Close-up Of A Businesswoman's Hand Looking At Contract Form Through Magnifying Glass
Last year, Education Secretary Betsy DeVos repealed the Gainful Employment (GE) rule, an Obama-era regulation that targeted mainly for-profit colleges where graduates owed high debts relative to their earnings. While this was a decent goal, the rule applied to so few academic programs that it protected only 16% of college students. Hence, DeVos aims to replace the rule with more detailed student outcomes data on all programs (an initiative still in the works). The catch is that under DeVos’ replacement, poorly-performing colleges will not face any penalties.
This sparked a debate in higher-education policy circles about whether transparency is enough to hold colleges accountable for student outcomes, or whether regulators also need to impose penalties on poor-quality schools. Though the Gainful Employment rule threatened educational programs with a loss of eligibility for federal student aid if they didn’t meet certain benchmarks, such accountability also required the collection and release of mountains of new data: a major step forward for transparency as well.
The Trump administration scrapped the GE rule before any of its penalties could take effect. But did the transparency aspect of GE—the mere release of data showing which programs are good investments and which ones are rip-offs—have any impact? In other words, did poorly-performing programs shut down in the wake of the data release? According to a new working paper by Robert Kelchen and Zhuoyao Liu of Seton Hall University, the answer is a resounding “yes.”
The GE rule calculated the ratio of each educational program’s student debt burden to its typical earnings after graduation, and, depending on the results, categorized each program as “passing,” “failing,” or an in-between category known as the “zone.” Two years after the data were released, Kelchen and Liu examined which programs had since closed. A program might close because its parent institution discontinued it, or because the parent institution shut down entirely.
Source: Kelchen & Liu (2019)
While 71% of programs with passable outcomes under GE are still open today, the same is true for just 60% of zone programs and a pitiful 43% of failing programs. Most defunct programs—pass, zone, or fail—closed because their parent institutions shut their doors, though a handful were closed even as their colleges stayed open.
Moreover, Kelchen and Liu used a technique called regression discontinuity analysis to examine whether programs that had just barely made a passing grade were more likely to stay open than programs which were just below the cutoff. Barely-passing programs were three to five percentage points more likely to stay open. Not only did transparency discipline the higher education marketplace, but the mere shame of receiving a non-passing grade was enough to force some colleges and programs out of business.
Recall that despite the release of the data and program grades, no penalties had yet been imposed on any program. Moreover, colleges had little reason to expect forthcoming penalties, given that the Trump administration was preparing to take office at the time of the data release, and incoming Education Secretary Betsy DeVos was not keen on maintaining the Gainful Employment rule.
This doesn’t necessarily mean that potential students were looking at the Education Department’s website and choosing an educational program based on its GE grade. But it does imply that other stakeholders—college leaders, investors, and accreditors—take data seriously and use it to make business decisions. We shouldn’t discount the possibility that many for-profit colleges didn’t even know how poor student outcomes for certain programs were; after all, the graduate earnings data for the GE rule comes from non-public government datasets.
Journalists, too, use the Gainful Employment data to “name and shame” colleges with abysmal outcomes. Even Harvard University suspended a theater program after a New York Times report drew attention to its questionable performance on GE. However, Harvard’s program only appeared on GE’s radar because it was labeled a “certificate” rather than a “degree.” There is no public data on the 84% of college students enrolled in degree programs at public or private nonprofit colleges, which are not subject to GE.
Secretary DeVos’ plan to release comprehensive outcomes data for all programs, therefore, could have powerful implications for the higher education marketplace as a whole. Though the Education Department published a preliminary dataset to this effect earlier this year, the initiative is still in progress. The Gainful Employment experience shows that transparency is an important tool to ensure students end up in high-quality educational programs. We should deploy it more often.
