On October 31, 2014, the U.S. Department of Education promulgated its new “gainful employment” or “GE” regulations. The new regulations prominently feature two metrics intended to assess whether a program offers graduates a reasonable return on investment: (1) the Annual Earnings Rate, and (2) the Discretionary Income Rate. REGucation has dedicated recent posts to assisting institutions interested in projecting “D/E rates,” as these metrics collectively are known, by presenting a five-part series that offers step-by-step instructions for calculating estimated rates. Part 1 and Part 2 in our series covered steps one through four in the process. With this third post, we’ll cover steps five and six.
Step Five: Determining each GE Student’s loan debt
Once you have determined the applicable cohort period for each GE Program for which you are projecting rates (step four in our process), you will be able to identify the universe of GE Students who will be included in each program’s cohort. With this data in hand, you’re ready to determine the loan debt for each individual student.
Significantly, the amount used for each student’s “loan debt” in the D/E rate calculations is, in fact, the lesser of the student’s (1) actual loan debt, or (2) total costs. 34 C.F.R. 668.404(b)(1). Thus, for each student, you’ll have a choice to make regarding which number to include when calculating the median loan debt for the cohort. And keep in mind that the lesser number may vary from student to student, depending on his personal circumstances.
Under the new regulations, when calculating a student’s actual loan debt, you will need to include any debt that falls into the following three categories:
- Any Title IV loans that the student borrowed (total amount disbursed less any cancellations or adjustments) for enrollment in the GE program (Federal PLUS Loans made to parents of dependent students, Direct PLUS Loans made to parents of dependent students, and Direct Unsubsidized Loans that were converted from TEACH Grants are not included); AND
- Any private education loans, including private education loans made by the institution that the student borrowed for enrollment in the program; AND
- The amount outstanding, as of the date the student completes the program, on any other credit (including any unpaid charges) extended by or on behalf of the institution for enrollment in any GE program attended at the institution that the student is obligated to repay after completing the GE program. 34 C.F.R. 668.404(d)(1).
When calculating total costs for each student, you will need to include the following amounts:
- The total amount of tuition and fees assessed the student for the student’s entire enrollment in the GE program; AND
- The total amount of the allowances for books, supplies, and equipment included in the student’s Title IV Cost of Attendance for each award year in which the student was enrolled in the program, OR a higher amount if assessed the student by the institution. 4 C.F.R. 668.404(d)(2); 34 C.F.R. 668.411(a)(2)(iv)-(v).
There are a handful of additional wrinkles that may surface at this step, and that should be taken into account when calculating each student’s actual loan debt and total costs. The first concerns the management of students who may have completed multiple programs at your institution (e.g., a student who completed an associate’s degree, then went on to get her bachelor’s degree). In such instances, all of the actual loan debt/total costs incurred by a student for attendance in an institution’s undergraduate programs would be attributed to the highest credentialed undergraduate program she completed at the institution as of the end of the most recently completed award year prior to the calculation of the D/E rates. 34 C.F.R. 668.404(d)(2)(i). Similarly, all of the actual loan debt/total costs incurred by a student for attendance in any graduate programs would be attributed to the highest credentialed graduate degree completed at the institution as of the end of the most recently completed award year prior to the calculation of the D/E rates. 34 C.F.R. 668.404(d)(2)(ii).
The second wrinkle involves GE Students with no loan debt. Recall that for purposes of calculating D/E rates, the Department defines a “student” as any “individual who received Title IV, HEA program funds for enrolling in the applicable GE program.” 34 C.F.R. 668.402 (Student). Notably, this definition of student would include individuals who received only Pell grants and other grants under Title IV, even if they did not receive any loans. It thus is possible that you may have students properly included in your cohort that have no associated loan debt.
Finally, as a general rule, the Department excludes any loan debt incurred by the student for enrollment in programs at other institutions. But note that the Department, in its discretion, may include loan debt incurred by a student for enrollment in GE programs at other institutions if your institution and the “other” institutions are under common ownership or control. 34 C.F.R. 668.404(d)(3). We expect that in the coming months and years the Department will establish parameters for the exercise of this discretion.
Step Six: Calculation of the median loan debt for each GE Program
At this point in the process, for each GE Program you should have a list of the GE Students included in the program’s cohort, accompanied by each such student’s total loan debt (or more precisely, the lesser of each student’s actual loan debt or total cost). You now are prepared to determine the median loan debt for the cohort. The median of a set of values is the “middle” value. Thus, to determine the median loan debt, one simply need place the loan debt numbers in value order and identify the middle number.
The median loan debt for the GE Program cohort set out above is the highlighted value: $5,250. In instances where your program cohort includes an even number of students, you would identify the middle pair of numbers and calculate the value that would be halfway between them (i.e., add them together and divide by two). Also note, in instances where more than half of the students in your cohort have no associated loan debt, the median loan debt for the program would indeed be $0.
We appreciate the most folks tasked with projecting rates will not be doing so manually, but instead will be using some form of software to facilitate the process. For those using an Excel spreadsheet, you can calculate the median of a group of numbers by using the MEDIAN function. (For the example above, the function would be [median=(A2:A7)]).
Our next post will begin with Step Seven: Amortization of the median loan debt to determine the annual loan payment.
Looking for more information on the new Gainful Employment rules?
For a complete overview of the new gainful employment rules, including reporting, certification, and disclosure requirements, we invite you to listen in to our free gainful employment webinar series. Our next webinar, “Projecting Debt-to-Earnings Rates,” will take place Tuesday, December 9.
Aaron Lacey is a partner in Thompson Coburn’s Higher Education practice, and editorial director of REGucation. You can find Aaron on Twitter (@HigherEdCounsel) and LinkedIn, and reach him at (314) 552-6405 or firstname.lastname@example.org.