the American Association of Colleges of Osteopathic Medicine

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

Proposed Rule on Financial Value Transparency and Gainful Employment, Financial Responsibility, Administrative Capability, Certification Procedures, and Ability to Benefit

On May 19, 2023, the U.S. Department of Education (Department) published in the Federal Register proposed regulations covering a variety of higher education topics. The broad package of proposed regulations includes a new iteration of a Gainful Employment (GE) rule, augmented reporting and disclosure requirements related to financial value, new rules for monitoring higher education institutions’ financial responsibility and administrative capability, and revised certification procedures for participating in Title IV federal student aid programs.

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.

GE Rule

The proposed GE Rule applies to all Title IV eligible program offered by proprietary (i.e., for-profit) institutions of higher education 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.

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.

The two-year cohort period would consist of the third and fourth 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 and the amount of loans disbursed to students in the 2017–18 and 2018–19 cohorts. The four-year cohort period would consist of the third, fourth, fifth, and sixth 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 2019 through 2022 and the amount of loans disbursed to students in the 2015–16, 2016-17, 2017–18, and 2018–19.

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.

Reporting Requirements for All Title IV Institutions

The proposed regulations would significantly expand reporting requirements. All Title IV eligible institutions would be required to annually report data for students who enroll in, complete, or withdraw from any Title IV-eligible program (GE or non-GE). The institutional reporting requirements would be as follows:

For each Title IV-eligible program: Information needed to identify the program and the institution, including program name, CIP code, credential level and program length; programmatic accreditation (if applicable), program licensure information; total number of Title IV and non-Title IV students enrolled in the program; and if the program is a medical or dental program with an internship or residency.
For each recipient of Title IV funds: The date the student initially enrolled in the program; the student’s attendance dates and status (enrolled, withdrawn or completed); the student’s enrollment status (full time, part time, etc.); total annual cost of attendance; total tuition and fees assessed for the award year; student’s residency tuition status; total allowance for books, supplies and equipment; amount of institutional grants and scholarships disbursed; amount of other state, tribal or private grants disbursed; and amount of any private education loans disbursed.
For students who completed or withdrew from the program and ever received any Title IV assistance: The date the student completed or withdrew from the program; the total amount of private education loans the student owes for the program; the total amount of institutional debt the student owes; total tuition and fees for enrollment in the program; total allowance for books, supplies and equipment included in cost of attendance; and total amount of institutional grants and scholarships.

Financial Responsibility

The proposed regulations greatly expand the current mandatory and discretionary triggering events that would require an institution to post financial protection.

Under the specified “mandatory” triggers, where the institution is deemed not financially or administratively responsible, the Department would either automatically require the institution to obtain financial surety or require that the composite score be recalculated to determine if an institution would have to provide surety because it no longer passes. Some of the more notable proposed mandatory triggers, which are mostly new or significantly enhanced from existing mandatory triggers, are as follows:

Required to pay a debt or other liability that, when added to an institution’s financial responsibility score calculation, results in a failure (i.e., a score less than 1.0).
Subject to lawsuits by federal or state authorities, or through a qui tam lawsuit in which the federal government has intervened and the suit has been pending for at least 120 days, that results in a financial responsibility score failure.
The Department has initiated a recoupment action against the institution for claims adjudicated under the Borrower Defense to Repayment (BDR) rule, and including that potential liability, the institution’s responsibility score calculation results in a failure.
The institution received at least 50 percent of its Title IV funding in its most recently completed fiscal year from GE programs that are failing the GE rule.
The institution is cited by a state licensing or authorizing agency for failing to meet that entity’s requirements and that entity provides notice that it will withdraw or terminate the institution’s licensure or authorization if the institution does not come into compliance with the requirement (currently a discretionary trigger).
The institution’s two most recent official cohort default rates are 30 percent or greater, unless the institution has filed a challenge, request for adjustment, or appeal and that action has reduced the rate to below 30 percent or the action remains pending (currently a discretionary trigger).
The institution has lost eligibility to participate in another federal education assistance program due to an administrative action against the institution.

Specified “discretionary” triggers that would provide the Department flexibility on whether to require a letter of credit based on the financial impact the triggering event has on the institution. Some of the more notable proposed discretionary triggers include the following:

The institution’s accrediting agency or a federal, state, local or tribal authority places the institution on probation, issues a show-cause order, or places the institution in a comparable status that poses an equivalent or greater risk to its accreditation, authorization, or eligibility.
The institution displays a significant fluctuation in consecutive award years, or a period of award years, in the amount of Direct Loan or Pell Grant funds received by the institution that cannot be accounted for by changes in those Title IV programs.
The institution has high annual dropout rates as calculated by the Department.
The institution has pending BDR claims, and the Department has formed a group process to consider claims and, if approved, those claims could be subject to recoupment.
The institution discontinues academic programs that enroll more than 25 percent of students at the institution, closes more than 50 percent of its locations, or closes locations that enroll more than 25 percent of its students.
The institution is cited by a state licensing or authorizing agency “for failing to meet requirements.”

Administrative Capability

Proposed changes to the administrative capability regulations, which apply to all institutions, would expand the requirements for institutions to demonstrate that they are administratively capable of providing the education they promise and of properly managing Title IV program funds. The changes also provide the Department with more tools and explicit authority to make an administrative capability finding based on a broader set of issues than it has used historically. Such findings could lead to limitations, suspensions, terminations, or other actions including placing the institution on a provisional Program Participation Agreement (PPA) or heightened cash monitoring (HCM2).

The Department’s proposed changes with respect to administrative capability are focused on ensuring that institutions (1) have sufficient resources needed to successfully serve students, (2) do not employ principals, affiliates or other individuals who exercise substantial control over the institution who have a record of misusing Title IV program funds, and (3) possess sufficient institutional controls.

The proposed regulation would:

Enhance the requirements for financial aid counseling and financial aid communications that include the institution’s cost of attendance, the sources and types of aid offered, whether it must be earned or repaid, the net price, and deadlines for accepting, declining, or adjusting award amounts. The Department indicates that the updated requirements align with the current College Financing Plan but do not explicitly mandate the use of that specific format.
Limit an institution from having a principal or affiliate whose misconduct or institutional closure contributed to significant liabilities to the federal government.
Strengthen requirements that institutions develop and follow adequate procedures to evaluate the validity of a student’s high school diploma.
Require institutions to provide adequate career services and, where required for completion of a credential or licensure, accessible clinical or externship opportunities. Institutions must have adequate career service staff and established partnerships with recruiters and employers. With respect to clinical and externship opportunities where required for completion of the program, the proposed rule would require that accessible opportunities be provided to students within 45 days of completing other required coursework.
Prohibit institutions from engaging in misrepresentations or aggressive and deceptive recruitment.
Require institution to disburse funds to students in a timely manner to enable students to cover institutional costs. The institution would not satisfy this requirement if (1) the Secretary is aware of multiple verified and relevant student complaints, (2) the institution has high rates of withdrawal attributable to delays in disbursement, (3) the institution has delayed disbursements until after the withdrawal date requirements in Section 668.22(b) and (c), or (4) the institution has delayed disbursements with the effect of ensuring it passes the 90/10 ratio.

Certification Procedures

The Department proposes a more rigorous process for certifying institutions to participate in the Title IV programs, both initially and on an ongoing basis. The purpose of the proposed changes is to increase the Department’s oversight of institutions at critical time periods: initial certification, during provisional certification, after a change of ownership, at recertification and when there is a risk of closure. The Department seeks to improve its oversight of institutions that may evidence administrative or financial issues that either require the Department to conduct additional monitoring or seek additional financial protection, or that may disqualify participation in Title IV programs.

The proposed changes would require that:

Institutions at risk of closure submit an acceptable teach-out plan or agreement.
Entities with direct or indirect ownership of a proprietary or private nonprofit institution sign the institution’s PPA. This expands on guidance issued by the Department last year to seek these signatures on a case-by-case basis.
Institutions may not employ, affiliate with, or contract with any individual or entity if the individual or entity has been found to have committed fraud or misconduct involving government funds, or was affiliated with another institution that owes a Title IV liability that is not being repaid.
Institutions show that their programs meet any required programmatic accreditation and state licensure requirements so that students can obtain employment. And institutions comply with all state consumer protection laws related to closure, recruitment, and misrepresentations for all states in which they enroll students.
Institutions do not withhold transcripts or take other adverse actions against a student related to a balance resulting from an error or fraud in the administration of federal financial aid programs or a balance owed due to the Return of Title IV funds requirements.

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