Program Integrity: Gainful Employment

AGENCY:

Office of Postsecondary Education, Department of Education.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Secretary proposes to amend the Student Assistance General Provisions to establish measures for determining whether certain postsecondary educational programs lead to gainful employment in recognized occupations, and the conditions under which these educational programs remain eligible for the student financial assistance programs authorized under title IV of the Higher Education Act of 1965, as amended (HEA).

DATES:

We must receive your comments on or before September 9, 2010.

ADDRESSES:

Submit your comments through the Federal eRulemaking Portal or via postal mail, commercial delivery, or hand delivery. We will not accept comments by fax or by e-mail. Please submit your comments only one time, in order to ensure that we do not receive duplicate copies. In addition, please include the Docket ID at the top of your comments.

• Federal eRulemaking Portal. Go to http://www.regulations.gov to submit your comments electronically. Information on using Regulations.gov, including instructions for accessing agency documents, submitting comments, and viewing the docket, is available on the site under “How To Use This Site.”
• Postal Mail, Commercial Delivery, or Hand Delivery. If you mail or deliver your comments about these proposed regulations, address them to Jessica Finkel, U.S. Department of Education, 1990 K Street, NW., Room 8031, Washington, DC 20006-8502.

Privacy Note:

The Department's policy for comments received from members of the public (including those comments submitted by mail, commercial delivery, or hand delivery) is to make these submissions available for public viewing in their entirety on the Federal eRulemaking Portal at http://www.regulations.gov. Therefore, commenters should be careful to include in their comments only information that they wish to make publicly available on the Internet.

FOR FURTHER INFORMATION CONTACT:

For general information, John Kolotos or Fred Sellers. Telephone: (202) 502-7762 or (202) 502-7502, or via the Internet at: John.Kolotos@ed.gov or Fred.Sellers@ed.gov.

Information regarding the regulatory impact analysis or other data, can be found at the following Web site: http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity.html.

If you use a telecommunications device for the deaf (TDD), call the Federal Relay Service (FRS), toll free, at 1-800-877-8339.

Individuals with disabilities can obtain this document in an accessible format (e.g., Braille, large print, audiotape, or computer diskette) on request to one of the contact persons listed under FOR FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

As outlined in the section of this notice entitled Negotiated Rulemaking, significant public participation, through a series of three regional hearings and three negotiated rulemaking sessions, occurred in developing this notice of proposed rulemaking (NPRM). In accordance with the requirements of the Administrative Procedure Act, the Department invites you to submit comments regarding these proposed regulations on or before September 9, 2010. To ensure that your comments have maximum effect in developing the final regulations, we urge you to identify clearly the specific section or sections of the proposed regulations that each of your comments addresses and to arrange your comments in the same order as the proposed regulations.

We invite you to assist us in complying with the specific requirements of Executive Order 12866 and its overall requirement of reducing regulatory burden that might result from these proposed regulations. Please let us know of any additional opportunities we should take to reduce potential costs or increase potential benefits while preserving the effective and efficient administration of the programs.

During and after the comment period, you may inspect all public comments about these proposed regulations by accessing Regulations.gov. You may also inspect the comments, in person, in Room 8031, 1990 K Street, NW., Washington, DC, between the hours of 8:30 a.m. and 4 p.m., Eastern time, Monday through Friday of each week except Federal holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking Record

On request, we will supply an appropriate aid, such as a reader or print magnifier, to an individual with a disability who needs assistance to review the comments or other documents in the public rulemaking record for these proposed regulations. If you want to schedule an appointment for this type of aid, please contact one of the persons listed under FOR FURTHER INFORMATION CONTACT.

Negotiated Rulemaking

Section 492 of the HEA requires the Secretary, before publishing any proposed regulations for programs authorized by title IV of the HEA, to obtain public involvement in the development of the proposed regulations. After obtaining advice and recommendations from the public, including individuals and representatives of groups involved in the Federal student financial assistance programs, the Secretary must subject the proposed regulations to a negotiated rulemaking process. All proposed regulations that the Department publishes on which the negotiators reached consensus must conform to final agreements resulting from that process unless the Secretary reopens the process or provides a written explanation to the participants stating why the Secretary has decided to depart from the agreements. Further information on the negotiated rulemaking process can be found at: http://www.ed.gov/policy/highered/leg/hea08/index.html.

On September 9, 2009, the Department published a notice in the Federal Register (74 FR 46399) announcing our intent to establish two negotiated rulemaking committees to prepare proposed regulations. One committee would develop proposed regulations governing foreign institutions, including the implementation of the changes made to the HEA by the Higher Education Opportunity Act (HEOA), Public Law 110-315, that affect foreign institutions. A second committee would develop proposed regulations to improve integrity in the title IV, HEA programs. The notice requested nominations of individuals for membership on the committees who could represent the interests of key stakeholder constituencies on each committee.

Team I—Program Integrity Issues (Team I) met to develop proposed regulations during the months of November 2009 through January 2010.

The Department developed a list of proposed regulatory provisions, including provisions based on advice and recommendations submitted by individuals and organizations as testimony to the Department in a series of three public hearings held on the following dates:

• June 15, 2009, at Community College of Denver in Denver, CO.
• June 18, 2009, at University of Arkansas in Little Rock, AR.
• June 22, 2009 at Community College of Philadelphia in Philadelphia, PA.

In addition, the Department accepted written comments on possible regulatory provisions submitted directly to the Department by interested parties and organizations. A summary of all oral and written comments received is posted as background material in the docket for this NPRM. Transcripts of the regional meetings can be accessed at http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/negreg-summerfall.html#ph.

Department staff also identified issues for discussion and negotiation.

At its first meeting, Team I reached agreement on its protocols. These protocols provided that for each community identified as having interests that were significantly affected by the subject matter of the negotiations, the non-Federal negotiators would represent the organizations listed after their names in the protocols in the negotiated rulemaking process.

Team I included the following members:

Rich Williams, U.S. PIRG, and Angela Peoples (alternate), United States Student Association, representing students.

Margaret Reiter, attorney, and Deanne Loonin (alternate), National Consumer Law Center, representing consumer advocacy organizations.

Richard Heath, Anne Arundel Community College, and Joan Zanders (alternate), Northern Virginia Community College, representing two-year public institutions.

Phil Asbury, University of North Carolina, Chapel Hill, and Joe Pettibon (alternate), Texas A & M University, representing four-year public institutions.

Todd Jones, Association of Independent Colleges and Universities of Ohio, and Maureen Budetti (alternate) National Association of Independent Colleges and Universities, representing private, nonprofit institutions.

Elaine Neely, Kaplan Higher Education Corp., and David Rhodes, (alternate), School of Visual Arts, representing private, for-profit institutions.

Terry Hartle, American Council on Education, and Bob Moran (alternate), American Association of State Colleges and Universities, representing college presidents.

David Hawkins, National Association for College Admission Counseling, and Amanda Modar (alternate) National Association for College Admission Counseling, representing admissions officers.

Susan Williams, Bridgeport University, and Anne Gross (alternate), National Association of College and University Business Officers, representing business officers.

Val Meyers, Michigan State University, and Joan Berkes (alternate), National Association of Student Financial Aid Administrators, representing financial aid administrators.

Barbara Brittingham, Commission on Institutions of Higher Education of the New England Association of Schools and Colleges, Sharon Tanner (1st alternate), National League for Nursing Accreditation Commission, and Ralph Wolf (2nd alternate), Western Association of Schools and Colleges, representing regional/programmatic accreditors.

Anthony Mirando, National Accrediting Commission of Cosmetology Arts and Sciences, and Michale McComis (alternate), Accrediting Commission of Career Schools and Colleges, representing national accreditors.

Jim Simpson, Florida State University, and Susan Lehr (alternate), Florida State University, representing work force development.

Carol Lindsey, Texas Guaranteed Student Loan Corp, and Janet Dodson (alternate), National Student Loan Program, representing the lending community.

Chris Young, Wonderlic, Inc., and Dr. David Waldschmidt (alternate), Wonderlic, Inc., representing test publishers.

Dr. Marshall Hill, Nebraska Coordinating Commission for Postsecondary Education, and Dr. Kathryn Dodge (alternate), New Hampshire Postsecondary Education Commission, representing State higher education officials.

Carney McCullough and Fred Sellers, U.S. Department of Education, representing the Federal Government.

These protocols also provided that, unless agreed to otherwise, consensus on all of the amendments in the proposed regulations had to be achieved for consensus to be reached on the entire NPRM. Consensus means that there must be no dissent by any member.

During the meetings, Team I reviewed and discussed drafts of proposed regulations. At the final meeting in January 2010, Team I did not reach consensus on the proposed regulations. The proposed regulations in this document focus on the issue of whether certain programs lead to gainful employment in recognized occupations. A separate NPRM for all of the other Program Integrity issues discussed during the meetings was published on June 18, 2010.

Background

For-profit postsecondary education, along with occupationally specific training at other institutions, has long played an important role in the nation's system of postsecondary education and training. Many of the institutions offering these programs have recently pioneered new approaches to enrolling, teaching, and graduating students. In recent years, enrollment has grown rapidly, nearly tripling to 1.8 million between 2000 and 2008. This trend is promising and supports President Obama's goal of leading the world in the percentage of college graduates by 2020. The President's goal cannot be achieved without a healthy and productive higher education for-profit sector.

However, the programs offered by the for-profit sector must lead to measurable outcomes, or those programs will devalue postsecondary credentials through oversupply. The Government Accountability Office (GAO) had noted this problem in its work dating to the 1990's. Specifically, GAO found that occupation-specific training programs that lacked a general education component made graduates of for-profit institutions less versatile and limited their opportunities for employment outside their field. GAO also found that there were labor oversupplies when the numbers of expected job openings were compared to the corresponding number of postsecondary graduates who completed training programs. Oversupply in the labor market results in unemployment and a decline in real wages. Generally, the impact is felt most significantly by recent graduates and adversely affects their ability to support themselves and their families, as well as their ability to repay their student loans.

The Department of Education Organization Act gives the Secretary broad responsibility to establish the regulatory requirements necessary for appropriately managing the Department and its programs. Additionally, under the Higher Education Act of 1965, as amended (HEA), the Department has the responsibility to ensure that institutions of higher education, including for-profit institutions, meet minimum standards if they choose to participate in the title IV, HEA programs (Federal student aid programs). For the programs that would be subject to these proposed regulations, one of these minimum standards is that the programs must lead to gainful employment in a recognized occupation.

Many for-profit institutions derive most of their income from the Federal student aid programs. In 2009, the five largest for-profit institutions received 77 percent of their revenues from the Federal student aid programs. This figure that does not include revenue received from certain Federal student loans (not authorized by the HEA) that are exempted under the so-called 90/10 rule, or other revenue derived from government sources including Federal Veterans' education benefits, Federal job training programs, and State student financial aid programs. A recent study completed for the Florida legislature concluded that for-profit institutions were more expensive for taxpayers on a per-student basis due to their high prices and large subsidies.

The proposed standards for institutions participating in the title IV, HEA programs are necessary to protect taxpayers against wasteful spending on educational programs of little or no value that also lead to high indebtedness for students. The proposed standards will also protect students who often lack the necessary information to evaluate their postsecondary education options and may be mislead by skillful marketing, resulting in significant student loan debts without meaningful career opportunities. Unlike public or private nonprofit institutions, for-profit institutions are legally obligated to make profitability for shareholders the overriding objective. Furthermore, for-profit institutions may be subject to less oversight by States and other entities.

There are reasons for concern that some students attending for-profit institutions have not been well served. Student loan debt is higher among graduates of for-profit institutions. For example, the median debt of a graduate of a two-year for-profit institution is $14,000, while most students at community colleges have no student loan debt. There are 18 title IV, HEA loan defaults for every 100 graduates of for-profit institutions, compared to only 5 title IV, HEA loan defaults for every 100 graduates of public institutions. Investigations and news reports have also produced anecdotal evidence of low-quality programs that leave students with large debts and poor prospects for employment. Despite these concerns, these institutions and suspect programs have never been required to substantiate their claim that they meet the statutory requirement of preparing students for “gainful employment.”

Summary of Proposed Regulations

Under these proposed regulations, the Department would assess whether a program provides training that leads to gainful employment by applying two tests: One test based upon debt-to-income ratios and the other test based upon repayment rates. Based on the program's performance under these tests, the program may be eligible, have restricted eligibility, or be ineligible. A program that meets both of these tests, or whose debt-to-income ratio is very low, would continue to be eligible for title IV, HEA program funds without restrictions, while a program that does not meet any of the tests would become ineligible. A program that meets only one of the tests would be placed in a restricted eligibility status, unless it has a high repayment rate.

Under certain circumstances, the proposed regulations would also require an institution to disclose the test results and alert current and prospective students that they may difficulty repaying their loans.

This proposed use of two measures is a balanced approach that gives institutions flexibility in how to demonstrate that they prepare students for gainful employment. The debt-to-income ratio provides a measure of program completers' ability to repay their loans, and the proposed targets were set based upon industry practices and expert recommendations. The use of discretionary income would recognize that borrowers with higher incomes can afford to devote a larger share of their income to loan repayments, while the use of annual income would benefit programs whose borrowers have lower earnings.

Under the debt-to-income test, programs whose completers typically have annual debt service payments that are 8 percent or less of average annual earnings or 20 percent or less of discretionary income would continue to qualify, without restrictions, for title IV, HEA program funds. Programs whose completers typically face annual debt service payments that exceed 12 percent of average annual earnings and 30 percent of discretionary income may become ineligible.

Debt service rates have a connection to whether borrowers will default on their loans. Borrowers with rates above the 8 percent threshold, for example, have a default rate of 10.2 percent, compared to a rate of 5.4 percent for those below the threshold. Borrowers with debt rates above the 12 percent threshold, for example, have a default rate of 10.9 percent.

The repayment rate is a measure of whether program enrollees are repaying their loans, regardless of whether they completed the program. This measure would provide some assurance to programs that may have high debt-to-income ratios for completers but enroll prepared and responsible students who understand their financial obligations. Programs whose former students have a loan repayment of at least 45 percent will continue to be eligible. Programs whose former students have loan repayment rates below 45 percent but at least 35 percent may be placed on restricted status. Programs whose former students have loan repayment rates below 35 percent may become ineligible.

A program that does not satisfy either the debt-to-income ratio or the 45 percent rate but has a loan repayment rate of at least 35 percent would be subject to restrictions and additional oversight by the Department.

The proposed regulations also would require an institution whose program does not have a loan repayment rate of at least 45 percent and an annual loan payment that is either 20 percent or less of discretionary income or 8 percent or less of average annual income, to alert current and prospective students that they may have difficulty repaying their loans.

Recognizing the potential impact of the proposed regulations on some students seeking a postsecondary education, the proposed regulations would provide for a one-year transition period during which the Department would limit the number of programs declared ineligible to the lowest-performing programs producing no more than five percent of completers during the prior award year. Additional programs and programs that fail to meet the debt thresholds but fall outside the five percent cap during the transition year would be subject to the same requirements as programs on a restricted eligibility status.

Significant Proposed Regulations

We group major issues according to subject, with appropriate sections of the proposed regulations referenced in parentheses. We discuss other substantive issues under the sections of the proposed regulations to which they pertain. Generally, we do not address proposed regulatory provisions that are technical or otherwise minor in effect.

Part 668 Student Assistance General Provisions

Gainful Employment in a Recognized Occupation (§ 668.7)

Section 102(b) and (c) of the HEA defines, in part, a proprietary institution and a postsecondary vocational institution, respectively, as institutions that provide an eligible program of training that prepares students for gainful employment in a recognized occupation. Section 101(b)(1) of the HEA defines an institution of higher education, in part, as any institution that provides not less than a one-year program of training that prepares students for gainful employment in a recognized occupation.

The Department's current regulations in §§ 600.4(a)(4)(iii), 600.5(a)(5), and 600.6(a)(4) mirror the statutory provisions, and like the statute, do not define or further describe the meaning of the phrase “gainful employment.”

General

The proposed regulations are intended to address growing concerns about unaffordable levels of loan debt for students attending postsecondary programs that presumptively provide training that leads to gainful employment in a recognized occupation. Under the proposed regulatory framework, to determine whether these programs provide training that leads to gainful employment, as required by the HEA, the Department would take into consideration repayment rates on Federal student loans, the relationship between total student loan debt and earnings, and in some cases, whether employers endorse program content.

The Department would consider that a program prepares students for gainful employment if the loan debt incurred by the typical student attending that program is reasonable. The regulations would establish measures of the relationship between loan debt and postcompletion employment income (a loan repayment rate and debt-to-income measures based on discretionary income and average annual earnings) and set reasonable thresholds for each measure. As long as the program satisfies the debt thresholds, an institution could continue to offer title IV aid to students in the program without additional oversight from the Department. Otherwise, the program would either become ineligible for title IV, HEA program funds or the institution's ability to disburse Federal funds to students attending that program would be restricted.

The trends in earnings, student loan debt, loan defaults, and loan repayment that underscore the need for the Secretary to act are discussed more fully in Appendix A to this document.

Debt Measures and Thresholds

Under the loan repayment rate in proposed § 668.7(a), the relationship would be reasonable if students who attended the program (and are not in a military or in-school deferment status) repay their Federal loans at an aggregate rate of at least 45 percent. The rate would be based on the total amount of loans repaid divided by the original outstanding balance of all loans entering repayment in the prior four Federal fiscal years (FFY). A loan would be counted as being repaid if the borrower (1) made loan payments during the most recent fiscal year that reduced the outstanding principal balance, (2) made qualifying payments on the loan under the Public Service Loan Forgiveness Program, as provided in 34 CFR 685.219(c), or (3) paid the loan in full. Other borrowers who are meeting their legal obligations but are not actively repaying their loans, such as those in deferment or forbearance, are not considered to be in repayment.

Based on data available (see Appendix A for more information about these data), the following chart shows the Department's estimate of the distribution of loan repayment rates by sector of all institutions, not only those subject to these regulations, that would satisfy loan repayment thresholds of 45 and 35 percent.

Because the loan repayment rate considers program completers and noncompleters, a low rate may indicate that many noncompleters obtained loans they are now unable to repay. Note that this chart gives an indication of the rates at which graduates are entering into deferments that are not related to military service or returning to postsecondary education, entering into forbearances or are simply unwilling or unable to pay more than interest accrued on their Federal student loans.

The number of institutions with very low loan repayment rates, particularly in the for-profit sector, is alarmingly high. Based on these data, we propose to allow a program with a loan repayment rate as low as 35 percent to remain eligible, but may restrict that eligibility. Under proposed § 668.7(a) and (e), an institution whose program is in a restricted status would have to provide annually documentation from employers not affiliated with the institution affirming that the curriculum of the program aligns with recognized occupations at those employers' businesses and that there are projected job vacancies or expected demand for those occupations at those businesses. Moreover, the Department would limit the enrollment of title IV aid recipients in that program to the average number enrolled during the prior three award years. While we believe that these restrictions are appropriate considering the poor performance of these programs, we seek comment on whether programs with a loan repayment rate of less than 45 percent but higher than 35 percent should be subject to the loss of title IV, HEA program funds.

Even with a repayment rate of less than 35 percent, under the proposed regulations a program would still be eligible for title IV, HEA program funds, without restrictions, as long as the program has an acceptable debt-to-income ratio. We seek comment on whether a program with a loan repayment rate below a specified threshold should be ineligible for title IV, HEA funds, regardless of the debt-to-income ratio.

For the debt-to-income measures in proposed § 668.7(a)(1)(ii) and (iii), the relationship would be reasonable if the annual loan payment (based on a 10-year repayment plan) of the typical student completing the program is 30 percent or less of discretionary income or 12 percent or less of average annual earnings. The measure would use the most current income available of the students who completed the program in the most recent three years (three-year period or 3YP). However, in cases where an institution could show that the earnings of students in a particular program increase substantially after an initial employment period, the measure would use the most current earnings of students who completed the program four, five, and six years prior to the most recent year (i.e., the prior three-year period or P3YP). When prior three-year data are used, the relationship would be reasonable if the annual loan payment is less than 20 percent of discretionary income or less than 8 percent of average annual earnings.

The proposed debt-to-income measures, one based on discretionary income and the other on average annual earnings, are alternatives to the loan repayment rate. The debt measure for discretionary income is modeled on the Income-Based Repayment (IBR) plan. IBR assumes that borrowers with incomes below 150 percent of the poverty guideline are unable to make any payment, while those with incomes above that level can devote 15 percent of each added dollar of earnings (Congress reduced that to 10 percent for new borrowers starting in 2014.) to loan payments. While the Federal Government has established policies allowing borrowers with financial hardships to reduce payments to 10 or 15 percent of their discretionary income, those thresholds are not appropriate for defining gainful employment. The IBR formula is based on research conducted by economists Sandy Baum and Saul Schwartz, who recommended 20 percent of discretionary income as the outer boundary of manageable student loan debt. This approach is recommended by others including Mark Kantrowitz, publisher of Finaid.org. However, we cannot rely solely on this approach because any program would fail the debt measure if the average earnings of those completing the program were below 150 percent of the poverty guideline, regardless of the level of debt incurred. To avoid this consequence, we adopted the proposal made during negotiated rulemaking that borrowers should not devote more than 8 percent of annual earnings toward repaying their student loans. This percentage has been a fairly common credit-underwriting standard, as many lenders typically recommend that student loan installments not exceed 8 percent of the borrower's pretax income so that borrowers have sufficient funds available to cover taxes, car payments, rent or mortgage payments, and household expenses. Other studies have also accepted the 8 percent standard, and some State agencies have established similar guidelines ranging from 5 percent to 15 percent of gross income. These percentages are derived from home mortgage underwriting criteria where total household debt should not exceed 38 to 45 percent of pretax income, with 30 percent being available for housing-related debt.

For these proposed regulations, we have increased the research-based and industry-used debt-to-income measures by 50 percent (from 20 to 30 percent of discretionary income, and from 8 to 12 percent of annual earnings) to establish thresholds above which it becomes unambiguous that a program's debt levels are excessive.

In prior generations, most graduates repaid their loans within 10 years of completing college. The standard repayment plan chosen by most borrowers remains 10 years. Among bachelor's degree recipients in 1992-93 who had student loan debt, about three-fourths fully repaid their loans in less than 10 years. Those reporting higher incomes were most likely to have repaid their loans (even though they had higher average debt), indicating that earnings played a role in their ability—or at least their willingness—to repay. For many adults, paying off student loans is an important milestone. Many borrowers see a tradeoff between making student loan payments and other important financial decisions such as saving for retirement, buying a home, or saving for their own children's education.

While the Federal Government is providing new options for repaying loans over extended periods of time to protect a portion of the borrower population from the adverse impact of nonpayment, these repayment options should not be the norm.

All other things being equal, students would be better off without student loan debt. The less debt they owe, the more of their income they can devote to home purchases, retirement savings, or serving the community. Student loan debt must be weighed against the education and training (and increased employment income) that higher education can provide. To the extent that the education and its accompanying student loan debt do not provide the necessary skills to provide increased wages and employment, public policy should attempt to minimize or eliminate that cost to students and society.

Excess student debt affects students and society in three significant ways: Payment burdens on the borrower; the cost of the loan subsidies to taxpayers; and the negative consequences of default (which affect borrowers and taxpayers).

Loan repayments that outweigh the benefits of the education and training are an inefficient use of the borrower's resources. If a student makes that choice fully informed and using his or her own funds, it is not a matter for public policy. But if the availability of Federal student aid increases the likelihood that a student will enroll at an institution of higher education, the Federal Government should consider ways to ensure that student borrowers are not unduly burdened, even if they would eventually repay the loans. This concern motivates the debt-to-income ratio, a measure of the potential individual burden incurred by taking out loans, to ensure that students on an individual basis benefit from the receipt of Federal funds.

The second cost is taxpayer subsidies. When a borrower is unemployed or is forced because of low income to obtain a forbearance or deferment, the Government waives the interest on subsidized Stafford and Perkins loans. For example, the cost to the Government of three years of deferment is up to 20 percent of the value of the loan. Also, borrowers who have low incomes but high debt may reduce their payments through income-based or income-contingent repayment programs. These programs can either be at little or no cost to the Government or as much as the full amount of the loan with interest.

Deferments and repayment options are important protections for borrowers because while higher education generally brings higher earnings, there is no guarantee for the individual. Policies that assist those with high debt burdens are a critical form of insurance: They tell all Americans that the Federal Government will take on the potential risk of an education not “paying off” for a specific individual. However, these policies should not mean that institutions should increase the level of risk to the individual student or the taxpayer—just as the existence of homeowners insurance does not mean builders should make houses more flammable. The insurance is important; but public policy must protect against the moral hazard of it being seen as a license for providing a worse product to consumers or to taxpayers.

The third cost is default. The Government covers the cost of defaults on Federal student loans, $9.2 billion in fiscal year 2009. Ultimately this cost is mitigated by the Department's success in collection, using such tools as wage garnishment, Federal and State tax refund seizure, seizure of any other Federal payment, and Federal court actions. Nonetheless, the taxpayer costs can be significant. Based on historical collections, the net present value cost of the $9.2 billion of loans that defaulted in fiscal year 2009 is estimated at approximately $1 billion. This concern—protecting the taxpayer—motivates the repayment rate measure, which indicates the taxpayer's exposure to delayed repayment or default.

An additional cost of default is the damage to students and their family and community. Although the decision to enter into loans is made voluntarily by students, a wealth of evidence suggests that many individuals lack sufficient information—or may be manipulated with false information or assurances—regarding future employment prospects and program costs, and thus are unable to properly evaluate their eventual ability to repay loans. Former students who default on Federal loans cannot receive additional title IV aid for postsecondary education. Their credit rating is destroyed, undermining their ability to rent a house, get a mortgage, or purchase a car. To the extent they can get credit, they pay much higher interest. In some States, they may be denied certain occupational licenses. And, increasingly, employers consider credit records in their hiring decisions. Furthermore, particularly for former students from disadvantaged neighborhoods, the stigma of default can send an unfortunate message to others—that seeking an education can have disastrous results. Combined with the evidence suggesting that individuals may not have the ability to evaluate fully the costs and benefits of entering into loans, the potential for substantial adverse outcomes motivates the consumer protection approach the Department is taking through these proposed regulations.

At all types of institutions, student debt is growing and will cause more students to allocate more of their future income toward repayment, whether through larger or longer payments. (See Tables A-1 and A-2 of Appendix A for additional details). Student loan data show that this problem is particularly problematic at for-profit institutions. For certificate, associate's degree, and bachelor's degree programs, debt levels are highest at for-profit institutions. For example, in 2007-08:

• 13 percent of baccalaureate recipients from public four-year institutions carried at least $30,000 of Federal and private student loan debt. Among graduates of private nonprofit colleges, 25 percent had that level of student debt. And at for-profit institutions, 57 percent of the baccalaureate recipients carried student loan debts of $30,000 or more.
• At the associate's degree level, only about five percent of public college graduates have debt of $20,000 or more, while 42 percent of for-profit graduates have debt at those levels.
• For certificate recipients, less than 2 percent at public institutions and 11 percent at for-profit institutions have debt of $20,000 or more.

The proposed regulations would lessen the potential for these negative consequences by ensuring that programs subject to the gainful employment standards actually produce students with sufficient incomes (relative to their debt) to make their debt payments.

Calculating the Loan Repayment Rate

Under proposed § 668.7(b), the Department would calculate the loan repayment rate annually using the ratio:

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The OOPB (original outstanding principal balance) would be the amount of the outstanding balance on FFEL and/or Direct loans owed by students who attended the program, including capitalized interest, as of the date those loans entered repayment. The OOPB of all loans would include the FFEL and Direct loans that entered repayment in the four preceding Federal fiscal years (FFYs). LPF (loans paid in full) would be loans to the program's students that have been paid in full. However, the LPF would not include any loans paid through a consolidation loan until the consolidation loan is paid in full. The OOPB of LPF in the numerator of the ratio would be the total amount of OOPB for these loans.

RPL (reduced principal loan) would be calculated using loans where borrower payments during the most recently completed FFY reduced the outstanding principal balance of that loan in that year. RPL would also include loans for borrowers whose payments and employment during that FFY qualify for the Public Service Loan Forgiveness program under 34 CFR 685.219(c). The OOPB of RPL in the numerator of the ratio would be the total amount of the OOPB for these loans.

Finally, the ratio would not include the OOPB of borrowers on an in-school deferment or a military-related deferment status or the OOPB of borrowers entering repayment in the final six months of the most recent FFY.

Calculating the Debt-to-Income Measures

Under proposed § 668.7(c), the Department would calculate annually the debt-to-income measures for each program to determine whether the annual loan payment is less than the discretionary (30 and 20 percent) and earnings (12 and 8 percent) thresholds using the following formulas:

• Annual loan payment < Discretionary threshold * (Average Annual Earnings − (1.5 * Poverty Guideline)).
• Annual loan payment < Earnings threshold * Average Annual Earnings.

Both debt measures would examine the annual loan payment of program completers in relationship to the average annual earnings of those completers to calculate whether a program met the gainful employment standard.

The annual loan payment would be the median loan debt of students who completed a program during the three-year period under standard repayment terms (i.e., 10-year repayment schedule and the current annual interest rate on Federal unsubsidized loans). Loan debt would include title IV, HEA program loans, except Parent PLUS loans, and any private educational loans or debt obligations arising from institutional financing plans. However, it would not include any student loan that a student incurred at prior institutions or at subsequent institutions unless the other and current institutions are under common ownership or control, or are otherwise related entities.

The Department would calculate the average annual earnings by using most currently available actual, average annual earnings, obtained from the Social Security Administration (SSA) or another Federal agency, of the students who completed the program during the three-year period. However, in certain cases, the measure could include the current earnings data for students who completed the program for a longer employment period (students who completed the program in the fourth, fifth, and sixth award years preceding the most recent three-year period) if the institution could show that students completing the program typically experience a significant increase in earnings after the first three years. The institution would have to provide information to the Department such as survey results of employers or former students, or through other empirical evidence, documenting the increased earnings.

As discussed in the Paperwork Reduction Act portion of this notice, institutions will have an opportunity to review and provide comments on the collection of new data associated with this provision. Interested parties will have an opportunity to provide input into this requirement through that process or in response to this notice of proposed rulemaking.

Under proposed § 668.7(a), a program would meet the gainful employment standard if the annual loan payment of its students is 30 percent or less of discretionary income or 12 percent or less of average annual earnings of its students. Discretionary income would be defined as the difference between average annual income and 150 percent of the most current Poverty Guideline for a single person in the continental United States (available at http://aspe.hhs.gov/poverty ). We specifically seek comment on whether the 30 percent threshold for the first three years of employment is appropriately rigorous or whether the Department should consider using the 20 percent of discretionary income or 8 percent of average annual earnings to define programs as ineligible. The less restrictive standard is used here because, as a general matter, the Department would be assessing the programs during a borrower's first three years after leaving the postsecondary education institution. In any case, however, where the prior three-year period is used, the annual loan payment would have to be less than 20 percent of discretionary income or less than 8 percent of average annual earnings.

Consequences of Meeting or Not Meeting the Thresholds; Timelines; Transition

Effective July 1, 2012, under proposed § 668.7(d), an institution would be required to alert prospective and currently enrolled students they may have difficulty in repaying their loans under certain circumstances. The institution would have to provide a prominent warning in its promotional, enrollment, registration, and other materials, including those on its Web site, and to prospective students when conducting person-to-person recruiting activities. The institution must also provide the most recent debt-to-income ratios and the loan repayment rate for that program. An institution must provide the warning if the program's repayment rate is less that 45 percent and, using 3YP and, if applicable, P3YP, the debt-to-income ratio is greater than 8 percent of average annual earnings or 20 percent of discretionary income.

Under proposed § 668.7(a) and (e), the Department would place a program on a restricted status if the program's repayment rate is less than 45 percent and the program's annual loan payment is more than 20 percent of discretionary income and more than 8 percent of average annual income. For a restricted program, the institution would be required to work with employers to assure that the training program is meeting their needs, and limit new students enrollments in that program to the average enrollment level for the prior three years. These restrictions are intended to encourage an institution to improve the program to better meet the needs of students and the relevant employers identified by the institution.

Moreover, under proposed § 668.7(a) and (f), if the program does not satisfy at least one of the debt thresholds in paragraph (a)(1) of this section, effective July 1, 2012, it would not meet the gainful employment standard. The Department would notify the institution of the program's ineligibility, and new students attending the program would not qualify for title IV, HEA program funds. However, an institution would be allowed to disburse title IV, HEA program funds to current students who began attending the program before it became ineligible for the remainder of the award year and for the award year following the date of the Department's notice.

For the award year beginning on July 1, 2012, a program could fail to meet one of the measures but still remain eligible. For this transition year, the Department would cap the number of programs declared ineligible to the lowest-performing programs producing no more than five percent of completers during the prior award year, eliminating the risk of large and immediate displacement of students. Specifically, under proposed § 668.7(f)(2), the Department would determine which programs would fall within the five percent cap by:

(1) Sorting all programs subject to this section by category based solely on the credential awarded as determined by the Department (e.g., certificate, associate degree, baccalaureate degree, and graduate and professional degree) and then within each category, by loan repayment rate, from lowest rate to highest rate.

(2) For each category of programs, beginning with the ineligible program with the lowest loan repayment rate, identifying the ineligible programs that account for a combined number of students that completed the programs in the most recently completed award year that do not exceed five percent of the total number of students who completed programs in that category.

For each ineligible program that falls within the five percent grouping for each category, the Department would notify the institution that the program no longer qualifies as an eligible program. For every other ineligible program, the Department would notify the institution that it must limit the enrollment of title IV, HEA program recipients in that program to the average number of title IV, HEA program recipients enrolled during the prior three award years and provide the same employer affirmations and debt disclosures that apply to programs with low repayment rates and high debt-to-income ratios.

Additional Programs

Under proposed § 668.7(g), before an institution could offer a new program that is eligible for title IV aid, it would apply to have the program approved by the Department. As part of its application, the institution would need to provide (1) the projected enrollment for the program for the next five years for each location of the institution that will offer the additional program, (2) documentation from employers not affiliated with the institution that the program's curriculum aligns with recognized occupations at those employers' businesses, and that there are projected job vacancies or expected demand for those occupations at those businesses, and (3) if the additional program constitutes a substantive change, documentation of the approval of the substantive change from its accrediting agency.

In determining whether to approve the new program, under proposed § 668.7(g)(2), the Department could restrict the approval for an initial period based on the institution's enrollment projections and demonstrated ability to offer programs that lead to gainful employment.

If the new program constitutes a substantive change based solely on program content, it would be subject to the gainful employment measures as soon as data on the loan repayment rate and debt measures are available. Otherwise, the loan repayment rate and debt measures for the new program would be based, in part, on loan data from the institution's other programs currently or previously offered that are in the same job family. The Bureau of Labor Statistics (BLS) describes a job family as a group of occupations based on work performed, skills, education, training, and credentials and identifies the SOC code (Standard Occupational Classification code) for each occupation in a job family at http://www.bls.gov/oes/current/oes_stru.htm .

The following charts provide in summary form a description of the consequences of meeting or not meeting the thresholds as well as the Department's proposed timelines.

Provisional Certification (§ 668.13)

The Department's current regulations in § 668.13(c) identify the conditions or reasons for which the Department may provisionally certify an institution. We are proposing to amend § 668.13(c)(1) to provide that the Department may provisionally certify an institution if one or more of its programs becomes restricted or ineligible under the gainful employment provisions in proposed § 668.7. The Department believes that provisional certification may be warranted in cases where an institution fails to take the actions necessary to keep its programs in compliance with the gainful employment provisions in § 668.7. This failure would be one factor considered by the Department when reviewing an institution's application for recertification of its program participation agreement.

Hearing Official (§ 668.90(a))

Current § 668.90(a)(3) sets forth the limitations on the matters that may be considered, or limitations on decisions that may be rendered by hearing officials in proceedings arising under subpart G of part 668. Under proposed § 668.90(a)(3)(vii), in a termination action against a program for not meeting the standards for gainful employment in § 668.7(a), the hearing official would accept as accurate the average annual earnings calculated by another Federal agency, so long as the other Federal agency provided that calculation for the list of program completers identified by the institution and accepted by the Department. The hearing official may consider evidence from an institution about earnings from its graduates to establish a different average annual earnings amount to be used with the debt measure, so long as that information is for the same individuals and determined to be reliable by the hearing official.

During the negotiated rulemaking sessions, some non-Federal negotiators highlighted the difficulty that institutions could encounter in obtaining earnings information from students who completed their programs. During these meetings, a separate proposal was discussed to use wage information from the Bureau of Labor Statistics (BLS) to represent earnings for program graduates. Some of the negotiators voiced concerns that the reported salaries might not be representative for a number of reasons such as regional variations and job classifications and that self-employed individuals might not be included in the BLS wage records, (although other information suggested that this information was included). Nevertheless, the Department is proposing to obtain average annual earnings by program from another Federal agency, using actual wage information maintained by that Federal agency for a program's students. This information is and will be the best information available but, to preserve the confidentiality of individuals that may or may not have received a Federal benefit, neither the Department nor the institution will be able to review the wage information for specific program graduates. The Department and the institution will, however, be able to ensure that the data includes only those program completers that were included in the information provided by the institution under the notice of proposed rulemaking published by the Department on June 18, 2010.

Since the specific individuals' actual earnings information will not be available to the institution or to the Department, the proposed regulations limit the discretion of the hearing official to determining whether the average annual earnings at issue in a hearing were provided by the other Federal agency to the Department for the list of program completers identified by the institution and accepted by the Department. Since the average annual earnings will be calculated using an automated process that matches the program graduates with the wage information the other Federal agency is required to maintain, the Department believes it is sufficient to limit the review by a hearing official to whether the average annual earnings were provided for the list of program graduates that were identified by the institution and accepted by the Department. The hearing official may consider whether the institution can demonstrate that a program is eligible using a different amount for the average annual earnings of the program graduates with the debt measures for that program, so long as the institution demonstrates the average annual earnings information is reliable and for the same individuals who completed the program in question.

Executive Order 12866

Regulatory Impact Analysis

Under Executive Order 12866, the Secretary must determine whether the regulatory action is “significant” and therefore subject to the requirements of the Executive Order and subject to review by the OMB. Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action likely to result in a rule that may (1) have an annual effect on the economy of $100 million or more, or adversely affect a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities in a material way (also referred to as an “economically significant” rule); (2) create serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive order.

Pursuant to the terms of the Executive order, we have determined this proposed regulatory action will have an annual effect on the economy of more than $100 million. Therefore, this action is “economically significant” and subject to OMB review under section 3(f)(1) of Executive Order 12866. Notwithstanding this determination, we have assessed the potential costs and benefits—both quantitative and qualitative—of this regulatory action and have determined that the benefits justify the costs.

The Summary of Effects tables that follow describe the estimated impact on programs that would be subject to these proposed regulations along with the number of students that would be affected.

The preceding table shows the estimated impact when the proposed regulations are fully implemented by July 1, 2012. A detailed analysis is found in Appendix A to this NPRM.

Paperwork Reduction Act of 1995

Proposed § 668.7 contains information collection requirements. Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department has submitted a copy of this section to OMB for its review.

Section 668.7—Gainful Employment in a Recognized Occupation

The proposed regulations would impose new requirements on certain programs that by law must, for purposes of the title IV, HEA programs, prepare students for gainful employment in a recognized occupation. For public and private nonprofit institutions, a program that does not lead to a degree would be subject to the eligibility requirement that the program lead to gainful employment in a recognized occupation, while a program leading to a degree, including a two-academic-year program fully transferable to a baccalaureate degree, would not be subject to this eligibility requirement. For proprietary institutions, all eligible degree and nondegree programs would be required to lead to gainful employment in a recognized occupation, except for a liberal arts baccalaureate program under section 102(b)(1)(A)(ii) of the HEA.

As proposed in § 668.7(a)(3)(viii), in accordance with procedures established by the Department for the purposes of calculating the loan repayment rate under § 668.7(b), an institution must report the CIP codes for all students who attended a program at the institution whose FFEL or Direct Loan entered repayment in the prior four FFYs. As indicated earlier, there has been tremendous growth in occupational programs between 2000 and 2008, averaging 200,000 new students per year. Based upon data from our institutional eligibility and program participation unit within Federal Student Aid, the Department estimates the following number of affected institutions that offer programs that currently prepare students for gainful employment in recognized occupations. The Department estimates there are 2,086 proprietary institutions with occupational programs, there are 238 private, non-profit institutions with occupational programs, and there are 2,139 public institutions with occupational programs.

The Department estimates that in the first year of reporting CIP codes for all students who attended a program whose FFEL and Direct Loans entered repayment in the preceding four Federal fiscal years the burden would be as follows.

With respect to the 2,086 proprietary institutions, the Department estimates that 376,000 student (47 percent times 800,000) attended programs at those institutions during the preceding four FFYs. Of those 376,000, we estimate that 90 percent or 338,400 had title IV, HEA loans that entered repayment. At an average of .08 hours (5 minutes) per student to determine and report the CIP code, the Department estimates an increase in burden for proprietary institutions of 27,072 hours in OMB 1845-NEW4.

With respect to the 238 private non-profit institutions, the Department estimates that 40,000 students (5 percent times 800,000) attended programs at those institutions during the preceding four FFYs. Of those 40,000, we estimate that 60 percent or 24,000 had title IV, HEA loans that entered repayment. At an average of .08 hours (5 minutes) per student to determine and report the CIP code, the Department estimates an increase in burden for private non-profit institutions of 1,920 hours in OMB 1845-NEW4.

With respect to the 2,139 public institutions, the Department estimates that 384,000 students (48 percent times 800,000) attended those institutions during the preceding four FFYs. Of those 384,000, we estimate that 38 percent or 145,920 had title IV, HEA loans that entered repayment. At an average of .08 hours (5 minutes) per student to determine and report the CIP code, the Department estimates an increase in burden for public institutions of 11,674 hours in OMB 1845-NEW4.

Collectively, the Department estimates that the burden associated with determinations and reporting related to CIP codes for all students who attended an occupational program will increase to the affected institutions by 40,666 hours in OMB 1845-NEW4.

As proposed in § 668.7(c)(3)(i) and (ii), the Secretary determines annually for each program whether the annual loan payment is less than the discretionary income and the earnings thresholds in § 668.7(a). For annual earnings, the Secretary uses the most currently available actual, average annual earnings obtained from a Federal agency, of the students who completed the program during the 3YP and, if the data are available, during the P3YP. P3YP data are used if, in accordance with procedures established by the Secretary, the institution shows that students completing the program typically experience a significant increase in earnings after an initial employment period and the institution explains the basis for that earnings pattern. For each of the P3YP student completers, the institution is required to provide the Secretary with the following information; the program CIP code, the student's completion date, the amount of private educational loans that the student received, and the amount of debt incurred from institutional financing plans.

We estimate that 60 percent of the proprietary institutions would meet the loan repayment rate of 45 percent; therefore 40 percent of the 2,086 proprietary institutions with programs that prepare students for gainful employment or 834 institutions would have a loan repayment rate less than 45 percent. Under the proposed regulations, the debt measure as calculated by the Department would be used to determine if a program would be eligible and therefore unrestricted, or to what extent restrictions would apply. We estimate that 65.3 percent of the 834 institutions would pass the initial 3YP debt measure and therefore, 34.7 percent (.347 times 834 institutions equal 289 institutions) would not pass the initial 3YP debt measure. Of the remaining 289 institutions that would not pass the initial 3YP debt measure, 75 percent would pass the prior 3YP threshold of the annual loan repayment not exceeding 20 percent of discretionary income, or 8 percent of annual earnings. We estimate that for the explanation of the increase in earnings after the initial employment period and the submission of the P3YP information (to include for each student that completed the program: the CIP code of the program, the completion date, the amount of private educational loans, and the amount of debt incurred from institutional financing plans), to average 10 hours per proprietary institution for a total of 2,890 hours of burden in OMB 1845-NEW4.

We estimate that 89 percent of the private nonprofit institutions would meet the loan repayment rate of 45 percent; therefore 11 percent of the 238 private nonprofit institutions with programs that prepare students for gainful employment or 26 institutions would have a loan repayment rate less than 45 percent. Under the proposed regulations, the debt measure as calculated by the Department would be used to determine if a program would be eligible and unrestricted, or to what extent restrictions would apply. We estimate that 95 percent of the 26 private nonprofit institutions would pass the initial 3YP debt measure and therefore, 5 percent (.05 times 26 institutions equal 1 institution) would not pass the initial 3YP debt measure. Of the remaining 1 institution that would not pass the initial 3YP debt measure, we estimate that this institution would explain the increase in earnings after the initial employment period and submit the alternative debt threshold data. We estimate that this institution would pass the P3YP threshold of the annual loan payment not exceeding 20 percent of discretionary income, or 8 percent of average annual earnings. We estimate that the submission of the explanation of increased earnings and the P3YP information (to include for each student that completed the program: The CIP code of the program, the completion date, the amount of private educational loans, and the amount of debt incurred from institutional financing plans), to average 10 hours per private nonprofit institution for a total of 10 hours of burden in OMB 1845-NEW4.

We estimate that 82 percent of the public institutions would meet the loan repayment rate of 45 percent; therefore 18 percent of the 2,139 public institutions with programs that prepare students for gainful employment or 385 institutions would have a loan repayment rate less than 45 percent and therefore the debt measure as calculated by the Department would be used to determine if a program would be eligible and unrestricted, or to what extent restrictions would apply. We estimate that 98 percent of the 385 public institutions would pass the initial 3YP debt measure and therefore, 2 percent (.02 times 385 institutions equal 8 institutions) would not pass the initial 3YP debt measure. Of the remaining 8 institutions that would not pass the initial 3YP debt measure, we estimate that virtually all would explain the increase in earnings beyond the initial employment period and submit the alternative debt threshold data. We estimate that 90 percent would pass the P3YP threshold of the annual loan payment not exceeding 20 percent of discretionary income, or 8 percent of average annual earnings. We estimate that the submission of the explanation of the increased earnings and the P3YP information (to include for each student that completed the program: The CIP code of the program, the completion date, the amount of private educational loans, and the amount of debt incurred from institutional financing plans), to average 10 hours per public institution for a total of 80 hours of burden in OMB 1845-NEW4.

Collectively, under proposed § 668.7(c)(3), we estimate the burden for institutions to explain the increase in earnings after the initial 3YP and the submission of data on students that completed the program during the P3YP would result in a burden of 2,980 hours.

Under proposed § 668.7(d), on or after July 1, 2012, unless the program has a loan repayment rate of at least 45 percent or an annual loan payment that is at least 20 percent of discretionary income or 8 percent of average annual income, the Department would notify the institution that it must include a prominent warning in its promotional, enrollment, registration, and other materials describing the program, including those on its Web site, designed and intended to alert prospective and currently enrolled students they may have difficulty repaying loans obtained for attending that program.

We estimate that 60 percent of the proprietary institutions would have a loan repayment rate of 45 percent or above and that 40 percent would not pass this rate (.4 times 2,086 equal 834 proprietary institutions that have programs that prepare students for gainful employment that would not pass this rate). We estimate that for the initial 3YP, that 65.3 percent of the remaining 834 proprietary institutions would meet or surpass the debt measures of at least 20 percent of discretionary income or at least 8 percent of average annual income. We estimate that the remaining 34.7 percent (.347 times 834 equal 289 proprietary institutions) would not pass the debt measures and therefore under the proposed regulations would be required to provide a debt warning disclosure. We estimate that it will take the affected 289 proprietary institutions, on average, 1 hour to meet these reporting requirements for their occupational training programs for a total estimated increase in burden of 289 hours in OMB 1845-NEW4.

We estimate that 89 percent of the private nonprofit institutions would have a loan repayment rate of 45 percent or above and that 11 percent would not pass this rate (.11 times 238 equal 26 private nonprofit institutions that have programs that prepare students for gainful employment that would not pass this rate). We estimate that for the initial 3YP, 95 percent of the remaining 26 private nonprofit institutions would meet or surpass the debt measures of at least 20 percent of discretionary income or at least 8 percent of average annual income. We estimate that the remaining 5 percent (.05 times 26 equal 1 private nonprofit institution) would not pass the debt measures and therefore under the proposed regulations would be required to provide a debt warning disclosure. We estimate that it will take the affected private non-profit institution, on average, 1 hour to meet these reporting requirements for its occupational training programs for a total estimated increase in burden of 1 hour in OMB 1845-NEW4.

We estimate that 82 percent of the public institutions would have a loan repayment rate of 45 percent or above and that 18 percent would not pass this rate (.18 times 2,139 equal 385 public institutions that have programs that prepare students for gainful employment that would not pass this rate). We estimate that for the initial 3YP, 98 percent of the remaining 385 public institutions would meet or surpass the debt measures of at least 20 percent of discretionary income or at least 8 percent of average annual earnings. We estimate that the remaining 2 percent (.02 times 385 equal 8 public institutions) would not pass the debt measures and therefore under the proposed regulations would be required to provide a debt warning disclosure. We estimate that it will take the affected 8 public institutions, on average, 1 hour to meet these reporting requirements for their occupational training programs for a total estimated increase in burden of 8 hours in OMB 1845-NEW4.

Collectively, under proposed § 668.7(d), we estimate that burden for institutions to meet these proposed disclosure requirements in accordance with procedures established by the Department would increase by 298 hours in OMB Control Number 1845-NEW4.

Under proposed § 668.7(e), a restricted program would be required to report to the Department additional information annually. The additional information would include documentation from employers not affiliated with the institution, affirming that the curriculum of the program aligns with recognized occupations at those employers' businesses. The number and locations of the businesses, as well as the number of projected job vacancies at those businesses must be commensurate with the anticipated size of the programs.

We estimate that 22.7 percent of the proprietary institutions will be subject to the proposed requirements of the restricted status (.227 times 2,086 proprietary institutions that have programs that prepare students for gainful employment equal 474 affected institutions). We estimate that on average, each institution would take 11 hours to obtain the independent employer affirmations as proposed for submission to the Department. These institutions would already be required to provide a debt warning disclosure, so there is no additional burden associated with that requirement in this section. Therefore, we estimate an increase in burden of 5,214 hours (474 affected institutions times 11 hours equal 5,214 hours).

We estimate that 15 percent of the private nonprofit institutions will be subject to the proposed requirements of the restricted status (.15 times 238 private nonprofit institutions that have programs that prepare students for gainful employment equal 36 affected institutions). We estimate that on average, each institution would take 11 hours to obtain the independent employer affirmations as proposed for submission to the Department. These institutions would already be required to provide a debt warning disclosure, so there is no additional burden associated with that requirement in this section. Therefore, we estimate an increase in burden of 396 hours (36 affected institutions times 11 hours equal 396 hours).

We estimate that 11.8 percent of the public institutions will be subject to the proposed requirements of the restricted status (.118 times 2,139 public institutions that have programs that prepare students for gainful employment equal 252 affected institutions). We estimate that on average, each institution would take 13 hours to develop its five year enrollment projections and obtain the independent employer affirmations as proposed for submission to the Department. These institutions would already be required to provide a debt warning disclosure, so there is no additional burden associated with that requirement in this section. Therefore, we estimate an increase in burden of 2,772 hours (252 affected institutions times 11 hours equal 2,772 hours).

Collectively, under proposed § 668.7(e), we estimate that burden would increase by 8,382 hours in OMB 1845-NEW4.

Under proposed § 668.7(f), the Department would notify an institution whenever one or more of its programs become ineligible. During the initial year of implementation as proposed, for the award year beginning July 1, 2012, the number of ineligible programs would be limited to five percent. The Department estimates that there would be 3,000 programs in the ineligible category initially. Five percent of the 3,000 ineligible program or 450 programs would not be able to award title IV, HEA program assistance to new students after the notification date. The other 2,550 ineligible programs would be subject to additional reporting requirements including providing employer affirmations under § 668.7(g)(1)(iii) and providing the debt warning disclosures under § 668.7(d).

With respect to the 2,550 ineligible programs, the Department estimates that 65 percent or 1,658 of the ineligible programs would be at proprietary institutions. At an average of 11 hours to obtain and report employer affirmation per program, we estimate that burden would increase by 18,238 hours in OMB 1845-NEW4.

With respect to the 2,550 ineligible programs, the Department estimates that 65 percent or 1,658 of the ineligible programs would be at proprietary institutions. At an average of 11 hours to obtain and report employer affirmation per program, we estimate that burden would increase by 18,238 hours. At an average of 1 hour to place debt warning disclosure information in its promotional, enrollment, and other materials, including its Web site, we estimate that burden will increase by 1,658 hours in OMB 1845-NEW4. Collectively, the Department estimates that burden would increase for proprietary institutions by 19,896 hours in OMB 1845-NEW4.

With respect to the 2,550 ineligible programs, the Department estimates that 5 percent or 128 of the ineligible programs would be at private nonprofit institutions. At an average of 11 hours to obtain and report employer affirmation per program, we estimate that burden would increase by 1,408 hours. At an average of 1 hour to place debt warning disclosure information in its promotional, enrollment, and other materials, including its Web site, we estimate that burden will increase by 128 hours in OMB 1845-NEW4. Collectively, the Department estimates that burden would increase for private nonprofit institutions by 1,536 hours in OMB 1845-NEW4.

With respect to the 2,550 ineligible programs, the Department estimates that 30 percent or 764 of the ineligible programs would be at public institutions. At an average of 11 hours to obtain and report employer affirmation per program, we estimate that burden would increase by 8,404 hours. At an average of 1 hour to place debt warning disclosure information in its promotional, enrollment, and other materials, including its Web site, we estimate that burden will increase by 764 hours in OMB 1845-NEW4. Collectively, the Department estimates that burden would increase for public institutions by 9,168 hours in OMB 1845-NEW4.

In total, under proposed § 668.7(f), the Department estimates that burden would increase by 30,600 hours in OMB 1845-NEW4.

Under proposed § 668.7(g), before an institution can offer an additional program, the institution would have to apply to the Department by providing documentation of the approval of the substantive change by its accrediting agency, providing projected five year enrollment estimates, as well as, obtaining documentation from employers not affiliated with the institution, that the program curriculum aligns with recognized occupations at those employers' businesses, the number and locations of the businesses, and that the projected number of job vacancies are commensurate with the anticipated size of the program. We estimate that during the initial three year period there will be 650 submissions of additional programs for which institutions would submit to the Department this information. We estimate that, of the 4,463 institutions with programs that prepare student for gainful employment in a recognized occupation, 47 percent are in the proprietary sector, 5 percent are in the private nonprofit sector, and 48 percent are in the public sector.

We estimate that 47 percent of the 650 additional programs or 306 programs would be at proprietary institutions and that on average it will take 13 hours to develop the five-year projections and to collect the proposed employer documentation for a total increase of 3,978 hours of burden.

We estimate that 5 percent of the 650 additional programs or 32 programs would be at private nonprofit institutions and that on average it will take 13 hours to develop the five-year projections and to collect the proposed employer documentation for a total increase of 416 hours of burden.

We estimate that 48 percent of the 650 additional programs or 312 programs would be at public institutions and that on average it will take 13 hours to develop the five-year projections and to collect the proposed employer documentation for a total increase of 4,056 hours of burden.

Collectively, under § 668.7(g), we estimate that the increase in burden to institutions would be 8,450 hours in OMB Control 1845-NEW4.

If you want to comment on the proposed information collection requirements, please send your comments to the Office of Information and Regulatory Affairs, OMB, Attention: Desk Officer for U.S. Department of Education. Send these comments by e-mail to OIRA_DOCKET@omb.eop.gov or by fax to (202) 395-5806. You may also send a copy of these comments to the Department contact named in the ADDRESSES section of this preamble.

The Department and OMB will consider your comments on these proposed collections of information in—

• Deciding whether the proposed collections are necessary for the proper performance of its functions, including whether the information will have practical use;
• Evaluating the accuracy of its estimate of the burden of the proposed collections, including the validity of its methodology and assumptions;
• Enhancing the quality, usefulness, and clarity of the information it collects; and
• Minimizing the burden on those who must respond. This consideration includes exploring the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.

OMB is required to make a decision concerning the collections of information contained in these proposed regulations between 30 and 60 days after publication of this document in the Federal Register. Therefore, to ensure that OMB gives your comments full consideration, OMB must receive the comments within 30 days of publication. This additional time to provide comments to OMB does not affect the deadline for your comments on the proposed regulations.

The Department notes that a federal agency cannot conduct or sponsor a collection of information unless it is approved by OMB under the PRA, and displays a currently valid OMB control number, and the public is not required to respond to a collection of information unless it displays a currently valid OMB control number. Also, notwithstanding any other provisions of law, no person shall be subject to penalty for failing to comply with a collection of information if the collection of information does not display a currently valid OMB control number. The Department will publish a notice at the final rulemaking stage announcing OMB's action regarding the collections of information contained in this proposed rule.

Intergovernmental Review

These programs are not subject to Executive Order 12372 and the regulations in 34 CFR part 79.

Assessment of Educational Impact

In accordance with section 411 of the General Education Provisions Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on whether these proposed regulations would require transmission of information that any other agency or authority of the United States gathers or makes available.

Electronic Access to This Document

You can view this document, as well as all other documents of this Department published in the Federal Register, in text or Adobe Portable Document Format (PDF) on the Internet at the following site: http://www.ed.gov/news/fedregister. To use PDF, you must have Adobe Acrobat Reader, which is available free at this site.

Note:

The official version of this document is the document published in the Federal Register. Free Internet access to the official edition of the Federal Register and the Code of Federal Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/index/html.

(Catalog of Federal Domestic Assistance: 84.007 FSEOG; 84.032 Federal Family Education Loan Program; 84.033 Federal Work-Study Program; 84.037 Federal Perkins Loan Program; 84.063 Federal Pell Grant Program; 84.069 LEAP; 84.268 William D. Ford Federal Direct Loan Program; 84.376 ACG/SMART; 84.379 TEACH Grant Program)

List of Subjects in 34 CFR Part 668

• Administrative practice and procedure
• Aliens
• Colleges and universities
• Consumer protection
• Grant programs—education
• Loan programs-education
• Reporting and recordkeeping requirements
• Selective Service System
• Student aid
• Vocational education

For the reasons discussed in the preamble, the Secretary proposes to amend part 668 of title 34 of the Code of Federal Regulations as follows:

PART 668—STUDENT ASSISTANCE GENERAL PROVISIONS

1. The authority citation for part 668 continues to read as follows:

Authority: 20 U.S.C. 1001, 1002, 1003, 1070g, 1085, 1088, 1091, 1092, 1094, 1099c, and 1099c-1, unless otherwise noted.

2. Section 668.7 is added to subpart A to read as follows: