Accountability in Higher Education and Access Through Demand- Driven Workforce Pell: Student Tuition and Transparency System (STATS) and Earnings Accountability

As shown in the prior analysis, the final regulations will result in costs and benefits for various entities. Specifically, the Department anticipates that certain students and institutions will incur new costs, along with the Department, and by extension, taxpayers. Further, the Department anticipates that certain students, institutions, and the Department itself will incur new benefits because of the final regulations. Costs of the Final Regulations

The final regulations will result in costs to students, institutions, and taxpayers. We discuss these costs in that order.

Students will experience costs due to the impact the final regulation would have on certain programs. Some students--especially current and prospective students in public and private non-profit degree programs--attend programs that would fail the accountability framework under the final regulation but pass under the current regulation (shown in Tables 5.12 and 5.14). Institutions may choose to close these programs due to the loss of eligibility for Federal student loans. Students in these programs may be negatively impacted if they desire to attend those closed programs despite the low-earning outcomes. For example, some Drama programs may close due to the final regulations, but students may desire to attend these programs for reasons other than the monetary return.

Certain students in specific fields of study may be disproportionately impacted by the final regulation (Tables 5.18 and 5.20) and may therefore experience higher costs. At the undergraduate level, students in Humanities/Liberal Arts programs, Education programs, and Fine Arts programs will be most impacted. At the graduate level, students in Computer/IT programs, Health-related programs (such as Mental/Social Health Services & Allied Professions), Religious Studies programs, and Humanities/Liberal Arts programs will be most impacted (Tables 5.18 and 5.20). Thus, current, former, and prospective students pursuing credentials in these specific fields of study are most likely to experience costs associated with the final regulations due to the high rates of program closures that may occur in these fields.

In some cases, program closures may occur abruptly and cause further disruption for enrolled students.\79\ If closures are sudden, students may inadvertently cease their enrollment if they are not instructed on how to transfer. Other students may choose to end their postsecondary education if there are no substitutable programs to attend. For students who choose to remain enrolled, program closure may force them to change majors or transfer to a different institution, imposing search costs and possible financial costs on affected students.

\79\ The Department has attempted to mitigate these disruptions by including a teach-out provision in the final regulations that allows programs to implement an orderly program closure.

The final regulation may also impose reputational costs on the former graduates of failing programs. Graduates from degree programs in the public and non-profit sectors would be most impacted, as certain programs in these sectors are more likely to fail the accountability framework under the final regulation relative to the baseline (Tables 5.12 and 5.14). Prospective job applicants who formerly graduated from these failing programs may become disadvantaged in the labor market relative to other job applicants from non-failing programs. For example, employers may view degrees awarded from failing programs as less valuable. This would occur if failing the accountability framework under the final regulations sends a negative signal to employers about the graduates' former program quality, potentially impacting the ability for graduates to find employment.

Lastly, certain students pursuing undergraduate certificates may also experience new costs. The accountability framework under the final regulation will allow more programs at that credential level to remain eligible for title IV, HEA funds (Table 5.12), and some of these programs leave students with relatively lower earnings. The typical earnings of students who attend passing undergraduate certificate programs under the final regulations are slightly lower than the typical earnings of passing programs under the current regulations (Table 6.1, column 1 vs. 2). Furthermore, earnings are lower for students who complete programs that pass the accountability framework under the final regulation but fail it under the current regulation (columns 1 vs. 4). These students may be negatively impacted by the final regulation because they may be better off not attending such programs, though it is difficult for the Department to estimate a proper counterfactual for these students. BILLING CODE 4000-01-P [GRAPHIC] [TIFF OMITTED] TR01JY26.068

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The second group that will experience costs are institutions of higher education; more specifically, institutions of higher education that participate in title IV, HEA programs. These costs will vary across institutions depending on the extent to which they offer GE- programs vs. non-GE programs. While the current regulation calculates the EP and D/E metrics for non-GE programs, those programs are not subject to sanctions (loss of all title IV eligibility) if they fail those metrics. Under the final regulation, all programs--regardless of credential level and the sector of the institution at which they are offered--are now subject to sanctions (loss of Federal student loan eligibility, and the potential loss of Federal Pell Grant eligibility through the Standards of Administrative Capability requirements) for failing the accountability framework.\80\

\80\ Certain programs may not be subject to the accountability framework under the final regulation if certain data are not available. For example, programs with fewer than 30 title IV, HEA completers after the cohort expansion process would not be subject to the earnings test in this final regulation.

In other words, some non-GE programs will lose access to Federal student loans due to the final regulations because these programs will be covered by the accountability framework for the first time. Without access to Federal student loans, these programs may experience enrollment declines, ultimately resulting in lost revenue to the institutions that offer them. This loss in revenue may exceed the loss in Federal student loan revenue because institutions often receive additional revenues from students who pay tuition and fees using non- Federal resources.

Next, some institutions will incur new costs due to the loss of Pell Grant eligibility for certain programs. Programs lose Pell Grant eligibility, in addition to Federal student loan eligibility, if they are offered at institutions that fail the standards of administrative capability under the final regulations.\81\ For degree programs offered at public and non-profit

institutions, this marks the first time they could lose access to Federal Pell Grant eligibility due to low-earning outcomes of their former students.\82\ This loss in Pell Grant revenue may drive further enrollment and revenue declines and, for some institutions, lead them to close their institution altogether.

\81\ The final regulations include a provision that allows failing programs to voluntarily opt-out of the Federal student loan program after the first year the program fails the earning test. Programs that exercise this option will avoid the sanctions that could occur under the Standards of Administrative Capability policy.

\82\ Note that only degree programs at public and non-profit institutions stand to incur new costs related to loss of Pell Grant eligibility, because these programs are exempt from the accountability framework under the current regulation.

The Department estimates that certain public institutions and private non-profit institutions will incur greater costs from the final regulations relative to the current regulations. Specifically, public and private non-profit institutions offering large shares of associate's degree programs, bachelor's degree programs, and master's degree programs will incur the largest costs, as these programs are projected to fail the accountability framework under the final regulation at the highest rates relative to the current regulations (Tables 5.13 and 5.14).

Additionally, certain types of institutions (including HBCUs, those located in U.S. territories, and those that exclusively offer Humanities/Liberal Arts programs) may be uniquely impacted because they offer programs that are anticipated to fail the accountability framework under the final regulation at the highest rates relative to the baseline (Tables 5.10, 5.18, and 5.20).

These institutions may struggle to recruit and enroll students if they obtain a reputation for offering low-quality educational services as a result of offering programs that fail the accountability framework in the final regulation. Ultimately, these institutions may incur financial costs due to lost tuition revenue from students who now choose to avoid these institutions due to reputational risks.

Further, institutions that offer programs that fail the accountability framework under the final regulation but pass under the current regulation (e.g., degree programs at public and non-profit institutions) will experience new costs related to compliance. First, institutions with failing programs must notify students in those programs to alert them of the failing status. Tracking and alerting students will create administrative costs for institutions if they must hire additional staff to manage this process. Even if institutions do not hire new staff to oversee this process, they may still experience non-monetary costs if these regulations require colleges to divert their existing staff away from other essential activities. Second, institutions may choose to appeal the Department's determination of a failing program. This process will impose administrative costs and (potentially) legal costs on institutions who choose to exercise this option.

Taxpayers are the third group that will experience costs. They will incur costs from the budgetary costs due to increased transfers of title IV loans to GE programs that now pass the accountability framework under the final regulation but fail under current regulation. As noted in the accounting statement (Table 7.12), these annualized costs are approximately $149 million at a 3 percent discount rate.

Taxpayers will also incur budgetary costs due to increased transfers of Pell Grants to programs. Unlike the current regulation, programs that fail the accountability framework under the final regulation remain eligible for Pell Grants unless they are offered at institutions do not meet the standards for administrative capability. As noted in the accounting statement (Table 7.12), these annualized costs are approximately $871 million at a 3 percent discount rate.

Taxpayers may also face costs if the loss of title IV revenue and enrollment under the final regulation causes institutions to close. Under 34 CFR 685.214, students who are enrolled at an institution upon closure (or withdraw within 180 days of such closure) and do not complete their program may be eligible for discharges on their federal student loans if they are unable to complete their program at another institution. Thus, for institutions that close because of the final accountability framework, there may be some cost to taxpayers if those closures result in additional loan discharges that may not have occurred if the final regulations were not in place.\83\

\83\ Note that this cost to taxpayers only includes public and non-profit institution closures, because these institutions offer programs that are subject to an accountability framework for the first time. Costs associated with closing proprietary institutions are not considered a cost to taxpayers because these institutions were more likely to close under the current regulation relative to the final regulation, since the current regulation had a stricter accountability framework and removed eligibility for both Federal student loans and Pell Grants.

The Department, and by extension the taxpayer, is the final group that will experience costs due to the final regulation. Costs to the Department are due to the administrative costs needed to implement the changes to the Federal student loan and Pell Grant programs. We estimate that, based on comparable changes made in the past, those administrative costs would average approximately $6.6 million (using a 3 percent discount rate, Table 7.12) in systems modifications, contract changes, and staffing on an annualized basis over the 2026-2035 period. Most of these estimated costs will be incurred during the first two years of implementation.

To implement the changes under this final regulation, the Department needs to update its systems for loan and grant origination to align with the new eligibility rules for programs of study in order to correctly identify programs that maintain or lose eligibility. This includes changes to the Common Origination and Disbursement (COD) system, which supports origination, disbursement, and reporting for Direct Loan, Pell Grant, and the Teacher Education Assistance for College and Higher Education (TEACH) Grant programs. The system uses a single “Common Record” (XML format) for efficiency and elimination of duplicate student and borrower data, providing a centralized system for title IV program administration used by the Department and all institutions that participate in the delivery of Federal student aid.

The Department must also update the National Student Loan Data System (NSLDS), which is the central database for all disbursements made through title IV, HEA programs. NSLDS tracks title IV loans and grants through their entire lifecycle, from approval to repayment or closure. The system provides an integrated view for institutions and the Department to track aid, loan status, and enrollment. It consolidates data from schools, lenders, and programs, enabling users to access loan history, disbursement details, and servicer information via the FSA Partner Connect portal. The NSLDS system provides the Department with the data needed to identify program enrollment and completer cohorts that are central to administering the earnings-based eligibility tests in the final regulation.

While most of the administrative costs the Department will incur implementing the WFTCA occur in the first few years, the Department will incur long-term administrative costs for maintaining the Department's COD, NSLDS, and other system changes in future years to account for ongoing development, operations, and maintenance.

The Department expects to incur additional administrative costs to train and support institutions of higher education that now must align their procedures and systems with the new eligibility rules for loans, grants, and programs of study. The Department must also modify its internal systems

and amend its data-sharing agreement with a federal agency with earnings data, which will be used to annually determine program eligibility under the new and modified earnings tests. The Department will incur minor, long-term administrative costs associated with the earnings tests and maintaining a data-sharing agreement with a federal agency with earnings data. As shown in Table 7.12, these costs will average $1.9 million on an annualized basis (3% discount rate). Approximately 70% of these costs will support the data-sharing agreement with a federal agency with earnings data. The balance of the funds will be used to maintain the NSLDS system to support the annual operations of the accountability framework in the final regulation. Benefits of the Final Regulations

The final regulations provide benefits to students, institutions of higher education, and the Department. These benefits are discussed in that order.

Students will benefit in several ways due to the final regulations. First, students in non-GE programs may experience higher earnings outcomes. Under the current regulations, these programs were exempt from the accountability framework, but under the final regulation, low- earning non-GE programs at public and non-profit institutions can lose eligibility for title IV, HEA funds. Students benefit because, in the absence of the final regulation, they may have attended these low- earning outcome programs and were at a heightened likelihood of experiencing financial harm as a result. The Department estimates that approximately 163,000 title IV, HEA students attend programs at public and non-profit institutions that will fail the accountability framework under the final regulation but would have passed under the current regulation (Table 5.14).

Certain students may also benefit due to the final regulation better positioning them to pay back their student loans through the possibility of higher earnings outcomes that occur as a result of low- earning outcome programs that close. As shown in Table 6.1, the typical earnings of students from passing associate and master's degree programs under the final regulation are slightly higher than the earnings of students who attended passing programs under the current regulation. This is because many low-earning associate and master's degree programs are offered at public and non-profit institutions, which were exempt from the accountability framework under the current regulations. Similarly, debt levels are lower, on average, for programs that pass the accountability framework in the final regulation relative to passing programs under the current regulation (Table 6.2). Default rates are roughly equivalent among programs that pass the accountability framework under the current and final regulations, though some credential levels (e.g., master's, doctoral, and graduate certificates) have lower default rates under the final regulations (Table 6.3). These estimates suggest that some students may be better positioned to pay back their loans as a result of the final regulation, which would benefit those students if it saves them from experiencing these adverse outcomes related to debt and default. BILLING CODE 4000-01-P [GRAPHIC] [TIFF OMITTED] TR01JY26.069

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Additionally, students who attend non-GE programs may benefit if institutions take measures to improve programs that are at risk of failing the accountability framework. Institutions offering non-GE programs had little incentive to improve these programs under the current regulations since these programs were exempt from the accountability framework. Given that they are subject to the accountability framework under the final regulation, institutions may choose to begin offering better student services, working with employers to ensure graduates have in-demand skills, and helping students with career planning, or risk losing access to title IV, HEA funds. These efforts may lead to better graduation rates and labor market outcomes for students.\84\

\84\ This is not a benefit for students who attend proprietary institution programs since these institutions face a less punitive accountability framework under the final regulations relative to the current regulations.

Lastly, a subgroup of students in GE programs may benefit from the final regulations. This would occur when two conditions are met: first, the GE program they attend passes the accountability framework under the final regulation but fails under the current regulations, and second, if the students in those programs desire to attend despite the earnings outcomes of the program. For this unique group of students, they benefit because they can continue receiving Federal student loans and Pell Grants to attend their program under the final regulation, and these students may attain other non-monetary benefits because they are able to continue their education in their desired program.

Institutions will also benefit from the final regulations in several ways. First, institutions will benefit from the reduced reporting requirements under the final regulation relative to the reporting requirements under the existing FVT regulations. In total, the final regulation reduces the number of data elements that institutions are required to report by approximately 30 percent. Many of these are elements the Department determined it can calculate and report through its administrative data systems (e.g., withdraw dates) and the Department will continue to report this information publicly under STATS. Because institutions no longer need to calculate and report this information, they will incur reduced administrative costs to comply with the final regulations.

Second, some institutions offer programs that fail the accountability framework under the current regulations but will pass under the final regulation and retain access to title IV, HEA funds. The Department estimates that this would primarily benefit programs at proprietary institutions and undergraduate and graduate certificate programs from all sectors (Table 5.16).

Lastly, many institutions that offer GE programs will benefit from the fact that failing the accountability framework under the final regulation usually results in loss of eligibility for Federal student loans. To better understand this benefit, Table 6.4 decomposes the overall change in title IV, HEA funds disbursed to failing programs (Panel A) by separately showing the estimated change in Federal student loan disbursements (Panel B) and Pell Grant disbursements (Panel C).\85\ As shown in Panel B, we estimate a similar share of

Federal student loans are disbursed in failing programs under both the current and final regulations. This is because the increase in failing associate, master's, and professional degree programs under the final rule is almost completely offset by the reduction in failing undergraduate certificate programs in terms of the amount of loan disbursements to these programs.

\85\ Note that programs only lose eligibility for Pell Grants under the final regulation if they are at an institution that fails the standards of administrative capability requirements.

This differs from Panel C, where we estimate a smaller share of total Pell Grant volume will be disbursed to failing programs under the final regulation (5.8 percent) relative to the share of Pell volume disbursed to failing programs under the current regulation (7.3 percent). In other words, the final regulation cuts of a smaller share of Pell Grant disbursements to failing programs relative to the share cut off under the current regulations. The reduction is driven by undergraduate certificate programs: under the current regulations, these programs were expected to lose half (51 percent) of their total Pell Grant volume, whereas under the final regulations these programs are estimated to lose approximately one-third (34.6 percent) of their Pell Grant volume. This suggests institutions offering undergraduate certificates will benefit, as more of these programs will maintain access to Pell Grants under the final regulation. Maintaining eligibility for Pell Grants may buffer enrollment declines at these institutions and help their program continue to operate. BILLING CODE 4000-011-P

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The Department, and by extension taxpayers, will also benefit from the final regulation. This is largely from a streamlined and simplified administrative process for the GE regulation. The final regulation removes the complicated D/E metric from the current accountability framework, which will reduce burden and save

administrative costs, ultimately benefitting the taxpayers that fund the Department of Education.

This section describes the methodology used to estimate the budget impact of the proposed regulations. The main behaviors that drive the direction and magnitudes of the budget impacts of the proposed regulations are the performance of programs and the enrollment and borrowing decisions of students. The Department developed a model based on assumptions regarding enrollment, program performance, student response to program performance, and average amount of title IV, HEA funds per student to estimate the budget impact of these proposed regulations. These assumptions and results vary from those in the “Impact of the Proposed Regulations” section, consistent with the Federal Credit Reform Act of 1990. The model (1) uses PPD:2026 to synthesize programs' results on the earnings premium measure to predict future results, and (2) tracks programs' cumulative results across multiple cycles of results to determine title IV, HEA loan eligibility and estimated effects on borrowing and Pell Grant receipt. While programs will be defined at the six-digit CIP level for the regulation, the data file includes two-digit and four-digit CIP codes that are used in our estimation process. As described in Section 5 (“Impact of the Final Regulation”), the Department estimated which programs would be exempt from the accountability framework under these regulations, including those that are unlikely to meet the minimum size requirements under the simpler roll-up process, those that did not participate in the Federal student loan program for five years prior to the enactment of the WFTCA, and those that may opt-out of participation in the Direct Loans program after failing the earnings premium test after the first year. Assumptions

Assumptions were made in four areas to estimate the budget impact of the proposed regulations: (1) Program performance under the proposed regulations (initial and continued); (2) Student behavior in response to program performance; (3) Borrowing of students under the proposed regulations; and (4) Enrollment growth of students in passing and failing programs. Table 7.2 provides an overview of the main categories of assumptions and sources. Assumptions that are included in our sensitivity analysis are also noted. Wherever possible, our assumptions are based on past performance and student enrollment patterns in data maintained by the Department or documented by scholars in prior research.

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The methodology, described in more detail below, models title IV, HEA enrollment over time not for specific programs, but rather by groups of programs by broad credential level and control, the number of alternative programs available, and whether groups of programs pass or fail the relevant performance measure. The model estimates the flow of students between these groups due to changes in program performance over time and reflects assumptions for the share of enrollment that would transition between the following two performance categories in each year:

Passing (includes with and without data, exempt programs and programs that fail the first earnings premium test and are assumed to opt out of Direct Loans).

Failing earnings premium measure.

A program becomes ineligible if it fails the earnings premium measure in

two out of three consecutive years.\88\ The model applies the same program transition assumptions across the budget estimation window. All transition probabilities are estimated separately for four aggregate groups: proprietary 2-year or less; public or non-profit 2-year or less; 4-year programs; and graduate programs.\89\

\88\ Factors, such as in-state percentage, contribute to the earnings threshold used at the program-level and are incorporated into the public data file used in this analysis. For more information, see Table 5.5 in the “Methodology for Final Regulation Calculations” section.

\89\ The budget simulations separate lower and upper division enrollment in 4-year programs. We assume the same program transition rates for both.

The assumptions for program transition are taken directly from an observed comparison of actual rates in the PPD:2026 data results. The initial assignment of performance categories in 2027 is based on the PPD:2026 for students who completed programs during the 2017-18 and 2018-19 award years, whose earnings are measured in calendar years 2022 and 2023, respectively (adjusted to constant 2024 dollars using CPI-U). The program transition assumptions for 2027 to 2036 are based on the outcomes for this cohort of students. Programs with fewer than 30 title IV completers are determined to be passing, because these programs do not meet the minimum size requirements in the regulation to determine a program median earnings value and will therefore have a “Not Calculated” outcome when determining if these programs pass or fail the EP metric.

As the earnings premium measure in this regulation is backwards looking, it is not expected for there to be much churn between failing and passing for programs across consecutive years. It is expected for there to realistically be a small amount of movement around the earnings thresholds. To simulate this, the percentage of programs within a 1 percent band of their earnings threshold (0.5 percent on either side) were calculated for each group. The percentage of programs within the band, dependent on their initial status, were applied to calculate the share of enrollment that transitions from passing to failing or failing to passing. The percentages of programs outside of the band, dependent on their initial status, were applied to calculate the share of enrollment that remain passing or failing. The share of enrollment that transitions from each performance category to another is computed separately for each group. An alternative assumption was incorporated by increasing the band from 1 percent to 2 percent for calculating these transitions in the sensitivity analysis. [GRAPHIC] [TIFF OMITTED] TR01JY26.076

The Department's model applies assumptions for the probability that a current or potential student would transfer or choose a different program, remain in or choose the same program, or withdraw from or not enroll in any postsecondary program in reaction to a program's performance. The model assumes that student response would be greater when a program becomes ineligible for title IV, HEA loans than when a program has a single year of inadequate performance, which initiates warnings and publicly disclosed performance information. The rates of transfer and withdrawal or non-enrollment differ with the number of alternative transfer options available to students enrolled (or planning to enroll) in a failing program. Specifically, individual programs are categorized into one of four categories:

High transfer options: Have at least one passing program in the same credential level at the same institution and in a related field (as indicated by being in the same 2-digit CIP code).

Medium transfer options: Have a passing transfer option within the same ZIP3, credential level, and narrow field (4-digit CIP code).

Low transfer options: Have a passing transfer option within the same ZIP3, credential level, and broad (2-digit) CIP code.

Few transfer options: Do not have a passing transfer option within the same ZIP3, credential level, and broad (2-digit) CIP code. Students in these programs would be required to enroll in either a distance education program or

enroll outside their ZIP3. Over 99 percent of failing programs have at least one non-failing program at the same credential level and 2-digit CIP code in the same State.

For each of the four categories above, assumptions are made for each type of student transition. Programs with passing metrics are assumed to retain all their students. Students from programs with failing metrics that transfer are assumed to transfer to passing programs. It is assumed that rates of withdrawal (or non-enrollment) and transfer are higher for ineligible programs than those where only the warning is required. It is also assumed that rates of transfer are decreasing (and rates of dropout and remaining in programs are both increasing) as students have fewer transfer options. These assumptions regarding student responses to program results are provided in Table 7.5. BILLING CODE 4000-01-P [GRAPHIC] [TIFF OMITTED] TR01JY26.077

The assumptions for student responses are applied to the estimated enrollment in each aggregate group after factoring in enrollment growth. Table 7.6, includes details of the assumptions of the destinations among students who transfer, separately for the following groups: \90\

\90\ Lower division includes students in their first two years of undergraduate education. Upper division includes students in their third year or higher.

Risk 1 (Proprietary Risk 2 (Public, Non-Profit Risk 3 (Lower division 4 year).

Risk 4 (Upper division 4 year).

Risk 5 (Graduate).

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The values in the student response tables are based on assumptions from extant research that we view as reasonable guides to the share of students likely to transfer to or choose another program when their program loses title IV, HEA eligibility. For instance, a 2021 Government Accountability Office (GAO) report found that about half of non-completing students who were enrolled at closed institutions transferred.\91\ This magnitude is similar to recent analysis that found that 47 percent of students reenrolled in another program after an institutional closure.\92\ The authors of this report find very little movement from public or non-profit institutions into proprietary institutions, but considerable movement in the other direction. For example, about half of re-enrollees at closed proprietary, 2-year institutions moved to public 2-year institutions, whereas less than 3 percent of re-enrollees at closed public and private non-profit 4-year institutions moved to proprietary institutions. Other evidence from historical cohort default rate sanctions indicates a transfer rate of about half of students at proprietary colleges that were subject to loss of federal financial aid disbursement eligibility, with much of that shift to public two-year institutions.\93\ The Department also considered an internal analysis of ITT Technical Institute

closures. About half of students subject to the closure re-enrolled elsewhere (relative to pre-closure patterns). The majority of students that re-enrolled did so in the same two-digit CIP code. Of associate's degree students that re-enrolled, 45 percent transferred to a public institution, 41 percent transferred to a different proprietary institution, and 13 percent transferred to a private non-profit institution. Most remained in associate's or certificate programs. Of bachelor's degree students that re-enrolled, 54 percent transferred to a different proprietary institution, 25 percent shifted to a public institution, and 21 percent transferred to a private non-profit institution.

\91\ U.S. Government Accountability Office. “College Closures: Education Should Improve Outreach to Borrowers about Loan Discharges.” July 15,2022. www.gao.gov/products/gao-22-104403.

\92\ State Higher Education Executive Officers Association (2022). “More Than 100,000 Students Experienced An Abrupt Campus Closure Between July 2004 and June 2020. November 15,2022. sheeo.org/more-than-100000-students-experienced-an-abrupt-campus- closure-between-july-2004-and-june-2020/.

\93\ Cellini, S. R., Darolia, R., & Turner, L. J. (2020). Where do students go when for-profit colleges lose federal aid? American Economic Journal: Economic Policy, 12(2), 46-83.

Data from the Beginning Postsecondary Students Longitudinal 2012/ 2017 study provides further information on students' general patterns through and across postsecondary institutions (not specific to responses to sanctions or closures). Of students that started at a public or private non-profit 4-year institution, about 3 percent shifted to a proprietary institution within 5 years. Of those that began at a public or private non-profit 2-year institution, about 8 percent shifted to a proprietary institution within 5 years. Student Borrowing Assumptions

To incorporate changes in average loan volume associated with student transitions, the average subsidized and unsubsidized direct loan, Grad PLUS, and Parent PLUS per student enrolled are computed separately by risk group and program performance group. For programs assumed to fail the first earnings premium calculation and opt out of loan program participation, this effect is captured by zeroing out their loan volumes in the calculation of the average loan amounts. These averages are then applied to shifts in enrollment to generate changes in the amount of aid. The baseline incorporates the sunsetting of Grad PLUS loans due to the WFTCA. Students that drop out of (or decline to enroll in) failing programs are assumed to acquire no educational debt. Process for Net Budget Impact Estimate

The budget model estimates a yearly enrollment for AYs 2027 to 2036 and the distribution of those enrollments in programs is characterized by earnings premium measure performance, risk group, and transfer category. This enrollment is projected for a baseline (in absence of the accountability framework) and under the legislative changes implemented in the proposed regulations. The net budget impact for each year is calculated by applying assumptions regarding the average amount of title IV, HEA program funds received by these distributions of enrollments across groups of programs. The difference in these two scenarios provides the Department's estimate of the impact of the accountability framework. We do not simulate the impact of the rule at the individual program level because doing so would necessitate very specific assumptions about which programs students transfer to in response to the proposed regulations. Therefore, for the purposes of budget modeling, we perform analysis with aggregations of programs into groups (called “program aggregate” groups) defined by the following:

Five student loan model risk groups: (1) 2-year (and below) proprietary; (2) 2-year (and below) public or non-profit; (3) 4- year (any control) lower division, which is students in their first two years of a Bachelor's program; (4) 4-year (any control) upper division, which is students beyond their first two years of a Bachelor's program; (5) Graduate student (any control).

Four transfer categories (high, medium, low, few alternatives) by which the student transfer rates are assumed to differ. This is an initially assigned program-level characteristic and is assumed not to change.

Four performance categories: Pass, Fail earnings premium measure, Pre-ineligible (a program's current enrollment is title IV, HEA eligible, but next year's enrollment would not be), Ineligible (current enrollment is not title IV, HEA eligible).

We first generate a projected baseline (in absence of the accountability framework) enrollment, Pell volume, and loan volume for each of the program aggregate groups from AYs 2027 to 2037. This baseline projection includes several steps. First, we compute average annual growth rate for each control by credential level from 2016 to 2025. These growth rates are presented in Table 7.3. We then apply these annual growth rates to the actual enrollment by program in 2025 to forecast enrollment in each program in 2026. This step is repeated for each year to get projected enrollment by program through 2037. We then compute average Pell, subsidized and unsubsidized direct loan, Grad PLUS, and Parent PLUS per enrollment by risk group and program performance group for 2025. These averages are then adjusted according to the President's Budget FY2027 assumptions loan volume and Pell Grant baseline assumptions for the change in average loan by loan type and the change in average Pell Grant. We then multiply the projected enrollment for each program by these average aid amounts to get projected total aid volume by program through 2037. Finally, we sum the enrollment and aid amounts across programs for each year to get enrollment and aid volume by program aggregate group, AYs 2027 to 2037, and shift the baseline Pell and loan volume from AYs 2027 to 2037 to FYs 2027 to 2036 for calculating budget cost estimates.

The most significant task is to generate projected enrollment, Pell volume, and loan volume for each of the program aggregate groups from AYs 2027 to 2037 with the proposed accountability framework in place. We assume the first set of rates would be released in the 2027 award year, so this is the starting year for our projections. Projecting counterfactual enrollment and aid volumes involves several steps:

Step 1: Start with the enrollment by program aggregate group in 2027. In this first year, there are no programs that are ineligible for title IV, HEA funding.

Step 2: Apply the student transition assumptions to the enrollment by program aggregate group. This generates estimates of the enrollment that is expected to remain enrolled in the program aggregate group, the enrollment that is expected to drop out of postsecondary enrollment, and the enrollment that is expected to transfer to a different program aggregate group.

Step 3: Compute new estimated enrollment for the start of 2028 (before the second program performance is revealed) for each cell by adding the remaining enrollment to the enrollment that is expected to transfer into that group. We assume that (1) students transfer from failing or ineligible programs to passing programs in the same transfer group; (2) Students in risk groups 4 or 5 stay in those risk groups; (3) Students in risk group 1 can shift to risk groups 2 or 3; (4) Students in risk group 2 can shift to risk groups 1 or 3; (5) Students in risk group 3 can shift to risk groups 1 or 2. Therefore, we permit enrollment to shift between proprietary and public or non-profit certificate, associate's, and lower-division bachelor's programs, based on the assumptions listed in Table 7.6.

Step 4: Determine the change in aggregate baseline enrollment between 2027 and 2028 for each risk group and allocate these additional enrollments to each program aggregate group in proportion to the group enrollment computed in Step 3.

Step 5: Apply the program transition assumptions to the aggregate group enrollment from Step 4. This results in

estimates of the enrollment that would stay within or shift from each performance category to another performance category in the next year. This mapping would differ by risk group, as reported in Table 7.4. Enrollment in a failing category would not remain in the same category because if a metric is failed twice, this enrollment would move to pre- ineligibility. The possible program transitions for programs are:

Pass [rarr] Pass, Fail Earnings Premium

Fail Earnings Premium [rarr] Pass, Pre-Ineligible

Step 6: Compute new estimated enrollment at end of 2028 (after program performance is revealed) for each program aggregate group by adding the number that stay in the same performance category plus the number that shift from other performance categories.

Step 7: Repeat steps 1 to 6 above using the end of 2028 enrollment by group as the starting point for 2029 and repeat through 2037. The only addition is that in Step 5, two more program transitions are possible for failing programs:

Pre-Ineligible [rarr] Ineligible

Ineligible [rarr] Ineligible (no change)

Step 8: Generate projected Pell and loan volume by program aggregate group from AYs 2027 to 2037 under the proposed rule. We multiply the projected enrollment by group by average aid amounts (Pell and loan volume) that vary over time to get projected total aid amounts by group through 2037. Any enrollment that has dropped out (not enrolled in any postsecondary program) get zero Pell Grant and loan amounts. Enrollment in the Ineligible category initially receives Pell Grants but no loan amounts. To account for revisions to the standards of administrative capability (Sec. 668.16), Pell Grant amounts in the Ineligible category are reduced by 33 percent in 2030 and 51 percent starting in 2031 to capture the estimated impact. This is based on an analysis, using PPD:2026, of the percentage of Pell Grant volume at low-earning outcome programs at institutions in which more than half of title IV, HEA recipients or more than half of title IV, HEA funds are from low-earning outcome programs. While the accountability framework does not make programs ineligible for Pell Grants immediately, we do estimate that borrowers whose programs lose eligibility for title IV, HEA loans will transfer programs or choose not to attend with corresponding effects on their Pell Grants. The lower percentage reduction in 2030 represents the delay in implementation of the accountability framework for programs that train individuals for occupations where workers customarily and regularly receive tips until the earnings of those individuals can be measured after the “No Tax on Tips” policy is in effect. To account for this delay on loan volume and enrollment, impacts of the accountability framework on programs within the identified CIP categories were shifted out by a year. The process for identifying these CIP categories is discussed in the “Earnings of Program Completers--Use of IRS Data” section.

Step 9: Shift Pell and loan volume under the proposed rule from AYs 2027 to 2037 to FYs 2027 to 2036 for calculating budget cost estimates.

Step 10: Calculate adjustment factors capturing the replacement of the current regulations with the accountability framework in the proposed regulations. This is done by first calculating the percentage change between the model results for the baseline and accountability framework scenarios described in the previous steps and then generating the inverses of the adjustment factors for the current regulations. These two adjustment factors are multiplied to create a final adjustment factor that represents both the removal of the current regulations and the impact of the accountability framework. Accountability Framework and Model Results

Key distinctions between this final accountability framework and the current GE regulations are the applicability to programs regardless of institutional control and the removal of annual and discretionary debt-to-earnings rate metrics. Degree programs at private proprietary, private not-for-profit, and public institutions that fail the earnings premium measure in two out of any three years will lose eligibility for title IV, HEA loans. However, if the program fails the first earning premium measure calculated and chooses to opt-out of the loan programs, it can maintain eligibility for the Pell Grant program. The proposed regulations are estimated to shift enrollment towards passing programs with higher median earnings and away from programs that fail the earnings premium tests. The vast majority of students are assumed to resume their education at the same or another program in the event they are warned about poor program performance or if their program loses eligibility. The proposed regulations are also estimated to reduce overall enrollment, as some students decide not to enroll. Changes in enrollment patterns in Tables 7.7 and 7.8 reflect students transferring in and out of each risk group, as well as remaining in programs that do not provide title IV, HEA loans, or dropping out.\94\ Table 7.7 summarizes the main enrollment results from within the accountability framework model. By the end of the analysis window, 99.6 percent of title IV, HEA enrollment is expected to be in passing programs.

\94\ Tables 7.7 and 7.8 represent enrollment estimated within the accountability framework model, which is not equivalent to borrower count.

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In addition to changes in enrollment, both overall and between risk groups, differences in average loan amounts are a factor in estimating total volume. While Tables 7.7 and 7.8 display estimates from within the accountability framework model, total volume changes and the net budget impact include removal of the current regulations. While non-GE programs were not subject to potential ineligibility under the current regulations, students could react to poor performance, so the net budget impact reflected changes for all institution types. In the current regulations, higher-level and higher-debt programs were particularly impacted by the D/E measures and resulting student reactions. Additionally, Pell Grant eligibility was treated the same way as loan eligibility in the current regulations, while the impact of the accountability framework on Pell Grants from the standards of administrative capability is lesser.

The accountability framework estimation process described in the methodology, and the resulting change in Direct Loan and Pell Grant volume over the budget window compared to the estimated change in Direct Loan and Pell Grant volume from current regulations, generates the primary net budget impact shown in Tables 7.1A and 7.1B. Sensitivity Analysis

The Department's calculations of the net budget impacts represent our best estimate of the effect of the regulations on the Federal student aid programs. Realized budget impacts will be heavily influenced by actual program performance, student response to program performance, student borrowing, and changes in enrollment because of the regulations. For example, if students, including prospective students, react more strongly to the warnings or potential ineligibility of programs than anticipated, and if many of these students leave postsecondary education, the impact on Pell Grants and loans could change.

Therefore, we conducted simulations of the rule while varying several key assumptions. Specifically, we provide estimates of the change in title IV, HEA volumes using varied assumptions about student transitions, student dropout, and program performance. We believe these to be the main sources of uncertainty in our model.

Along with the primary estimate, the scenarios presented in the “Sensitivity Analysis” are intended to provide a reasonable estimation of the range of impact that the proposed regulations could have on the budget. Varying Levels of Student Transition

The primary analysis assumes rates of transfer and dropout for programs based on relevant research and literature, but these quantities are uncertain. The alternative models adjust transfer and dropout rates for all transfer groups to the rates for high alternatives (Tables 7.9A and 7.9B) and few alternatives (Tables 7.10A and 7.10B). As reported in Tables 7.9A, 7.9B, 7.10A, and 7.10B, it is estimated that the proposed regulations would result in an increase in title IV, HEA program assistance

between fiscal years 2027 and 2036, regardless of whether all students have the highest or lowest amount of transfer alternatives. [GRAPHIC] [TIFF OMITTED] TR01JY26.081

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During the negotiated rulemaking process, the Department received more than 40 proposals from non-Federal negotiators representing numerous impacted constituencies on a variety of issues. As the Department previously explained in the NPRM, we noted proposals that were accepted by the committee. All other proposals were discussed and declined. To view all submitted proposals, see here: https:// www.ed.gov/laws-and-policy/higher-education-laws-and-policy/higher- education-policy/negotiated-rulemaking-for-higher-education-2025-2026.

Furthermore, the Department received 9,994 total comments during the public comment period. We considered them all as possible alternatives. Based on these comments, the Department updated several provisions in the regulatory text; these updates are listed in Table 3.1 of the Regulatory Impact Analysis.

This section summarizes the significant alternatives that were proposed but ultimately declined during negotiated rulemaking. Sec. 668.2 General Definitions

In this rule, we adapt the existing definition of the earnings threshold used in the earnings premium calculation under the current FVT regulations to conform with the earnings benchmark specified under the WFTCA. This benchmark would use State or national earnings data from the ACS.

Some negotiators raised questions about various elements of the ACS, which is to be used to determine the earnings threshold for evaluation. In particular, negotiators expressed concern that the use of median earnings data at only the State or national level may disadvantage programs and institutions located in rural areas where expected wages may be lower compared to State and national medians.

The Department examined this issue and found that programs at rural institutions will be impacted by the final regulation at slightly higher rates relative to the current regulation (Table 5.10). Specifically, the Department estimates that approximately 1.8 percent of enrollment at rural institutions is in programs that would fail under the final rule, which is a slight increase relative to the current regulations (1.3 percent). However, rural institutions would lose a smaller share of title IV, HEA funds under the final regulation relative to the current rule (1.1 percent vs. 1.2 percent).

Furthermore, the WFTCA is highly prescriptive with regard to the precise manner in which program earnings would be evaluated, specifying factors for comparison such as age ranges, working status, education level, and geography. Congress did not include a regional price parity adjustment in Section 84001, even though they included it elsewhere in the WFTCA for value-added earnings for eligible workforce programs. The Department believes that the absence of a regional price parity in Section 84001, but its inclusion in other parts of the WFTCA, suggests that Congress did not intend for the Department to adjust program earnings at rural institutions.

Another negotiator submitted a suggestion to adjust the earnings threshold for certificate programs having at least 75 percent of female completers downward to 85 percent of the median earnings for the comparison group to account for “gender-based” wage gaps. The Department disagreed with this proposal for several reasons. First, the Department does not believe that the statute allows this manner of adjustment to the earnings benchmark. Again, Congress was prescriptive regarding how the benchmark group must be defined. Second, such an adjustment could also undermine the consistent treatment of programs, could potentially lead to confusion among stakeholders, and would also appear to be in conflict with the spirit of Executive Order 14173's prohibition on identity-based preferential treatment based on race, color, sex, sexual preference, religion, or national origin. Third, the Department finds that undergraduate certificate programs that enroll at least 75 percent of female students do not earn less, on average, than other types of programs after controlling for program field of study.\95\

\95\ For this analysis, the Department limited the sample to undergraduate certificate programs with earnings data and regressed program earnings on a binary indicator equal to 1 if at least 75 percent of program completers are female and program (cip4) fixed effects. Programs were weighted by the count of individuals in the earnings cohort (count_wne_p4) and standard errors were clustered at the program level. The coefficient on the indicator was not statistically significant at conventional levels.

Sec. 668.402 Student Tuition and Transparency System Framework

In this rule, we amend the existing FVT framework to harmonize with the earnings accountability framework provided under the WFTCA. Among these changes, the final regulations would rescind the existing D/E rates metric, adapting the earnings premium measure as the sole earnings accountability metric.

Some negotiators proposed that the Department retain the D/E rates metric. These negotiators argued that D/E rates are valuable in preventing the flow of title IV, HEA funds to programs that leave students in a position where they may not be able to afford to repay their student debt. They further reasoned that D/E rates would remain important in the future because pending changes to Direct Loan limits under the WFTCA may result in an increase in private lending. Other negotiators supported the Department's position to eliminate the D/E rates metric, noting that this change would reduce unnecessary complexity while preserving meaningful accountability. These negotiators reasoned that the change reflects statutory intent and may therefore reduce risk of future policy fluctuations.

As the Department notes above in the discussion of Sec. 668.402, we believe the revision to remove the D/E rates metric reflects the intent of the WFTCA, as the Direct Loan program accountability framework in revised HEA Section 454(c) establishes an earnings comparison metric only, not a debt-to-earnings measurement. While calculating an earnings premium measure requires very little reported data other than an accurate list of students who completed the program, D/E rates rely heavily on significant amounts of institutionally reported data regarding costs and sources of student financial assistance beyond the title IV, HEA programs. Such reporting can be burdensome and confusing for institutions and, given the Department's concerns about the completeness and accuracy of this reported data, we believe this data would be more appropriate for use in informational disclosures rather than in an accountability metric used to determine a program's eligibility for Direct Loan program funds.

Furthermore, the Department finds that maintaining the D/E metric would result in a very small increase in the overall share of programs that would fail the accountability framework. As shown in Table 8.1, maintaining the D/E metric would increase the share of programs that fail from 5.2 percent to 5.3 percent (columns 3 vs. 4).\96\ In real terms, this increase represents approximately 100 additional programs that would fail the accountability framework; an extremely small fraction of the 200,000+ programs that enroll title IV, HEA students nationally (Table 5.2).

\96\ This analysis assumes that the Annual Earnings Rate measure or the Discretionary Earnings Rate measure under current regulation are aligned with the new earnings definition from Section 84001 in the WFTCA--specifically, the median earnings of working title IV graduates measured four years after completion who are not currently enrolled in college. Note that this estimate differs from what was included in the NPRM and discussed during Negotiated Rulemaking due to the updates made to the analysis discussed in “5. Impact of the Final Regulation” section above.

Furthermore, the Department believes this is likely an overestimate of impact of maintaining the D/E metric for two reasons. First, the debt measures in the PPD:2026 do not reflect the new annual Federal student loan limits that will take effect on July 1, 2026, under the WFTCA. Those annual limits ($20,500 for graduate programs and $50,000 for professional programs) will reduce the debt that graduate and professional borrowers can accumulate, reducing the risk that program completers would accumulate unmanageable levels of debt.\97\ Second, the debt measure in PPD:2026 includes the debt of only Federal student loan borrowers, whereas the debt measure under the current regulation includes all students who received title IV, HEA program assistance, even if they did not borrow. That means the debt measure in PPD:2026 is higher than the one that would ultimately be used if the D/E metric was maintained in the final regulation, which would likely result in a smaller share of programs failing the D/E test than what is estimated here.

\97\ The Department approximates that a third of the programs it estimates would fail only the D/E test would instead pass once borrowers are subject to the WFTCA loan limits for graduate and professional students.

In summary, the Department estimates that, at most, maintaining the D/E metric would result in a 0.1 percentage point increase in the overall

share of programs that would fail the accountability framework. In the Department's view, this marginal addition would not justify the significant difference in complexity, cost, and administrative burden of including D/E rates. BILLING CODE 4000-011-P [GRAPHIC] [TIFF OMITTED] TR01JY26.090

BILLING CODE 4000-011-C Sec. 668.403 Calculating Earnings Premium Measure

In this final rule, we calculate a program's earnings premium measure using the median annual earnings of working students who completed the program during the cohort period for the fourth tax year following program completion. As under the current FVT/GE regulations, a Federal agency with earnings data would provide this earnings data and the data would be unmodified other than the potential use of marginal statistical noise for privacy masking purposes.

Some negotiators proposed the use of alternative sources of earnings data. In particular, negotiators suggested that the Department consider obtaining earnings data from State data systems where available, speculating that such earnings data might in some cases be more accurate than data available at the

Federal level and speculating that State data systems may improve over time. Other negotiators expressed concern about the use of non-Federal earnings data, noting that if the Department were to consider the use of State-level earnings data, the Department would need to evaluate whether the earnings data is more reliable than what a Federal agency with earnings data would provide.

The Department disagreed with the proposal to use State-level earnings data, and we concur with the concerns of the negotiators who objected to this proposal. We believe it would be highly impractical for the Department to evaluate, on an ongoing basis for each State, whether the quality of State-level earnings data exceeds that of Federal-level earnings data. Moreover, even if this were feasible, HEA Section 454(c) does not provide authority for the Department to enter agreements with States to obtain State-level earnings data.

Some negotiators proposed that the Department adjust a program's median earnings data to account for various circumstances including tip income and self-employment. This discussion focused heavily on cosmetology programs, and negotiators suggested that the Department introduce an earnings modifier to address the possibility of unreported tipped income. Proponents of this view argued that some occupations-- such as barbers--rely heavily on tips which may be underreported in Federal earnings data.

The Department's position on this issue is summarized in the “Earnings of Program Completers--Use of IRS Data” section above. Ultimately, the Department disagrees with suggestions to upwardly adjust the median graduate earnings data for a program based on purported underreporting of tipped or self-employment income within an occupation.

First, the Department's approach includes earned income sources from work as they are reported on IRS forms. Tip income is generally required to be reported to employers and included in the wages reported in box 1 of IRS Form W-2. Additional tip income not otherwise reported is required to be included with wage income on the filer's tax form. Any existing underreporting of income would impact both sides of the earnings premium calculation, i.e., both the measured median earnings of program graduates and the benchmark median earnings of working adults in the earnings threshold.

Second, the Department examined the share of cosmetology programs that would fail the accountability framework under the final regulation (Tables 5.17, 5.18, 5.19, and 5.20). We found that cosmetology programs perform better under the Department's final regulation relative to the baseline without an earnings adjustment, implying that, at minimum, these programs will be better off than they would if the existing regulations were left unchanged.

Third, the Department finds that an earnings adjustment for cosmetology programs would not result in a meaningful change in fail rates for these programs (Table 8.2). Even with an 8 percent earnings boost, the vast majority of cosmetology programs (84 percent) would still fail the accountability framework under the final rule. These findings align with points raised by other negotiators, who argued that tips are usually reported, and that to the extent that they may be underreported, that underreporting is minimal. [GRAPHIC] [TIFF OMITTED] TR01JY26.091

Fourth, Congress specifically selected the use of median earnings rather than mean earnings for both the program and benchmark earnings, likely because it would take over half of the respective earners to shift the median value by even a small amount. Adjusting graduate earnings across the board by any amount would over adjust for any unreported or underreported earnings, to the extent they may exist.

Fifth, negotiators arguing for an earnings adjustment offered no practical way to determine which programs, and by what amount, earnings should be adjusted to account for the possibility of unreported tips. There is limited research on the extent of underreporting of tipped income by occupation, and the Department does not believe it is

appropriate to create a variance for one type of program without clearer information about the extent to which underreporting exists in other occupations.

For all of these reasons, the Department determined that providing an earnings adjustment for certain programs to account for the possibility of unreported tipped income or self-employment income would be infeasible, burdensome, and arbitrary without stronger data to support establishing a variance to account for unreported earnings for particular types of programs. However, the Department was persuaded by commenters who recommended the Department delay the earnings test for heavily tipped occupations until after the “No Tax on Tips” policy is in effect. To the extent that cosmetologists may under-report tipped income, the Department believes this approach will enhance the earnings test for the reasons described in the “Earnings of Program Completers--Use of IRS Data” section above.

Negotiators also suggested modifying a program's median earnings data to account for less than full-time work. The negotiators noted that in certain occupations, graduates may routinely work less than full time, which they argued would unfairly skew earnings premium results that compare their earnings to a full-time earnings benchmark. Other negotiators countered that the statute clearly defines the benchmark group and noted that it would be inappropriate to distinguish between full-time and part-time earnings because all graduates have costs, regardless of how many hours they choose to work. A negotiator further observed that a key function of higher education is to prepare students to obtain better jobs, and to that end the regulations should incentivize full-time work.

The Department disagrees with the suggestion to adjust program earnings to account for the possibility that graduates choose to work less than full time. It is important to note that although some graduates may work less than full time, the same is true of the earnings benchmark group, which considers all applicable working adults of ages 25 through 34 regardless of the number of hours worked. HEA Section 454(c) does not specify that only graduates working full time should be measured, nor does the statute seek to compare graduate earnings to only full-time working adults. Adjusting either side of the earnings premium equation would necessitate adjusting the other, and doing so would invite significant burden, costs, and increased risk of inaccurate determinations. Furthermore, this suggestion may not be feasible since the Federal agency with earnings data may not have access to information on the hours worked by program graduates, preventing them from making adjustments based on full-time and part- time work status. The Department also believes that the statute does not authorize this type of adjustment, as it would circumvent the specific methodology prescribed by Congress. Sec. 668.601 Earnings Accountability Scope and Purpose

In this final rule, we implement the accountability framework required under the WFTCA pertaining to Direct Loan program eligibility of undergraduate degree programs, graduate and professional degree programs, and graduate nondegree programs, and to harmonize those regulations with requirements for programs that are required to lead to gainful employment (GE programs). Some negotiators proposed that the Department entirely rescind the existing GE accountability framework in favor of the WFTCA accountability framework to reduce regulatory complexity. Other negotiators argued for retaining the existing GE accountability framework without alteration, arguing that it provides students and taxpayers a greater degree of protection from poorly performing undergraduate certificate programs and that fully rescinding the current GE accountability framework would exclude undergraduate certificate programs from oversight, putting students and taxpayers at increased risk.

As further discussed in the “Department Authority (Including GE and Quality Assurance Authority” section above, although undergraduate certificate programs were not specifically mentioned in Section 84001 of the WFTCA, Congress nonetheless did not explicitly forbid the Secretary from applying the accountability framework to those programs, nor did Congress choose to otherwise eliminate, limit, or curtail the Department's existing GE accountability framework, either when crafting the WFTCA or in any other prior legislative act. Congress was in fact aware when passing the WFTCA that undergraduate certificate programs were already covered using a similar earnings test under the Department's existing GE accountability framework. The Department therefore believes that rescinding the existing GE framework altogether, thereby excluding undergraduate certificate programs from the accountability framework, would contradict Congressional intent for program accountability in higher education, and we agree with the negotiators who noted that doing so would put students and taxpayers at increased risk.

However, we also disagreed with the proposal to maintain the existing GE accountability framework in its current form, because maintaining competing GE and WFTCA accountability frameworks would add significant complexity, increase administrative burden and costs for institutions and the Department, and could generate increased confusion for students in comparing and understanding differing informational disclosures and warnings generated from multiple frameworks that apply to different types of institutions and programs. We view harmonization of the existing FVT/GE framework and the WFTCA accountability framework to be essential in establishing parity among institutions and program types through a single accountability framework that covers the vast majority of programs qualifying for title IV, HEA assistance and nearly all title IV, HEA recipients.

To better understand this issue, the Department examined the share of programs and students who would attend failing programs if the existing GE accountability framework was entirely rescinded (Table 8.3). We find that entirely rescinding the GE accountability framework would result in half as many failing programs relative to the final rule which maintains the GE accountability framework (2.3 percent vs. 5.2 percent). The reduction is entirely driven by undergraduate certificate programs: these programs would be exempt from the accountability framework if the GE regulation was rescinded. In addition to the reasons stated in the “Department Authority (Including GE and Quality Assurance Authority” section above, the Department believes maintaining the GE accountability framework is important because these programs usually produce earnings outcomes that are lower than other programs. BILLING CODE 4000-011-P

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Some negotiators suggested that programs that lead to low-earning outcomes under the accountability framework should lose access to all title IV, HEA programs, as under the current GE accountability framework, rather than losing eligibility for the Direct Loan program only. These negotiators expressed concern about students using their limited lifetime Pell Grant eligibility on programs that are not performing well, and argued that the prospect of losing all title IV, HEA funding for low-earning outcome programs would better incentivize institutions to shift their program offerings away from failing programs or to improve the quality of their programs, which in turn would better serve the interests of students and taxpayers. Other negotiators argued that a program's loss of Direct Loan program eligibility would in many cases already lead to the closure of the program or possibly the institution itself.

The Department notes that it has a greater interest in applying the accountability framework to the Direct Loan program because, unlike the other programs under title IV, HEA, the government and taxpayers expect loan funds to be repaid. We further note that the accountability framework set forth in Section 84001 of the WFTCA resides in the Direct Loan program-specific provisions in HEA Section 454, which generally limits the scope of consequences to the Direct Loan program only. To the extent that undergraduate certificate programs would be covered by the accountability framework under the GE statutory authority, we believe that authority does not explicitly require the loss of all title IV, HEA eligibility as the sole remedy for noncompliance. In addition, the further changes to the PPA and administrative capability regulations at sections Sec. Sec. 668.14 and 668.16 would terminate title IV, HEA eligibility for all of an institution's low-earning outcome programs if more than half of the institution's title IV, HEA recipients or title IV, HEA revenue are from low-

earning outcome programs. We believe these provisions would sufficiently address concerns about continued Pell Grant eligibility for institutions whose programs lead to consistently poor earnings outcomes for students. Sec. 668.603 Low-Earning Outcome Programs

In this final rule, we provide all institutions the option to appeal a low-earning outcome program's loss of Direct Loan program eligibility. Similar to the current GE accountability framework, the earnings accountability framework would limit appeals to instances where the Department erred in the calculation of the program's EP measure.

Some negotiators proposed broadening the factors that an institution could appeal to include the underlying median graduate earnings data used to calculate the earnings premium measure, arguing that there would otherwise rarely be a basis for an institution to appeal under the proposed criteria as both the median graduate earnings and earnings benchmark would be based on elements an institution could not dispute. Negotiators further suggested that the Department consider alternative earnings survey data that might address limitations in available administrative earnings data and improve fairness and due process. Other negotiators expressed support for the scope of the appeals process as proposed, arguing that appeals in other areas of title IV, HEA administration, such as cohort default rates, can sometimes consume significant time and costs, that the earnings standards set forth in the WFTCA are specific, and appeals must not circumvent the will of Congress.

The Department disagreed with negotiators who claimed that the proposed basis for appeals would deprive institutions of a meaningful opportunity to appeal a low-earning outcome determination. As under the current GE framework, institutions would have the opportunity to review and correct the list of completers provided to the Federal agency with earnings data to obtain median graduate earnings and could meaningfully appeal any discrepancies pertaining to the completers list. The Department emphatically disagrees with suggestions to allow appeals on the basis of alternative earnings data. IRS earnings data represents the highest quality and most accurate available data source and, accordingly, is also currently used for many other title IV, HEA purposes such as determining student and family incomes for purposes of establishing student title IV, HEA eligibility and determining loan payments under income-driven repayment plans. Federal requirements for accurate reporting of income and the increasing prevalence of electronic transactions make underreporting income both more difficult and less likely than under past accountability frameworks. The Department also remains concerned about the low quality of data submitted by institutions in alternate earnings appeals, such as graduate earnings surveys and employment verifications, given the Department's experience with such data in appeal submissions under past iterations of GE regulations.

HEA Section 454(c)(5) does not require the Department to consider appeals of earnings data, only of the low-earning outcome determination in HEA Section 454(c)(2). If the Department fails to thoughtfully and purposefully manage the scope and basis of appeals, it could result in institutions inundating both the Department and, potentially, the courts with cumbersome appeals and challenges that are unlikely to prevail but would, nonetheless, generate significant burden and costs for both institutions and the Department, all while delaying accountability and leaving students and taxpayers at continued risk during the appeals process. While we understand concerns about the consequences for institutions and students if a program loses Direct Loan program eligibility under the earnings accountability framework, it is equally important to recognize that in any meaningful accountability framework, some programs will fail. Finally, even given the limited grounds for appeals under the final rule, to address truly extenuating circumstances we note that the Department still has the option to exercise other existing authorities to waive or modify title IV, HEA program requirements in national emergencies and has exercised these authorities in the past when appropriate.

This section considers the effects that the final regulations may have on small entities in the Educational Sector as required by the Regulatory Flexibility Act (RFA, 5 U.S.C. et seq., Pub. L. 96-354) as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA). The purpose of the RFA is to establish as a principle of regulation that agencies should tailor regulatory and informational requirements to the size of entities, consistent with the objectives of a particular regulation and applicable statutes.

The RFA generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act (APA) or any other statute unless the agency certifies that the rule will not have a “significant impact on a substantial number of small entities.”

This final regulation amends the current gainful employment regulation to implement statutory changes to the title IV, HEA programs included in the WFTCA. Currently, the Department's regulations apply two tests--a debt-to-earnings test and an earnings premium test--to all undergraduate certificate programs and any program offered by proprietary institutions. If these programs fail one of the tests in two out of three consecutive award years, they lose eligibility for all types of title IV, HEA program funding, including both Pell Grants and Direct Loans. As stated throughout the RIA, the Department's baseline assumes the current gainful employment regulations are in effect. This is because, in the absence of the final rule, the requirements in the current regulation would be calculated. Therefore, we use the impact of the current regulation as the baseline to judge the impact of the final rule.

The WFTCA applies an earnings premium test (“accountability framework”) to each degree program at institutions, expanding the universe of affected programs to include degree programs at non-profit and public institutions. Programs where the median earnings of graduates do not meet a specified threshold in two out of three years lose access to Direct Loans. Under a separate provision (standards of administrative capability) the final regulations require that if a majority of an institution's students or title IV, HEA disbursements are in programs that fail the accountability framework for three years, those failing programs also lose access to Federal Pell Grants. Programs are exempt from the potential loss of Federal Pell Grants under this provision if they opt out of the Federal student loan program prior to failing the accountability framework or if have not participated in the loan program in the past five years. The final regulation also modifies the current FVT/GE rule to replace its eligibility tests with the same earnings tests under WFTCA, which is a less-punitive test. The Department's final regulations would also eliminate one of the two tests (the debt-to-earnings test) by which programs are judged under the current FVT/GE rule.

For the purposes of this analysis the Department has defined “significant economic impact” as increasing or reducing a small entity's revenues by more than 3 percent, and a “substantial number of small entities” as more the 5 percent of institutions that meet the Department's definition of a small entity.

While the Department is unable to assess the revenue effects of the final regulation on individual institutions of higher education due to missing data on the earnings of program completers (see “Data Limitations & Assumptions” section above), the Department can assess the average effects on institutions within different categories. Using that approach, the Department has determined that small institutions will experience a 0.9 percent increase in revenue on average due to the final regulations, less than what the Department defines as a significant economic impact. Small institutions are likely to experience an increase in revenue because the accountability framework includes a less-punitive earnings test than under the current accountability framework, resulting in fewer programs failing (and losing access to Federal student financial assistance) within small institutions. Furthermore, the Department determines that small institutions will experience a change in total revenues of less than 3 percent (Table 9.4). Description of, and, Where Feasible, an Estimate of the Number of Small Entities to Which the Regulations Will Apply

The Small Business Administration (SBA) defines “small institution” using data on revenue, market dominance, tax filing status, governing body, and population. The majority of entities to which the Office of Postsecondary Education's (OPE) regulations apply are institutions of higher education, which do not report such data to the Department. As a result, for purposes of this final rule, the Department defines “small entities” by reference to enrollment, to allow meaningful comparison of regulatory impact across all types of higher education institutions. We construct four different categories of small entities for the purposes of classifying higher education institutions: \98\

\98\ The Department consulted with the SBA Office of Advocacy in March 2026 regarding the use of an alternative size standard. The Department did not receive comments on the size standard for this rule and therefore proceeds with these classifications.

(1) Extremely Small (1-249 FTE, full-time equivalent student enrollees);

(2) Very Small (250-499 FTE);

(3) Moderately Small (500-749 FTE); and

(4) Small (750-999 FTE).

Table 9.1 summarizes the number of institutions affected by these final regulations. In total, 53 percent of institutions are classified as small institutions under the enrollment-based definition. Specifically, 33 percent are Extremely Small (1-249 FTE), 9 percent are Very Small (250-499 FTE), 6 percent are Moderately Small (500-749 FTE), and 5 percent are Small (750-999 FTE). Note that the Department's analysis and these categories apply only to small institutions that receive Federal title IV, HEA aid; it does not include small institutions that operate without this aid. Therefore, the Department's analysis will overstate the extent to which small entities are affected by this rule. Institutions that do not participate in title IV, HEA aid programs are unaffected by the rule.

As seen in Table 9.2, small entities (all four categories combined) in the public sector generate $3.9 billion in revenues annually, small entities (all four categories combined) in the private non-profit sector generate $11.7 billion in revenues annually, and small entities (all four categories combined) in the proprietary sector generate $4.5 billion in revenues annually. An outsized share of these revenues come from institutions in the largest category of small entities (institutions with 750-999 FTE). These institutions make up just 9 percent of all institutions classified as a small entity (having fewer than 1,000 FTE) but comprise 36 percent of the annual revenues generated by these institutions. BILLING CODE 4000-011-P

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Table 9.3 compares the share of programs at small entities that are estimated to fail the accountability framework under the current regulations and the accountability framework under the final regulations. Both the current and final regulations include accountability frameworks and Table 9.3 shows the fail rates under each, revealing the net change from the current regulation (column 2) to the final regulation (column 3). Relative to the current regulations, programs at small entities will fail at slightly lower rates under the final regulations. We find similar results when weighting estimates by title IV enrollments (Panel B). [GRAPHIC] [TIFF OMITTED] TR01JY26.095

BILLING CODE 4000-011-C

To assess the impact of the final regulation on small entities, the Department estimated how much revenue institutions may lose on average when programs become ineligible for title IV, HEA funds because their programs fail the accountability framework. Note that because the current regulations already include an accountability framework,\99\ the Department's analysis is concerned with the change in program fail rates and revenue effects relative to the current regulations. The potential loss in revenue for small institutions can be compared with small institutions' total revenue to determine the effect on small entities (Table 9.4).

\99\ See Financial Value Transparency and Gainful Employment, 88 FR 70004, 70095 (Oct. 10, 2023).

On average, small institutions are at risk of losing 11.4 percent ($1.885 billion) of their total revenue due to the loss of title IV, HEA funds under the current regulations. Under the final regulations they are estimated to lose 10.6 percent ($1.752 billion) of their revenue. Therefore, small entities are estimated to experience a 0.9 percent ($132 million) increase in their total revenue ($14,646 billion) due to the final regulations (Table 9.4). Extremely small entities are the most impacted

subgroup. Under the current accountability framework, they are at risk of losing 33.0 percent ($695 million) of their revenue, but under the accountability framework they are at risk of losing 28.7 percent of revenue ($604 million), resulting in a 6.4 percent increase ($91 million) in revenue. Extremely small entities are the most affected subgroup because they tend to offer the types of programs (mainly undergraduate certificates in fields such as cosmetology) that see the largest change in eligibility for title IV, HEA funds under the final regulation. BILLING CODE 4000-011-P [GRAPHIC] [TIFF OMITTED] TR01JY26.096

BILLING CODE 4000-011-C

Lastly, the Department examined the types of programs at small institutions that are estimated to fail the accountability framework at the highest rates (Table 9.5). As shown in Panel A, approximately 93 percent of cosmetology certificate programs (CIP=12.04) at small institutions are estimated to fail, which is the highest rate among all programs at small entities where there were at least 40 programs with non-missing earnings data. However, when compared to the current accountability framework, these programs at small entities will fail at slightly lower rates relative to the existing baseline (99 percent). Other common types of programs at small institutions that are estimated to fail the accountability framework in the final regulation include undergraduate certificate programs in somatic bodywork (CIP=51.35), dental support services (CIP=51.06), allied health (CIP=51.08), and health administrative services (CIP=51.07). Again, each of these programs will fail the accountability framework at lower rates relative to their fail rates under the current baseline.

Only one type of program at small entities--associate degree programs in liberal arts and sciences (CIP=24.01)--are anticipated to fail under the final regulation at higher rates relative to the existing baseline. These programs at small institutions fail at higher rates under the final regulation because many of these degree programs were offered at institutions that were previously exempt from the accountability framework under the current regulation. Similar estimates are reported in Panels B and C, which are weighted by title IV, HEA enrollment counts and title IV, HEA volume, respectively. BILLING CODE 4000-011-P

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The Department received many comments about the effects the regulation would have on small businesses, particularly with respect to

cosmetology businesses. Many commenters explained that the regulation would cause cosmetology programs to lose access to title IV, HEA program assistance. Therefore, commenters argued that there will be fewer cosmetologists, a group that tends to own and operate their own small businesses. Other commenters noted that barber shops, salons, and spas are small businesses that rely on trained and licensed cosmetologists as their employees. Cosmetology schools themselves are often small businesses, as some commenters noted.

The Department assessed the effects of the rule on cosmetology programs, single-program institutions (which are often cosmetology schools), and small institutions of higher education. In each of these analyses, we find that when compared with the current gainful employment rule, fewer institutions and programs are expected to fail the earnings test under this final rule (Tables 5.17, 5.18, 5.19, and 5.20). Relative to the baseline policy, the Department estimates the earnings test will reduce the negative effects on small businesses commenters have raised.

Although a smaller share of cosmetology programs are expected to fail under the final rule relative to the baseline policy, the Department does acknowledge that a high share of cosmetology certificate programs are likely to fail under this final rule (approximately 93 percent), and that the smallest institutions of higher education are more likely to have a high share of failing programs. The Department is, however, concerned that these fields and credentials do not produce adequate earnings to support student debt. The Department believes that institutions of higher education, employers, and state and local policymakers will have stronger incentives as a result of the earning premium measure to create or modify programs so that they lead to higher earnings, or reform employee pay policies, or credentialing requirements.

Lastly, the Department notes that many cosmetology programs do not participate in title IV, HEA programs. One study found that just 14 percent of barber and cosmetology programs in Texas participate in federal student loan and grant programs. Moreover, many of these non- federally funded programs charge lower tuition prices and have similar outcomes than cosmetology programs subsidized by taxpayers.\100\ These non-federally funded cosmetology programs will have incentives to increase their enrollment if fewer programs are eligible for title IV, HEA student aid, helping to supply the cosmetology workforce. As a result, it is possible that students benefit from this rule if they switch from more-expensive, Federally funded cosmetology programs to less expensive, non-Federally funded programs.

\100\ Cellini, S.R., & Onwukwe, B., (2022). Cosmetology Schools Everywhere: Most Cosmetology Schools Exist Outside of the Federal Student Aid System. Washington, DC: PEER Center. www.american.edu/ spa/peer/upload/peer_cosmetology_b.pdf.

The Department examined whether the final regulation could incorporate other options or changes to the rule intended to make compliance less burdensome for small institutions of higher education. Specifically, the Department considered whether small institutions of higher education could be exempted from the changes to the statute in the final regulation, or whether they could be granted a delayed start date to the changes. The Department does not have discretion in the WFTCA to exempt certain institutions of higher education from the WFTCA requirements. The statute also establishes the effective dates for the changes to the Federal student loan program and does not leave flexibility for the Department to consider granting a delay in compliance for small entities that may benefit from such a delay. Therefore, the Department determined that none of these options would be permissible under the statute, and could not identify any reasonable alternatives given the statutory directives.

The Department has, however, adopted a provision to delay the implementation of the accountability framework for certain programs. This policy will indirectly have a large impact on small entities given the overlap between small entities and the types of programs that will qualify for the delay. Specifically, the Department will delay the implementation of the accountability framework for certain programs that prepare students for employment in occupations where workers customarily and regularly receive a predominant percentage of their income through tips, in order to use earnings from the tax years when the “No Tax on Tips” policy is in effect, which began with the 2026 tax year. Many types of cosmetology programs are included in this delay.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires the Department to consider the impact of paperwork and other information collection burdens imposed on the public. According to the 1995 amendments to the Paperwork Reduction Act (5 CFR 1320.8(b)(2)(vi)), an agency may not collect or sponsor the collection of information, nor may it impose an information collection requirement unless it displays a currently valid Office of Management and Budget (OMB) control number.

This final rule will impose amended information collection requirements. As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department submitted these information collection amendments to OMB for its review. The Office of Management and Budget approved the amended information collection requirements under existing OMB Control Number 1845-0184. Responses to Comments Received in the NPRM on the Paperwork Reduction Act of 1995

Comment: Once school suggested that the administrative burden of the proposed student-level reporting requirements places a disproportionate strain on specialized career schools. They added: even with the removal of the debt-to-earnings metric, these heavy compliance mandates threaten to drive up institutional administrative costs, which directly impacts student tuition. The commenter recommended the Department maximize its use of existing federal administrative data to prevent tuition increases for the very students we are trying to help.

Discussion: The Department appreciates this comment. The Department took great care to consider administrative burden when developing these regulations. Wherever possible, existing administrative data is used to minimize burden.

Changes: None.

Comment: One commenter wrote that the Department's proposed rule pertains to the Federal Direct Loan Program. Since nonprofit and public institutions in Federated States of Micronesia, Republic of the Marshall Islands, or the Republic of Palau may not administer Direct Loans to their students, the Department should, at a minimum, explain the public benefit of applying the earnings test to public or nonprofit private eligible institution in the Federated States of Micronesia, Republic of the Marshall Islands, or the Republic of Palau when these very institutions are ineligible to participate in the Direct Loan program by the Department's own rule. Another commenter recommended that, instead

of requiring institutions that do not participate in the Direct Loan program to report on their programs, the Department ought to act on its competing obligation under the Paperwork Reduction Act of 1995 (PRA) and exempt such IHEs from reporting and testing. The purpose of the PRA is to minimize the paperwork burden for educational and nonprofit institutions and other types of entities under 44 U.S.C. 3501(1). The Department should abide by the PRA and exempt such IHEs from the reporting and consequences under this proposed rule.

Discussion: As described in the “Department Authority (Including GE and Quality Assurance Authority)” section, the Department is amending the regulations to prevent institutions that have not participated in the Direct Loan program for at least five years from being subject to penalties under the administrative capability provision that would affect those institutions' eligibility for other title IV, HEA programs. This exemption would also apply to any institution that is prohibited by law from participating in the Direct Loan program. However, the Department still believes that the information provided by calculating the earnings premium measure is valuable for consumers and the broader public, and therefore disagrees with the commenter that the measure should not be calculated for institutions that do not participate in the Direct Loan program.

Changes: None.

Comment: One commenter disagreed with including undergraduate non- degree programs in the earnings accountability framework. The commenter indicated that these regulations place an undue burden on programs that the statute did not include.

Response: As explained above in the preamble, the statute did not prevent the Department from expanding the earnings accountability framework to degree-granting programs. The statute required the framework to cover degree-granting programs and was silent on approaches to non-degree credentials. The Department has determined that the best approach to implementation is to harmonize the requirements established under the statute for degree and graduate non- degree programs with requirements for undergraduate non-degree programs, creating a more uniform approach to nearly all programs. Undergraduate certificate programs do not exist solely at the vocational and professional training institutions that the commenter mentions; they are represented across all institution types, and this approach will be applied uniformly regardless of institution type.

Changes: None.

Comment: One commenter requested that the accountability framework should:

Recognize entrepreneurship and self-employment outcomes as valid indicators of workforce success.

Allow for regional economic differences and industry- specific earning patterns.

Avoid disproportionately penalizing small institutions and workforce programs serving historically underserved populations.

Consider broader workforce outcomes such as licensure attainment, job placement, business creation, apprenticeship participation, and community economic contribution.

Ensure that compliance requirements do not become so burdensome that smaller career schools and training providers lose the ability to operate

Ensure that smaller institutions are not disproportionately burdened by administrative requirements that could limit student access to workforce training opportunities.

Discussion: The Department considered administrative and compliance burden on schools when developing the regulations. Where possible, existing administrative data is used to minimize burden. As required by the Paperwork Reduction Act, the Department will seek public comment on this collection no later than three years from the date of this final rule. The Department will welcome additional comments on administrative and compliance burden at that time. This will help ensure that compliance and administrative requirements become so burdensome that it limits access to education opportunities.

Changes: None.

Comment: One commenter expressed concern about the administrative and compliance burden associated with the proposed reporting requirements. That commenter added that small vocational institutions already face substantial regulatory obligations through accreditation agencies, state oversight agencies, FVT/GE reporting, financial aid compliance, annual audits, and state licensing boards. They suggested that the additional reporting and monitoring obligations under the STATS framework may require significant operational costs and staffing increases for institutions with limited administrative resources.

Discussion: The Department anticipates there will be a reduction in the reporting requirements with these new regulations. Additionally, the Department took great care to consider administrative burden when developing these regulations. Wherever possible, existing administrative data is used to minimize burden.

Changes: None.

Comment: One commenter suggested the likely result of these regulations would be a reduction in the number of institutions able or willing to sustain teacher preparation programs. The commenter added that this would constrict the pipeline of well-prepared, highly qualified teachers entering the profession at a time when schools across the country are already struggling to fill classrooms. In response, districts may be forced to rely more heavily on alternatively certified or under-prepared teachers, increasing the burden on schools to provide training and support while potentially impacting instructional quality and student outcomes.

Discussion: The Department developed these regulations carefully considering administrative burden. The WFTCA did not make any exceptions for teacher preparation programs, and the Department does not believe we have the authority to do so.

Changes: None.

Comment: One commenter asked the Department to ensure that smaller institutions are not disproportionately burdened by administrative requirements that could limit student access to workforce training opportunities.

Discussion: The Department appreciates the concern expressed by the commenter and took great care to consider administrative burden when developing these regulations. We are reducing the number of items that institutions are required to report and eliminating the burdensome framework for institutions to ensure that students access the Secretary's website to acknowledge viewing information about the outcome of accountability calculations. Additionally, we have continued to make great efforts to ensure that. wherever possible, existing administrative data is used to minimize burden to institutions and students.

Changes: None.

Comment: One commenter from a postsecondary institution indicated that the proposed rules would impose substantial new operational burden and cost on institutions at a time when colleges are already implementing other major federal reporting changes. That institution requested an alignment of definitions, reporting formats, and submission schedules across federal reporting requirements to minimize duplication.

Discussion: The Department appreciates this comment and the suggestion to align schedules across Federal reporting requirements. The Department took great care to consider administrative burden when developing these regulations, including with respect to maintaining consistency among items reported to the Department in multiple places, such as IPEDS. Wherever possible, existing administrative data is used to minimize burden. Additionally, as described above, these regulations reduce reporting requirements compared to the prior regulatory reporting requirements.

Changes: None.

Comment: Another commenter stated that they had concerns that proposed fixes--such as longer-term tracking or expanded data collection--would increase administrative burden while failing to capture true program value, particularly given career changes and variation in state licensing requirements. The commenter indicated that the issue was not simply how earnings are measured, but whether earnings alone are an appropriate proxy for the value of workforce education.

Response: The Department disagrees. We anticipate a reduction in reporting burden due to the new rules, and we believe this earnings metric will provide insight into program value in order to protect taxpayers and students through stricter oversight.

Changes: None.

Comment: One commenter from a postsecondary institution wrote that the burden imposed by the regulation does not reflect the true value of what institutions do. The commenter suggested that the regulations would also require significant time, staff, and money to gather and report the information. One commenter said they are concerned about the burden these regulations may place on smaller institutions with limited administrative capacity, as well as the narrow scope of the proposed appeals process. Institutions should have broader opportunities to demonstrate contextual factors affecting graduate earnings and professional outcomes. One commenter indicated that reporting requirements remain excessively burdensome for small nonprofit institutions, with staff and IT personnel spending more than 200 hours responding to compliance-related requirements. Another commenter expressed concern about the administrative burden these reporting requirements place on small career schools. The commenter indicated that such institutions already devote substantial resources and staffing to compliance and reporting obligations, and additional requirements would create significant strain without improving educational quality or student outcomes.

Discussion: The Department disagrees, especially since the regulations will result in a reduction in reporting burden due to the new rules. In addition, the Department believes this earnings metric will provide insight into program value in order to protect taxpayers and students through stricter oversight, which provides value that is more than commensurate with the burden that the regulation imposes.

Changes: None.

Comment: A few commenters indicated that reporting the data the government requires to determine eligibility will be a significant burden for their staff because obtaining information about the earnings of graduates is challenging and not currently performed by many institutions.

Discussion: The Department appreciates this comment, but notes that institutions are not expected to determine earnings for their programs' graduates. The Department is using a combination of existing administrative data and information from the IRS to perform this calculation, and this is intended to minimize burden on institutions. behalf.

Changes: None.

Comment: A commenter suggested the proposed changes could place additional administrative and financial burdens on schools without providing the support necessary to help students succeed. The commenter also expressed concern that limiting Pell Grant access primarily to certain workforce-driven programs may reduce flexibility for institutions and students alike.

Response: The Department developed these regulations carefully considering administrative burden. And although it is possible that programs could cease Pell Grant participation under these regulations, there are several steps before that sanction is imposed on an institution, and several options for an institution to avoid that outcome, including an orderly program closure or discontinuing Direct Loan participation for the program.

Changes: None. Sec. 600.10 Date, Extent, Duration, and Consequence of Eligibility, Sec. 600.21 Updating Application Information, Sec. 685.300 Agreements Between an Eligible School and the Secretary for Participation in the Direct Loan Program Summary

Sections Sec. Sec. 600.10 and 600.21 require a school to report all of its Direct Loan-eligible programs on its Eligibility Application (E-App). GE programs and eligible non-GE programs need to meet the requirements of STATS and earnings accountability to maintain eligibility for participation in the Direct Loan program. Currently only GE programs must be reported to the Department in all circumstances. Burden

These regulatory changes require an update to the current institutional application form, 1845-0012. The form update will be made available for comment through a full public clearance package before being made available for use by the effective dates of the regulations. The burden changes will be assessed to OMB Control Number 1845-0012, Application for Approval to Participate in Federal Student Aid Programs. Sec. 668.2 General Definitions Summary

Institutions will be required to incorporate several key definitions related to earnings accountability into their policies and procedures. Burden

Sec. 668.2 creates burden on institutions. Institutions will be required to review the new regulations (8 hours), identify the scope of the new requirements and updates needed (20 hours), amend their policies and procedures (20 hours), train staff (80 hours), and update relevant systems (160 hours). In total, the Department estimates this will take 288 hours per institution during the first year of implementation of these regulations.

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Sec. 668.14 Program Participation Agreement Summary

An institution is permitted to appeal the Secretary's determination that a program is a low-earning outcome program under Sec. 668.603(a)(2) based on the data used in the calculation. An institution is also permitted to appeal the Secretary's determination that a program has failed to meet the administrative capability conditions at Sec. 668.16(t) in two out of three consecutive award years. Burden

In the preamble to the Notice of Proposed Rulemaking (NPRM), the Department had originally estimated there would be 6,520 programs that failed the earnings premium the first year the calculation becomes effective. The Department now estimates that approximately 3,302 programs could fail the earnings premium measure. This slightly decreases our estimate of burden assessed in the NPRM for this regulation from 1,956 responses and 5,868 burden hours to 991 responses and 2,973 burden hours within the first 3 award years after implementation of the regulations.

We believe that a large majority of programs that fail in the first year will fail in the next, as described in the Regulatory Impact Analysis. For that reason, we anticipate that 40 percent of those programs will choose to do an orderly shutdown of the program that failed the earnings premium measure.

Of the remaining 1,981 programs, we anticipate that 50 percent of programs would seek an appeal, which is very common for institutions to do. However, the Department is also proposing to limit an institution's ability to appeal only in instances where the institution believes the Department erred in its calculations. These final regulations also provide an opportunity for programs to voluntarily opt-out of the federal loan program after the first year a program fails the earnings premium metric.

Taking these factors into consideration, we expect half (50 percent) of programs that fail the earnings premium metric to appeal the decision. If it takes an institution three hours to file an appeal, we anticipate this would increase 2,973 burden hours assigned to 1845- 0022 Student Assistance General Provisions. [GRAPHIC] [TIFF OMITTED] TR01JY26.108

Sec. 668.16 Standards of Administrative Capability Summary

Sec. 668.16 requires an institution to demonstrate that they have administrative capability by maintaining the standard that at least half of the institution's students and half of institutions' total title IV, HEA funds do not come from students enrolled in low-earning outcome programs. Failure to do so would cause the institution to be placed on a provisional PPA. Burden

The Department does not believe changes to 668.16(t) will increase burden on institutions, as administrative capability is an existing requirement of eligibility for Title IV, HEA funds. However, we believe it may take institutions time to acknowledge and understand the new requirements. For that reason, we are adding 1 hour of burden per institution the first year the rule is effective.

5,626 x 1 hour = 5,626 burden hours. Sec. 668.43 Institutional and Programmatic Information Summary

The regulation limits the requirements for providing a prominent link to the program information website to only pages containing cost, financial aid, or admissions information. This reduces burden on institutions. Burden

When the Department proposed Sec. 668.43 in 2023, it was estimated that these requirements would annually add an additional 5,230 responses and

261,500 hours of burden to 1845-0022. We now remove half of the burden for this regulation while retaining the current assessment of 5,230 responses per year.

261,500 hours/2 = 130,750.

5,230 responses. Sec. 668.91 Initial and Final Decisions Summary

The Department adds “eligible non-GE programs” to the requirements of these regulations. Burden

The Department does not believe this regulation adds additional burden to institutions because this regulation pertains to final decisions on punitive actions. Any burden an institution may face because of this regulation has already been accounted for elsewhere in this section. Sec. 668.401 Student Tuition and Transparency System Scope and Purpose Summary

Regulations require institutions to remove references to the debt- to-earnings metric and update, where necessary, the earnings premium metric. Burden

Prior to implementation of the regulations, institutions will be required to review the revised earnings premium measure (10 hours), remove any references to the debt-to-earnings metric, and add the revised earnings premium measure to policies, procedures, systems, operations (160 hours), and train staff (60 hours).

230 hours x 5,626 institutions = 1,293,980 burden hours. Sec. 668.402 Student Tuition and Transparency System Framework Summary

Section 668.402 amends the current FVT/GE framework. The Department removes the D/E rate metric and uses only an earnings premium measure. Burden

Sec. 668.402 decreases burden on institutions. The new approach uses significantly less data reported by institutions and instead relies on administrative enrollment data that institutions have become accustomed to reporting. Currently, there are 5,104,110 burden hours assigned to 1845-0184. With the new framework, institutions will still have recordkeeping and reporting requirements, however, the Department estimates the final rule will eliminate 30 percent of the currently assessed reporting burden. This results in a decrease of 1,531,233 burden hours every year.

30 percent of 5,104,110 = 1,531,233. Sec. 668.403 Calculating Earnings Premium Measure Summary

668.403 explains the process the Secretary uses to calculate the earnings premium measure. Burden

The Secretary is responsible for calculating the earnings premium measure; therefore, we are not changing any institutional burden based on this regulation. Sec. 668.404 Process for Obtaining Data and Calculating Earnings Premium Measure Summary

Section 668.404 of the regulations explains the processes for the Secretary to obtain data to calculate the earnings premium measure. The Secretary will send institutions lists of completers based on the requirements in this regulation. An institution will have 60 days from receiving the lists to correct any information on the lists. Burden

This would create burden on institutions. Sec. 668.403 would allow an institution to review information by the Secretary and correct the information, if necessary, within 60 days of receiving the list. While this regulation is permissive rather than instructive, the Department believes that 80 percent of institutions would still take time to review the information on the list provided by the Department. If it takes an average of 3 hours to review the information, this adds 13,503 burden hours to 1845-0022 per year.

Note that although this is not a new requirement, it was not reflected in the PRA analysis for the FVT/GE regulations in which this requirement originated. Therefore, the Department is calculating burden for this requirement in these regulations.

80 percent of 5,626 = 4,501 institutions.

4,501 institutions x 3 hours = 13,503 burden hours. Sec. 668.405 Determination of the Earnings Premium Measure Summary

Section 668.405 describes the notice of determination that the Secretary sends to institutions each year with information on the outcomes of their programs. Burden

The Department estimates it will take an institution 2 hours to review the notice of determination. This adds 11,252 additional burden hours in the first full award year following implementation of the regulations.

5,626 institutions x 2 hours = 11,252 burden hours. Sec. 668.406 Reporting Requirements Summary

Section 668.406 details the reporting requirements for these regulations. Burden

As stated in earlier sections of this NPRM, the Department estimates that under the regulations, there could be a 30 percent decrease in burden on institutions for reporting. In 2023, we estimated that the annual burden hours for all institutions for reporting would be 1,459,603 hours. The Department believes there will be a 30 percent reduction in burden and will remove 437,801 hours from 1845-0184 Earnings Accountability Reporting, Disclosures, and Warnings every year.

30 percent of 1,459,603 = 437,801 less burden hours. Sec. 668.601 Earnings Accountability Scope and Purpose Summary

Section 668.601 applies the earnings accountability program eligibility consequences to both GE programs and eligible non-GE programs. Previously, the program-level eligibility consequences only applied to GE programs. Burden

Institutions will be required to apply the earnings accountability metric to nearly all of their Title IV eligible programs. This will require an institution to review the new regulations and new metrics (8 hours), update relevant systems (100 hours), and update policies and procedures and train staff (100 hours). This would add 208 burden hours to institutions per year.

208 hours x 5,626 institutions = 1,170,208 total burden hours. Sec. 668.602 Earnings Accountability Criteria Summary

The Department amends and renames Sec. 668.602 to conform with regulations. Burden

We expect any burden stemming from this regulation will be minimal, as the regulation seeks to conform the

language in the regulation to align with new statutory requirements rather than alter any information collections. 668.603 Low-Earning Outcome Programs Summary

Under the regulations, a program that has failed the earnings premium measure metric, as long as it is not yet a low-earning outcome program, could conduct a voluntary orderly program closure. This would require the institution to meet certain program discontinuation requirements. A voluntary orderly program closure would allow the program to retain Direct Loan eligibility for no more than 3 years while currently enrolled students completed their program. Burden

In the preamble to the Notice of Proposed Rulemaking (NPRM), the Department had originally estimated there would be 6,520 programs that failed the earnings premium the first year the calculation becomes effective. As described earlier in the Regulatory Impact Analysis, the Department now estimates that approximately 3,302 programs could fail the earnings premium measure the first year the calculation becomes effective. Of the 3,302 programs, the Department predicts that 40 percent, or 1,321, will choose to complete a voluntary orderly program closure. Based on comparable situations, we anticipate it would take an institution 40 hours of preparation for an orderly program closure, which would include informing students and providing options and agreeing to amend their PPA. We estimate an additional 6 hours for reporting this information to the to the State, accrediting agency, and the Department. Because of the decrease in the estimated number of program failures since the publication of the NPRM, the burden in the final rule for this regulation has been reduced from 2,608 responses and 119,968 burden hours to 1,321 responses and 60,766 burden hours in the first 3 years the regulations are effective.

1,321 orderly program closures x 46 hours = 60,766 Burden hours. Sec. 668.604 Certification Requirements for GE Programs and Eligible Non-GE Programs Summary

Sec. 668.604 updates the eligibility requirements for participation in the Direct Loan program. Burden

These regulatory changes require an update to the current institutional application form, 1845-0012. The form update would be made available for comment through a full public clearance package before being made available for use by the effective dates of the regulations. The burden changes would be assessed to OMB Control Number 1845-0012, Application for Approval to Participate in Federal Student Aid Programs. Sec. 668.605 Student Warnings Summary

In the regulations, student warning requirements would be extended to eligible non-GE programs for both enrolled and prospective students. The regulations would also expand the content of the warnings to explain Pell lifetime eligibility used. Institutions would be required to send this warning when the Secretary notifies them of the potential that their program may become ineligible for some, or all, Title IV aid. Additionally, the institution will be required to provide a Pell lifetime eligibility warning each time Pell is disbursed.

The Department amends the description of academic and financial options from the current requirements of the student warnings. Burden

The Department estimates 831,000 students will need to receive such warnings. We believe it would take 5 hours to create this warning and an additional 1 hour per 100,000 students for review and transmission of the warnings, totaling 14 burden hours.

Institutions will also need to send the same group of recipients the Pell lifetime eligibility warning notification for each subsequent Pell disbursement. The Department believes it would take institutions 8 hours to create and implement this requirement. We estimate that subsequent warnings would take 1 hour per 100,000 students, adding 8.3 hours of burden. Pell disbursements may happen more than once during one award year. For this reason, we estimate 2 warnings per student per award year. This totals 16.6 hours of burden per award year.

5,626 institutions x 16.6 hours = 93,392 annual burden hours. Sec. 685.102 Definitions Summary

To implement the new provisions enacted in the WFCTA, we add definitions for eligible non-GE program and GE program to 685.102. Burden

Sec. 685.102 will require institutions to update their internal system definitions. We believe the burden to conform with these new definitions will be minimal as the definitions serve to provide consistency and clarity of these terms rather than change them.

With this final rule, the Department seeks to promote consistency across institutions and programs by harmonizing the existing FVT/GE framework with the earnings accountability framework established by the OBBB. As part of that harmonization and to reduce burden for institutions, we intend to merge the following existing approved information collections:

1845-0184 Financial Value Transparency and Gainful Employment Reporting Requirements.

1845-0174 Student Disclosure Acknowledgements.

1845-0173 Gainful Employment Student Warnings and Acknowledgments.

The Department requests to retain the 1845-0184 OMB Control number but amends the title of the collection to: Earnings Accountability Reporting, Disclosures, and Warnings.

The Department requests that OMB discontinue 1845-0174 and 1845- 0173 because the burden associated with those collections has been absorbed into 1845-0184. This final rule also amends 1845-0022 Student Assistance General Provisions.

The Department has also created a new collection, 1845-NEW Accountability Definitions. Burden for Sec. 685.102 is found in 1845- 0021 William D. Ford Federal Direct Loan Program (DL) Regulations. That collection, 1845-0021, was under review with the Reimagining and Improving Student Education (RISE) Notice of Proposed Rulemaking (NPRM) at the time this rule was being drafted. To accurately track the burden associated with the new regulations and definitions regarding these regulations at the same time as the RISE NPRM, the Department established a new collection to track burden for accountability changes in Sec. 685.102. Once all regulations are final, the Department plans to merge the new collection with 1845-0021 William D. Ford Federal Direct Loan Program (DL) Regulations.

Along with the two collections listed above, Sec. Sec. 600.10, 600.21, 685.300, 668.604 requires the Department to update 1845-0012, Application for Approval to Participate in Federal Student Aid Programs. Form updates to 1845-0012 will be completed through

the full clearance process prior to the date the regulations are effective.

For each regulation containing burden in this NPRM, we provide below our estimates for potential burden changes.

To estimate costs for institutions, we used the median hourly wage for Education Administrators, Postsecondary (11-9033) from the U.S. Bureau of Labor Statistics. In 2024 this was $49.98. To account for overhead costs and benefits, the Department has multiplied by this wage by two, resulting in hourly costs of $99.96. BILLING CODE 4000-011-P [GRAPHIC] [TIFF OMITTED] TR01JY26.099

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A Federal agency may not conduct or sponsor a collection of information unless OMB approves the collection under the PRA and the corresponding information collection instrument displays a currently valid OMB control number.

Notwithstanding any other provision of law, no person is required to comply with or is subject to penalty for failure to comply with, a collection of information if the collection instrument does not display a currently valid OMB control number.

E.O. 13132 requires us to provide meaningful and timely input by State and local elected officials in the development of regulatory policies that have Federalism implications. “Federalism implications” means substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. The proposed regulations do not have Federalism implications.

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