The Biden administration announced a final rule Thursday that aims to protect borrowers from for-profit colleges and certificate programs that have poor outcomes and leave students with “unaffordable debt.”
The administration said the final rule has two key elements: strengthening the gainful employment (GE) rule and creating a new Financial Value Transparency (FVT) framework.
The GE rule says private, for-profit colleges or certificate programs must have at least half of graduates earn more than high school degree holders in their state, and the amount of money a graduate must put toward their student loans has to be less or equal to 8 percent of their annual earnings.
Programs that fail either measure must warn students of the risk of their program and if they fail twice in three years the program will be cut off from federal student aid programs.
The FVT framework will give new reporting requirements to institutions so potential students know the likely out-of-pocket cost they will have to pay, how much debt they could garner and what they can make after they graduate. Students will be required to acknowledge they saw this information before enrolling in their program.
“Today’s final rules answer President Biden’s call to hold colleges accountable for rising costs and protect students from unaffordable college debt,” Secretary of Education Miguel Cardona said. “We are fixing a broken system and making sure that students know, before they take out loans, when college programs have a history of leaving graduates with high debts, low earnings, and poor career prospects. The Biden-Harris administration believes that when students invest in higher education, they should get a solid return on their investment and a greater shot at the American dream.”
The changes can protect hundreds of thousands of students considering programs that may not have the best track records with student debt and potential earnings afterward, according to the department.
The new rule will go into effect July 1.