Repayment Rate Proposal

   

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To: The US Department of Education 

From: The Informal Working Group on Repayment Rates 

Date: September 30, 2013 

Proposal for a Repayment Rate Trigger in the Gainful Employment Metric

Introduction 

When the Department of Education published the first Gainful Employment rules in 2011, 

repayment rates were an important metric, part of a test to determine whether or not a program 

has adequately prepared a student for employment in a recognized occupation.1

 

The repayment rate calculation supplemented the debt-to-earnings ratios by capturing outcomes 

of all students who had enrolled in a program, not just those who completed it. By measuring 

students’ financial wellness – whether they were paying down their loans – the repayment rate 

added important context to the debt-to-earnings ratios, which measure relative debt burden 

regardless of whether it is practicably manageable. 

Secondly, repayment rates act as a mirror to cohort default rates, which, as the 2012 Senate 

H.E.L.P committee report extensively detailed, are easily manipulated by unscrupulous 

institutions. For example, with loan default rates 25% higher than proprietary schools across the 

sector, Kaplan Higher Education Corporation hired an internal default management staff and 

contracted with third party companies in order to try and reduce their student default rates. 

Default managers were paid a fee for each default they successfully “cured” – which in practice 

almost always meant putting students in deferment or forbearance, not actually getting students 

back into repayment.2 Cohort default rates, therefore, are an unreliable metric without repayment 

rates to capture the students whose loans are growing ever larger in forbearance. 

Finally, as this proposal envisions it, a high repayment rate would act as a “safe harbor” for wellperforming programs, exempting them from further regulation. High repayment rates among all 

former borrowers allow us to assume that unreasonable debt burdens are not a problem for 

program graduates. 

                                                            

1 34 U.S.C §668.7 (a)(1) 2 United States Senate Health, Employment, Labor, and Pensions Committee, For Profit Higher Education: The

Failure to Safeguard the Federal Investment and Ensure Student Success (2012).
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The Repayment Rate 

In the DC District Court’s decision last summer, the Court took no issue with the repayment rate 

calculation itself, but made it clear that the Department needs to “make rational and informed 

decisions about how the relevant thresholds are determined.”3 This is not a particularly high bar 

for the Department to meet. This memo does not include recommendations for specific 

thresholds, but rather proposes that the Department task an expert panel to determine appropriate 

thresholds and the best definition of repayment rate to use. Given the longstanding statutory 

precedent for measuring students’ ability to repay loans (CDRs) and well established lending 

industry risk standards, there are clearly models for the Department to rely upon in crafting the 

gainful employment rule. By convening an expert panel to explore such models, the 

Department should be able to articulate a reasoned, rational, and defensible basis for the 

repayment thresholds that is established. 

The Repayment Thresholds 

The repayment proposal creates three thresholds that sort programs into various bands of 

regulation. This model serves several purposes. First, it allows well-performing programs “safe 

harbor” from the debt-to-earnings analysis, lessening the administrative burden on the 

Department of Education and creating an incentive for moderately performing programs to 

improve. Secondly, it allows the Department to almost immediately eliminate the worst 

performing programs, protecting students from languishing in poor programs. Finally, it creates 

clear, simple expectations for those programs whose repayment rates place them in the moderate 

band and allows the Department to focus its attention on those programs that demonstrate a 

willingness to improve their student outcomes. 

Under this proposal, programs with a median debt burden of zero will be exempted from the 

regulation. This exemption continues the spirit of the 2011 rule, which noted in its executive 

summary that: 

... we are revising the regulations to provide that programs with a median loan 

debt of zero are meeting the measures. This clarification is a logical extension of 

the debt measures since programs with a median loan debt of zero are not placing 

any debt burden on the majority of their students. Program Integrity: Gainful 

Employment Debt-Measure Rules, 76 Fed. Reg. at 3440176. 

As this rulemaking session is primarily concerned with the effect that a high debt burden has on 

the graduates of Gainful Employment programs, incorporating this exception into the final rule is 

serves the mission of both protecting students and well-performing, affordable institutions. 

                                                            

3 Ass'n of Private Colleges & Univs. v. Duncan, 870 F. Supp. 2d 133, 165, 2012 U.S. Dist. LEXIS 90434 

(D.D.C. 2012)
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High Repayment Threshold Triggers a Safe Harbor 

Programs with a “high” repayment threshold (to be determined by an expert panel) will be given 

a safe harbor from further regulation. As discussed above, a high repayment rate demonstrates 

that students are able to reasonably manage their loan debt and, therefore, allows for the 

assumption that the debt-to-income ratio is reasonable. 

As the Department opined in the 2011 Notice of Proposed Rulemaking, the repayment rate can 

provide regulatory flexibility for “programs that may have high debt-to-income ratios for 

completers but enroll prepared and responsible students who understand their financial 

obligation.”4

Moderate Repayment Threshold Triggers a Closer Look 

When programs fall between the high and low repayment rates, they will be subject to further 

scrutiny from the Department. In order to continue receiving Title IV funds, programs will need 

to demonstrate the following: 

1. Programs in the Moderate Repayment Rate Must Meet Both Debt-to-Earnings Ratios 

The annualized and discretionary debt to earnings ratios introduced by the Department 

(herein DTE) in the proposed rules are an important measure of the affordability of 

student loan debt, appropriateness of graduate job placement, and the success of a 

programs education goals. This proposal does not seek to change their structure, but 

rather to pair them with an analysis of programmatic repayment rates. 

Programs falling in the median repayment band would be required to meet both DTE 

ratios, because they are most informative when read together. Annual DTE ratios provide 

the most protection to upper income borrowers, while discretionary DTE ratios provide 

protection to low income borrowers. A bivariate formula like the one currently proposed 

fails to provide a complete picture of the borrower’s financial health. 

 2. Programs in the Moderate Repayment Rate May Have Their Job Placement Rates 

Audited 

A high job placement rate, when coupled with a mediocre repayment rate and a high DTE 

ratio, should be a red flag to regulators. If students are working in the jobs the program is 

designed to train them for (or jobs with a comparable pay scale), then that employment 

should be reflected in both the repayment rate and the DTE ratios. An audit of the 

placement rate is an appropriate tool to assist regulators in determining the veracity of the 

programs placement claims and, possibly, adjust the Gainful Employment rules to be a 

more accurate measure of student success. 

                                                            

4 Program Integrity: Gainful Employment Debt-Measure Rules, 75 Fed. Reg. 43618.
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Job placement rates are one of the most helpful disclosures for students, but the lack of a 

standard definition for what constitutes a job – not to mention what constitutes placement 

– means that they can be one of the most deceptive disclosures. The authors of this 

proposal fully support the proposal for a standardized job placement rate in order to make 

the disclosure more meaningful to the students who rely on it. 

3. Institutions with programs in the Moderate Repayment Band Must Apply for Upfront 

Approval of New Programs 

Upfront qualification of programs has been a contentious issue of discussion by Gainful 

Employment negotiators, and Barmak Nassirian and Margaret Reiter are submitting full 

proposals on the issue. Targeting new program approval requirements at institutions with 

mediocre program repayment rates makes sense because these institutions may have 

institution-wide issues with debt and repayment. In contrast, institutions where repayment 

rates are all high should be given the benefit of the doubt that they can create new 

programs of high value for students. 

Approaching upfront approval of new programs in this manner solves two of the 

problems that were most widely cited in the discussions surrounding the issue. First, it 

provides the Department with a targeted analysis, relieving regulators of the cumbersome 

task of reviewing every programmatic evaluation. Secondly, it ensures that wellperforming institutions are not burdened by overregulation, and that their new programs 

are not delayed by additional and unnecessary scrutiny. 

Low Repayment Rate 

In the first year, programs with a low repayment rate (to be determined by an expert panel) will 

be subject to all of the additional scrutiny described above. However, in the second year, 

programs with a low repayment rate would no longer be eligible for Title IV. 

To ensure that the burden of due process is met, a program would be able to appeal the loss of 

Title IV funds for one year if they can show that both of their DTE ratios meet the Departments 

required thresholds and that at least 70% of their students go on to graduate the programs they 

enroll in. 

Conclusion 

The proposed repayment thresholds create a workable solution to reward well-performing 

programs, focus regulatory action on programs with the ability to improve, and eliminate 

programs that fail to serve students.