower than the median high school graduate are considered “low-earnings.”

Covered programs that fail either or both metrics in a single year would be required to provide warnings to students that the programs could be at risk of losing eligibility for federal student aid in subsequent years. Covered programs that fail the same metric in two of three consecutive years would have their eligibility to participate in federal aid programs revoked for at least three years. 

Calculating the D/E Ratio and Earnings Premium Metric for Covered Medical Programs

For purposes of calculating both the D/E ratio and the earnings premium metric, the Department would use a two-year or four-year cohort period similar to the 2014 GE Rule. The proposed GE Rule would, however, measure the earnings of program completers approximately one year later relative to when they complete their degree than under the 2014 GE Rule. The Department would use a two-year cohort period when the number of students in the two-year cohort period is 30 or more and a four-year cohort period when the number of students completing the program in the two-year cohort period is fewer than 30 but the number of students completing the program in the four-year cohort period is 30 or more. 

Similar to the 2014 GE Rule, the cohort period would be calculated differently for programs whose students are required to complete a medical or dental internship or residency, and who therefore experience an unusual and unavoidable delay before reaching the earnings typical for the occupation. A required medical or dental internship or residency would be defined as a supervised training program that (i) requires the student to hold a degree as a doctor of medicine or osteopathy, or as a doctor of dental science; (ii) leads to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility that offers post-graduate training; and (iii) must be completed before the student may be licensed by a state and board certified for professional practice or service. 

The two-year cohort period for a program whose students are required to complete a medical or dental internship or residency would consist of the sixth and seventh award years prior to the year for which the most recent earnings data are available at the time of calculation. For example, D/E rates and the premium earnings threshold measure calculated for award year 2024–25 would be calculated in late 2024 or early 2025 using earnings data measured in calendar years 2021 and 2022, with a two-year cohort period of award years 2014–15 and 2015–16. The four-year cohort period for a program whose students are required to complete a medical or dental internship or residency would be the sixth, seventh, eighth, and ninth award years prior to the year for which the most recent earnings data are available at the time of calculation. For example, the D/E rates and the earnings threshold measure calculated for award year 2024–25 would be calculated in late 2024 or early 2025 using earnings data measured in calendar years 2021 and 2022, and the four-year cohort period would be award years 2012–13, 2013–14, 2014–15, and 2015–16.

Considerations for AACOM

The proposed GE Rule attempts to accommodate medical program with residencies by using earnings data from the sixth through ninth award years prior to the year for which the most recent earnings data is available (compared to third through sixth award years for non-residency-requiring programs) to calculate the D/E ratio and premium earnings metric. 

However, this accommodation likely falls short and does not incorporate suggestions from AACOM’s prior comment letters. Two primary concerns include: (i) the longer lookback is not individualized to each borrower’s length of residency; therefore it does not adequately account for graduates who have longer residencies required for specialties or elect to participate in fellowships, both of which can add several additional years to a physician’s training years; and (ii) the proposed GE Rule measures a program’s performance on the debt and earnings of students many years before institutions would know what thresholds apply; therefore schools can be penalized based on old data even if a program’s graduates have begun to take out less debt and make higher earnings in more recent years.