In Case You Missed It

By Bob Kerrey and Jeffrey T. Leeds

Virtually all middle-class jobs now require postsecondary skills and credentials. Yet as many middle- and lower-income families and students adjust to the reality that college has become a necessity rather than a luxury, the luxury price tag that college commands is less and less affordable. Many students need to take on large amounts of debt, and these loans often are a real burden, particularly in a troubled economy with too few well-paying jobs.

In his desire to make college more affordable, Secretary of Education Arne Duncan this month proposed 73 pages of so-called Gainful Employment rules that no doubt will sound good when applause lines are written. The regulations basically propose to cut off federal student aid to certain colleges whose former students don't enjoy "gainful employment," as determined by the department and measured by factors such as their loan-repayment rate. In fact, the regulations are a terrible idea.

This is the department's second attempt in this area. In 2011, it promulgated a first set of gainful employment regulations, which were struck down in 2012 as arbitrary and capricious by a federal judge in Washington, D.C.

The secretary's latest proposal is more onerous, and in our view, even more arbitrary and capricious. Moreover, rather like the promises made with ObamaCare, the bad design and unintended consequences of the new proposed regs will overwhelm the stated policy objectives. And as with ObamaCare, the federal government is insisting it knows better, will do better, and gets to make not only the rules, but the decisions previously made by individuals with their families. The gainful employment rules will, in fact, make it harder rather than easier for low-income families to send their kids to college.

Here's why.

The rules are poorly designed. To give just one example, the proposed regulation will cap graduates' annual debt payments to 8% of their third- and fourth-year postgraduation earnings. If they are any greater, the school program from which the student graduated will lose its ability to accept federal aid—even if each and every graduate pays back his or her loans fully, and on time. As one liberal Democratic senator who almost always supports the administration recently told us, it's just absurd to penalize college programs with successful debt-repayment histories.

Another problem: Institutions are likely to admit fewer poor students who have to finance their education. The more a student borrows, the less well the program is assessed by the feds. Under the rule, a program scores well under the proposed Education Department regulations if it admits wealthy students who can pay their own way. The exact same program may fail simply by admitting students who need to borrow. Other factors that reflect a school's success in helping its students—graduation rates, job-placement rates, debt-repayment rates—don't count.

Moreover, and equally strangely, the rules only look at the income of the graduate, even though family income determines a student's eligibility for financial assistance under the department's existing lending rules. Family members often help make the decision to take on debt and often help pay off the loans. It takes a family to put a kid through school—as everyone other than the Education Department seems to know.

The rules also will work against those who need aid in order to pursue important jobs that aren't that lucrative. Think of aspiring teachers, nurses, ministers, social workers and skilled laborers, for example. If they're unlikely to earn enough money relative to their debt, they may struggle to find a program willing to accept them.

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