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THE DEBT TO EARNINGS CALCULATIONS

A. The D/E Thresholds 

Proposal: The Department Should Reinstate The 12% Debt To Earnings And 30% 

Discretionary Debt To Earnings Thresholds.

The proposed passing standards for the D/E Rates in the draft Rule are markedly 

different than the thresholds the Department used in the Gainful Employment Rule as 

published in 2011. At that time, after evaluating hundreds of comments from 

economists, industry leaders, industry critics and others, the Department set a final 

standard of 12% for the Debt to Earnings Rate and 30% for the Debt to Discretionary 

Income Rate. The Department set out a number of reasons to move off of the earlier 

NPRM that proposed 8% and 20% standards. Now, in the new draft Rule, the 

Department has returned to the 8% and 20% standards. 

The Department has not provided sufficient rationale for the change.

We are particularly puzzled that the Department has, apparently, returned to 

these standards based on the Baum and Schwartz academic survey of this subject in 

2006 (“How Much Debt is Too Much? Defining Benchmarks for Manageable Student 

Debt”), even though the Department previously noted a number of persuasive critiques 

explaining that the Baum and Schwartz study did not, in fact, support such a conclusion. 

In 2011, the Department noted multiple reasons to reject the 8% and 20% standards, 

and adopt the 12% and 30% standards, in its Federal Register commentary (beginning at 

page 34394 of the June 13, 2011 Federal Register). These included the observations by 

Baum and Schwartz, in the cited study, that the 8% and 20% thresholds were not 

applicable to higher education loans. Baum and Schwartz were particularly specific 

about the “shortcomings” of the 8% standard because it was largely based on mortgage 

loan experience, did not account for changes in underwriting criteria and presumed that 

a single percentage should apply to all borrowers. In addition, the 8% and 20% 

standards do not account for the expectation that higher education loans are intended 

to help borrowers earn a higher income in the future, and therefore make all of their 

debt commitments more manageable. 

The United States District Court approved the 12% and 30% thresholds.

We also note that the U.S. District Court that reviewed and largely vacated the 

prior GE Rule closely analyzed the basis for the passing and failing thresholds for the 
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relevant rates and upheld the 12% and 30% thresholds as based on reasoned decisionmaking. Accordingly, we suggest that the original 12% and 30% standards be reinstated.

The 8% and 20% thresholds are inappropriate because the rule looks at 

graduate income earlier than three years from graduation.

The GE Rule is often presented as if it measures earnings three years after 

graduation because the “two-year period” measures the third and fourth award year 

before the year D/E rates are calculated. However, in most cases, the Department 

measures earnings for cohorts of students for a period that is less than three years after 

students’ graduation. For example, the D/E rates for the 2014-15 award year (the first 

set of rates contemplated under the Rule) would be based on students who completed 

Award Year 2010-11 and Award Year 2011-12,1and would likely be based on earnings 

data obtained from SSA for calendar year 2014. 

18 months from completion is too soon to measure earnings.

For Monroe College and institutions on a traditional academic calendar, the 

majority of graduates completed in June 2011 and June 2012. For June 2012 graduates, 

since the earnings measurement begins January 2014, they are only afforded an 18-

month period before their earnings are measured, far short of the expected three 

years. That is not a realistic time for these new graduates to establish themselves.

Our suggested changes to the text of the Rule are presented in red, below.

Revised Section 668.403

(b) Passing program. A GE program for which the--

(1) Discretionary income rate is equal to or less than 20 30 percent; or

(2) Annual earnings rate is equal to or less than 8 12 percent.

(c) Failing program. A GE program for which the--

(1) Discretionary income rate is greater than 30 percent; and

(2) Annual earnings rate is greater than 12 percent. 

(d) Zone program. A GE program that is not a passing program and for which the

 

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Award Year 2010-11 and 2011-12 runs from July 1, 2010 through June 30, 2012.
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(1) Discretionary income rate is greater than 20 30 percent but less than or equal 

to 30 35 percent; or 

(2) Annual earnings rate is greater than 8 12 percent but less than or equal to 12

15 percent.

B. The Department Should Measure Graduate Earnings At An Appropriate 

Point

Proposal: Define The Earnings Year To Ensure The Department Measures Earnings 

At Least Three Years After Graduation.

Currently, Section 668.404(c) defines annual earnings as, “the most currently 

available mean and median annual earnings of the students who completed the 

program....” The annual earnings year is, therefore, not specifically identified. 

As stated above, the GE Rule is often presented as if it measures earnings three 

years after graduation since the “two-year period” that is measured is composed of the 

third and fourth award year before the year of measurement. However, in most cases, 

the Department would measure earnings for cohorts of students for a period that is less 

than three years after the students’ graduation. 

For example, the D/E rates for the 2014-2015 award year (the first set of rates 

contemplated under the rule) would be based on students who completed award years 

2010-11 and 2011-12, and would likely be based on earnings data obtained from SSA for 

calendar year 2014. For Monroe College and institutions on a traditional academic 

calendar, the majority of those graduates completed in June 2011 and June 2012. For 

June 2012 graduates, if the earnings measurement begins January 2014, they are only 

afforded an 18-month period before their earnings are measured, far short of the 

expected three years. 

We therefore suggest an amendment to Section 668.404(c) to ensure that the 

Department allows a full three years between graduation and the earnings year in all 

cases.

Our suggested changes to the text of the Rule are presented in red, below.

Revised Section 668.404(c)

(c) No earlier than the third calendar year following the end of the applicable twoyear period, (1) the Secretary obtains from the Social Security Administration (SSA) the 

most currently available mean and median annual earnings of the students who 

completed the program during the two-year period and who are not excluded under 

paragraph (e) of this section; and
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C. The Annual Loan Payment Calculation Should More Accurately Reflect 

Student Debt.

On Thursday, September 25th, the Department announced that it would be 

contacting certain borrowers to inform them of the availability and advantages of 

utilizing extended student loan payment plans, consistent with the White House 

initiative on affordability.2 However, the draft Rule proposes a number of changes that 

artificially increase the annual loan payment for many programs in a way that does not 

accurately reflect the debt created by the students’ enrollment. These changes include 

a shortened one-size-fits-all amortization period, using a higher interest rate than the 

rate that actually applies to many federal student loans, counting debt for noninstitutional costs, and eliminating the debt of non-Title IV program attendees from the 

calculation. 

Proposal: The Department Should Restore The Graduated Amortization Schedule 

By Credential Level. 

The draft Rule abandons the graduated amortization period and proposes to 

calculate D/E rates based upon a standard, 10-year repayment plan. However, the 10-

year amortization period significantly increases the annual loan payment that is 

necessary to pass the draft GE Rule. For example, for graduate loans at a 6.8% interest 

rate, going from a 20-year period to a 10-year period automatically increases the 

income required to pass the regulation by 50%. Moreover, Monroe College researched 

the experience of its borrowers in the 2011 cohort year. Of 2,456 borrowers in the 

cohort, 28.5% of borrowers utilized Income Based Repayment Plans or Pay as you Earn. 

The percentage of borrowers is expected to increase as the White House and the 

Department endeavor to actively promote these plans. We therefore respectfully 

request that the Department reinstate the graduated amortization schedule by 

credential level to ensure the amortization period accurately reflects the experience of 

Gainful Employment programs and at-risk students.

Proposal: The Interest Rate Used To Calculate The Annual Loan Payment Should 

Reflect The Actual Interest Rate On The Loans.

Proposed Section 668.404(b)(2) states that to calculate the annual loan payment, 

the Secretary will utilize the annual interest rate on Federal Direct Unsubsidized Loans 

for undergraduate students in effect on the day the Secretary calculates the D/E rates. 

However, the Department used 6.8% for the most recent draft informational rates, 

 

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See Tamar Levin, U.S. to Contact Borrowers With New Options for Repaying Student Loans, 

N.Y. TIMES, Sept. 24, 2013. 
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which is much higher than the current rate. The rate the Department will utilize to 

calculate the annual loan payment is thus still unclear. Nonetheless, the proposed 

regulation should be amended to use the actual interest rate the student is paying on 

his or her loans, or a rate that fairly represents the experience of borrowers in a 

program.

Proposal: The Department Should Reinstate The Tuition-Fee Cap.

The Department has not provided any explanation for its proposal to remove the 

provision to cap student debt at the amount the institution charged for tuition and fees. 

This is particularly troubling because one of the basic critiques and fundamental 

challenges of complying with the GE Rule is that it holds institutions accountable for 

student debt that institutions cannot control. 

During the last round of rulemaking, the Department recognized that without a 

tuition-fee cap, institutions may become responsible for students’ excess debt, even 

though it may result from student choice and not the cost of completing a program.3 

We therefore propose reinstating 34 C.F.R. 668.7(c)(2)(i)(A)(2) as originally promulgated 

in June 2011. As previously proposed, the regulation allows the Secretary to calculate 

the median loan debt utilizing the lesser of: (i) the amount of loan debt the student 

incurred; or (ii) the total amount of tuition and fees the institution charged the students, 

when provided by the institution. 

To incorporate these three proposals, our suggested changes to the text of the Rule are 

presented in red, below.

Revised Section 668.404(b)

(b) Annual loan payment. The secretary determines the annual loan payment for a 

program by –

(1) Determining the medial loan debt of the students who completed the program 

during the two-year period, based on the lesser of loan debt incurred by each student as 

determined under paragraph (d) of this section; and–

 

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See 76 Fed. Reg. 34116 (June 13, 2011)(“Nevertheless, for the purpose of calculating medial 

loan debt, the Department agrees to limit the total amount of loans a student incurs in 

completing a program to the total amount the institution charged the student for tuition and 

fees if the institution reports those amounts to the Department. Using the actual amount 

charged, instead of a derived or estimated amount, allows the Department to more accurately 

limit loan debt for the ratio calculations.”). 
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(i) The loan debt incurred by each student as determined under paragraph (d) 

of this section; or

(ii) If tuition and fee information is provided by the institution, the total 

amount of tuition and fees the institution charged the student for 

enrollment in all programs at the institution; and

(2) Amortizing the median loan debt over a 10-year repayment period using the 

annual interest rate on Federal Direct Unsubsidized Loans for undergraduate students in 

effect on the day the Secretary Calculates the D/E rates. Using the median loan debt for 

the program and (i) the interest rate in place when students initiated their Title IV, HEA 

loans and (ii) an interest rate of [XX] for private and institutional loans to calculate the 

annual loan payment based on—

(i) A 10-year repayment schedule for a program that leads to an 

undergraduate or post-baccalaureate certificate or to an associate’s 

degree; 

(ii) A 15-year repayment schedule for a program that leads to a bachelor’s or 

master’s degree; or 

(iii) A 20-year repayment schedule for a program that leads to a doctoral or 

first-professional degree. 

Proposal: The Annual Loan Payment Should More Accurately Reflect The 

Experience Of All Graduates, Not Just Title IV Students. 

The Department’s primary goal for the GE Rule is to “[D]efine what it means for a 

program to prepare a student for gainful employment in a recognized occupation.” 

However, the proposed Rule does not measure the entirety of the program since it 

omits a major group of students.4 In line with the District Court’s decision, the 

Department has chosen not to collect data on non-Title IV students. As a result, the 

proposed rates would not reflect the earnings of non-Title IV students as well as their 

debt or lack thereof. 

We believe the Department may not have recognized the extent to which 

removing non-Title IV students may artificially increase the median debt of a program by 

removing a group of students who, by definition, did not borrow under the federal loan 

programs. This impacts all sectors of higher education – public, non-profit, and 

proprietary. Many public institutions and community colleges engage in corporate 

training and grant-funded training. Many institutions in all sectors provide merit 

 

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For example, for the 2012-2013 year, 44% of Monroe College’s MBA graduates did not receive 

Title IV funds and would be excluded from the D/E calculations under the proposed Rule.
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scholarships, tuition waivers, and institutional grants that allow students to avoid loans. 

This revision to the GE Rule would penalize rather than encourage this laudable 

behavior. In addition, it ensures that the D/E rates would not provide an accurate 

picture of the program as a whole. When this issue is considered in addition to the 

proposed Rule’s standard 10-year amortization period, the elimination of the debt cap, 

and a single interest rate for all loans, the effect seems quite unfair.

In order to address these issues, we suggest amending section 668.405 “Issuing 

and Challenging GE Rates,” to permit institutions the option to include the private and 

institutional educational debt incurred by students who did not receive Title IV funding 

in the list of debts used to calculate the median debt. This change will address the 

fundamental unfairness and unintended consequences that are would result from 

excluding these students from the metric. We believe that the Department can develop 

a method to obtain and verify this information without violating the HEA or the District 

Court’s admonishment that the Department not collect personal data on any non-Title 

IV students.

Our suggested changes to the text of the Rule are presented in red, below.

NEW Section 668.405(c)(iii)

(iii) Add to the list the debt of all non-Title IV students who completed the program 

during the applicable two year period for the purposes of calculating the median debt of 

the program. 

(a)The Secretary, in its discretion, may require the institution to submit 

documentation verifying the student’s completion.