______________________________________________________________________________

January 17, 2018

Gainful Employment Negotiated Rulemaking Members

C/O U.S. Department of Education - scott.filter@ed.gov

400 Maryland Avenue, SW

Washington, DC  20202

Dear Friends:

Congratulations for being selected to provide guidance for the Department of Education regarding the nation’s Gainful Employment (GE) rules.  While each committee member brings a different perspective, our association is impressed with reports that all sides seem to be listening to others on the panel.  We appreciate this opportunity to submit our thoughts and suggestions as you move forward.

There are 112 Paul Mitchell Schools located in 39 states.  Nearly all of them are owned and operated by small business people – often husband and wife teams.  They make their living through running the school and in many cases, teaching cosmetology education to the students enrolled. 

We refer to our students as “future professionals” – an aspirational term chosen to inspire our students to greatness within the cosmetology industry. 

Last year over 9,600 future professionals graduated from Paul Mitchell Schools and we ended the year with over 13,000 students enrolled.  Of our graduates, 97 percent receive their state licenses each year and, nationwide, nearly 8 out of every 10 Paul Mitchell graduates have a job as soon as they are licensed. Simply put, we believe we provide a high-quality education in a field with high demand.

Like all cosmetology schools, our schools are regulated by state regulatory agencies as well as a variety of national and regional accrediting agencies, including the Accrediting Commission of Career Schools and Colleges (ACCSC), Accrediting Council for Continued Education & Training (ACCET), Council on Occupational Education (COE), and******National Accrediting Commission of Career Arts and Sciences (NACCAS).

It’s important to note from a taxpayer perspective, our graduates have a student loan repayment rate that exceeds the national average for all institutions.  You’ll see from the table below that our student default rate for FY 2014 was 11 percent. 

That’s better than the average for public institutions and better than the average for those who attended proprietary for-profit schools.  The only group that beats us are the private schools – such as Harvard, Yale, Notre Dame and Stanford.  Here’s how we stack up:

Paul Mitchell Schools –**Loan Default Rates Better Than Most Other Sectors**

Despite the fact that our students have better-than-average student loan repayment rates, when the Gainful Employment assessments were sent out by the Department of Education, 38 of the 112 Paul Mitchell Schools had a program in the zone or failing.

Combined, we estimate our school owners spent over $500,000 complying with the GE regulations. We estimate the time spent dedicated to the survey along with auditor expenses cost each school between $10,000-$15,000 —a significant expense for any small businesses.  Many smaller “mom and pop” schools, which are not part of a corporate family like ours***,***do not have the financial wherewithal to cover the costs of uncovering the extensive rebuttal data that we have accumulated, even though they are likely to have similar responses from their graduates.  Sadly, many of the stand-alone schools have since gone out of business.

The expenses our schools incurred complying with GE regulations came in large part from contacting past students to find out “what they really made.”  That was not a comfortable situation for either school owners who had to ask sensitive, personal questions, nor was the process comfortable for students, many of whom had to be financially incentivized to provide accurate data they had too often underreported to the IRS/Social Security.

We were frankly stunned when the data came in.  The average for underreported income was 63.5% higher than those provided to the Department of Education by the Social Security Administration. The underreporting of income we uncovered ranged from 11.2% at a school in the Midwest to 157.1% for graduates at a school on the West Coast. The new data moved all but a handful of the programs into the passing category—including 10 of the 15 programs that originally were failing. The five programs that moved from failing to “the zone” were still able to show significant increases to their income data. 

From our viewpoint, the data have confirmed what we said in our comments about GE when the regulations were being developed – that individuals in a largely cash and tip-based industry are known to underreport their income to the IRS and that the U.S. Department of Education’s failure to take that into account would negatively impact our industry. Now we have hard numbers derived from the survey administered to the Department’s high requirements. 

On behalf of Paul Mitchell Schools specifically and the cosmetology school industry in general, it is our express hope that the committee will review the data we’ve presented and: 

1. Consider excluding cosmetology and similar programs from future application of any new Gainful Employment regulations.

2. Any new regulations should not be overly burdensome nor expensive to comply with. 

3. Income obtained in cash and tip-based industries, such as cosmetology, should be automatically adjusted to reflect the type of real-world findings we’ve uncovered, i.e., students in failing schools underreported their income by an average of 65.2%.

4. Any future data requirements should be prospective and not retrospective, i.e., schools should not be held accountable, or required, to spend limited money and resources tracking down graduates.

a. Future contracts between schools and students would need to clearly state that graduates may be required to report their actual income to the school to be aggregated for use by the school.

b. Future contracts should require students to maintain contact with the schools.  If students fail to maintain contact, schools should not be held accountable and should not be required to spend time as limited money and resources tracking them down.

5. We believe that a high licensure and job placement rate upon graduation should be considered as a mitigating factor in any future GE calculation.

6. We also believe that loan repayments should also be a mitigating factor in any future GE calculation.

Sincerely,

Donna Waite

President 

Paul Mitchell The Schools Franchisee Association

P.S.  If you have any questions, please direct those to: 

	Jeff Schrade – jschrade@policyimpact.com

	Cell: 202-870-3277 

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