If you work in higher education administration or institutional research (IR), you've probably heard rumblings about new federal regulations around "financial value transparency" and "gainful employment" that are set to go into effect soon. But what exactly do these new rules entail, and how might they impact your institution?

The Financial Value Transparency (FVT) regulations and the Gainful Employment (GE) regulations are actually two separate but related sets of requirements from the U.S. Department of Education. The GE rules apply specifically to non-degree programs like certificates at public and private non-profit institutions, as well as nearly all programs at for-profit colleges. The broader FVT regulations, on the other hand, cover all Title IV-eligible programs at all types of institutions.

The stated purpose behind these new regulations is to address concerns that some educational programs are leaving students with unmanageable debt levels compared to their earnings after completing the programs. The Department wants to enhance transparency around the costs and outcomes of college programs to help students make more informed choices.

Under the FVT rules, schools will have to report a wide range of data to the Department for each Title IV-aided student in (nearly) every program, including details on enrollment, completions, withdrawals, costs, debt, and institutional aid. The Department will then calculate two key metrics for each program:

1. The debt-to-earnings (D/E) ratio, comparing typical student debt levels to the median earnings of program graduates.
2. The earnings premium, comparing the median earnings of graduates to the median for high school graduates in that state.

Programs that exceed the established thresholds for either the D/E rates or earnings premium measures could face various sanctions and requirements for consumer warnings. For GE programs specifically, failure to meet the standards for two out of three consecutive years could ultimately lead to a loss of Title IV eligibility.

The D/E measure sets reasonable debt burden thresholds at 20% of discretionary earnings or 8% of total earnings annually. If a program's typical graduate has debt payments exceeding those levels, it is considered to be failing the D/E metric.

As for the earnings premium metric, a program fails if the typical graduate's earnings don't exceed the median for high school graduates aged 25-34 in that state who are in the workforce. Essentially, the Department is saying that if college graduates with federal aid aren't out-earning high school grads on average, that program may not be providing sufficient value.

So what are the potential implications for colleges and universities? For one, there will be a major new reporting burden to provide all the required student-level data each year across all Title IV programs. Institutions will likely need to devote significant staff time and resources to compiling and submitting those annual reports.

There's also the possibility that some programs could fail the D/E or earnings premium tests and face sanctions like consumer warning requirements or even loss of federal aid eligibility for GE programs. The Department estimates that nearly 1 in 4 programs across the country could fail at least one of the two tests in a given year.

Public and private non-profit schools may have to start requiring prospective students to acknowledge when graduate, certificate, and other non-degree programs fail the debt-to-earnings ratio, essentially notifying them of potential concerns. That acknowledgement requirement does not apply to undergraduate degree programs, however.

For-profit institutions stand to be much more heavily impacted, as nearly 90% of students projected to be enrolled in failing GE programs attend those types of schools. If a GE program fails the metrics for two out of three consecutive years, it could become ineligible for Title IV funds like Pell Grants and federal loans.

Beyond just the regulatory requirements themselves, there are broader reputational risks as this program-level debt and earnings data becomes public. Students and families may use the information to compare programs across schools. There's also the potential for outside groups to create rankings or lists that could cast some programs or whole institutions in an unfavorable light based on the metrics.

Understandably, some in higher ed have raised concerns about the new regulations. Critics argue that looking only at early career earnings fails to account for the lifetime value of many degree programs. There are also potential issues around comparing regional economies and labor markets when the earnings benchmarks are set at the state level. Additionally, higher education provides many more benefits beyond career training.

However, supporters of the changes see them as a valuable way to crack down on predatory programs that really don't pay off for students. Advocates contend that increased transparency will incentivize colleges to keep costs down and maintain a strong focus on outcomes that translate to real-world career success for graduates.

Love it or hate it, the reality is that the new FVT rules are coming in July 2024. Institutions would be wise to start preparing sooner rather than later by assembling cross-functional reporting teams, taking stock of all programs and completers data, and developing processes to collect all required data elements.

There are some key strategic decisions to weigh as well, such as whether to opt for the "standard " reporting protocol that looks back at historical data for past cohorts, or the potentially less burdensome "transitional " approach that starts with just the two most recent award years. Factors like anticipated cost changes, closed programs, low-enroller issues, and private loan volumes could drive that choice.

The FVT and gainful employment regulations represent a seismic shift in federal oversight and reporting requirements for higher ed programs. Institutions would be wise to invest the time now to fully understand the new rules, assess potential impacts, and mobilize compliance efforts. Costly penalties and reputational damage could be on the line for those who fail to take these changes seriously.