Gainful Employment and Default Prevention: 5 Ways to Tackle Them Together

Submitted by: Shannon Cross, USA Funds account executive

Gainful employment and student loan default prevention. Both topics are of keen interest to the postsecondary education community, and both can have a significant impact on institutions and their students.

But the similarities don’t end there.

In fact, many of the widely accepted best practices for lowering your school’s cohort default rate can help your school meet the standards for gainful employment program performance as well.

Encouraging students to focus on loan affordability — borrowing only what their expected salaries will reasonably allow them to repay — is important for preventing default. As it turns out, it’s also critical in addressing gainful employment requirements. Whether you’re working to prevent student loan default or making sure your gainful employment programs lead to positive outcomes for your students, the key to success is being proactive.

What is ‘gainful employment’ all about?
Let’s set the stage by reviewing the requirements for schools with gainful employment programs.
Generally speaking, to award Title IV funds to students, an eligible academic program must lead to a degree, such as an associate or bachelor’s degree. An exception in federal regulations allows colleges and universities to provide federal financial aid to students who aren’t enrolled in programs that lead to a degree, but instead prepare students for “gainful employment in a recognized occupation.”
Any postsecondary institution offering what are considered gainful employment-eligible programs must comply with all gainful employment requirements, including current reporting and public disclosure requirements.

Last fall, new regulations imposed several additional requirements, effective July 1, 2015, including accountability measures. There are negative consequences for failure to comply or meet specific accountability thresholds. And several years down the road, schools with gainful employment programs that don’t meet those standards could risk losing the ability to award federal financial aid to students enrolled in these failing programs.

Why focus on gainful employment now?
Gainful employment deadlines are quickly approaching for schools to report data on all Title IV students enrolled in those programs. The U.S. Department of Education will use this data to calculate two gainful employment debt measures, which it will issue as draft rates beginning in 2016:

• Annual earnings rate.

• Discretionary income rate.

These rates will gauge how much students in a particular gainful employment program are borrowing, and whether they’re earning enough after leaving the program to support the repayment of that debt.
As with cohort default rates, gainful employment debt measures will examine the status of a cohort of students who were enrolled several years ago. For example, most students enrolling in gainful employment programs for the 2015-2016 award year will appear for the first time in the draft 2018-2019 debt measure calculations.

Now is the time to encourage these students to borrow wisely — through counseling, advising and financial education — so that their loan payments compare favorably to their income levels after they complete their program of study. Students will benefit from these efforts, and your school will be able to continue to provide federal financial aid to future students enrolling in your gainful employment programs.

Default prevention and gainful employment
Borrowers whose loan payments are affordable are less likely to default. These borrowers also are less likely to adversely affect your school’s cohort default rate or the debt measures calculated for your gainful employment programs. Prepare yourself for both default prevention and gainful employment success with a proactive approach focused on these five components:

1. Start early. The best opportunity to make a difference with cohort default rates is long before the Department issues the draft rate for any given cohort. The idea is the same with gainful employment: You can’t afford to wait to address the borrowing and employment issues that are key to your students’ success — and critical to achieving satisfactory results in gainful employment-related rates for each group of students.

2. Be consistent. Throughout students’ academic careers and beyond, find a variety of ways to emphasize the importance of limiting borrowing and being mindful of typical salaries in their chosen careers. Include lessons about managing money during school and beyond in loan counseling and in any supplemental information you share with your borrowers.

3. Get everyone on board. Default prevention is everyone’s responsibility, and gainful employment is no different. The consequences of poor performance in default prevention and in gainful employment programs can be dire — not just for the students in select programs, but for your entire institution and, in turn, students in all academic areas. After all, your school’s reputation could be at stake.

4. Reach out to career services. As you look to involve other areas of your institution in default prevention and gainful employment efforts, look to your career placement office. Staff there can help estimate starting salaries for relevant careers and help identify jobs that are a good fit for the training your program provides. When students have a realistic sense of how much they are likely to earn, they can make better decisions about borrowing. This information will help them manage their student loan debt.

5. Target your efforts. This default prevention best practice is a helpful tactic to employ in gainful employment efforts now. And, if program-level cohort default rate regulations emerge in the future, it might become even more important. Pay attention now to estimated cohort default rates for your gainful employment programs. Analyze your borrower populations and look for common, at-risk characteristics. If you discover that students in certain programs are more likely to default, you can target your default prevention and gainful employment efforts to focus on these at-risk borrowers.

For additional information about tackling both default prevention and gainful employment requirements, visit