The U.S. Department of Education could soon revoke access to federal loans for degree and certificate programs that result in low salaries as a new accountability initiative. A total of 53 programs across half of North Carolina’s community colleges could be impacted, namely teacher education and professional development, cosmetology and health and medical administrative services, as well as a handful at some of the state’s four-year institutions.
But it may not make as big of a splash as it seems.
The proposed rule states undergraduate programs will no longer be eligible to receive federal loans, meaning students could not utilize loans they are granted to attend such programs, if the median earnings of an undergraduate program’s graduates does not exceed the median state earnings for high school graduates.
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It’s intended to hold colleges and universities accountable, particularly those with “predatory” programs that do not have a worthwhile return on investment for students. In certain cases, institutions could lose the ability to provide Pell grants.
The Education Department has identified 53 programs at 29 of North Carolina’s community colleges that would potentially fail the earnings test, as well as four-year institutions including Shaw University, North Carolina A&T, UNC-Greensboro and UNC-Wilmington. Several institutions that provide exclusively cosmetology and spa services education also had some programs identified.
Jeremy Bauer-Wolf is investigations manager at New America, a left-leaning think tank focusing on education, security and democracy issues. He told Carolina Public Press that the proposed rule on federal loans stems from the former President Barack Obama-era Gainful Employment Rule, which sought accountability for vocational schools, for-profit institutions that provide specialized training for a trade.
The Obama administration put forth the Gainful Employment Rule to acknowledge and amend how students would often go to these schools and end up defaulting on their loans or racking up significant debt compared to if they had attended a public institution or a private nonprofit school. Iterations of the rule have been floating around in the years since but often get tied up in legal challenges.
But there’s been a new appetite among President Donald Trump’s administration and conservatives broadly to ensure federal dollars for education are being spent wisely and, in turn, to “tackle some of the waste in our system,” Bauer-Wolf said.
Federal loans rule might have less impact in NC
Brian Merritt, Chief Academic Officer at the North Carolina Community Colleges System, said the NCCC System has always been built around affordability, so only about nine of its institutions participate in the federal loans process at the moment, and some of those are currently reevaluating. For this reason, he expects the proposed rule to have minimal impact on NCCC schools.
“When you look at our tuition as a whole — $76 per credit hour — especially compared to the states around us, we are just so affordable that we’re less exposed to the proposed federal loan accountability provisions than many college systems are going to be impacted by nationwide,” he said.
“So we have paid attention to it. We know that it’s coming. Obviously there are some programs that really are critical to workforce needs, but may be subject to these provisions. Just think about early childhood or human services or public safety, things like that, that are essential to North Carolina’s economy, but they may not meet the provisions in the rule. That would be unfortunate.
“… But again, our colleges, many of them leverage the state funding that’s available, we leverage other grants and financial opportunities that are available to our colleges through Next NC Scholarships, and many of our colleges have payment plans as well.”
NCCC System President Jeff Cox, who is retiring from the role later this month, has emphasized during his leadership how community colleges should and can be drivers of economic mobility, Merritt said. That means focusing on return on investment for students, but that’s not necessarily the most important aspect of an education, Merritt said.
Because of that, it’s a balancing act for community colleges to decide what programs they offer and who exactly they are serving when making those choices. A lot of community college programs are needed to provide important services to local communities, but their importance isn’t always reflected in the paycheck.
“There’s workforce value and societal value, and they’re not always the same thing,” Merritt said.
“We rely on educators and caregivers and public safety personnel and human services professionals and all those people that contribute to society, but it’s not reflected in earnings in the data alone. So … our colleges are constantly weighing the need to be able to deliver for North Carolina and for society and for their local workforce, but also have a balance of opportunities to provide for folks.”
Education Department falls short?
The proposed rule on federal loans is a great first step in accountability, Bauer-Wolf said. But it’s a lot gentler than the earlier initiatives, and that could have a detrimental effect on low-income students in particular.
“This would limit programs that are saddling students with debts that they wouldn’t be able to otherwise pay off, and certainly we will see some programs shut down, and deservedly so, because of this,” he said.
“But I want to be clear here that I definitely think the Education Department could and should go a little bit further.”
Under the initial Gainful Employment Rule, programs failing the earnings test would not have had access to any federal financial aid, such as Pell grants or work-study programs. In the new set of accountability metrics, institutions only miss out on receiving federal loans and, in some instances, Pell grants.
The institution will only lose the ability to provide Pell grants if programs that don’t pass the earnings test account for at least half of an institution’s federal aid recipients or half of federal student aid funds.
This is a significant change, Bauer-Wolf said, because predatory programs often target low-income students, the demographic most likely to utilize Pell grants. And coupled with other recent changes, it could lead to a lot more stress on the program.
“The trickle-down effect of students — they won’t be going to these potentially predatory programs, but we would love to see overall federal aid be walked back from these programs, especially because, historically in the last several years, the Pell grant program hasn’t been funded in the way that it should be, and we’re staring down some shortfalls in that program,” he said.
“Now that the Education Department will allow Pell grants to flow to these programs that are still not giving students great outcomes, there’s going to put more financial pressure on the Pell system.”
Researchers at American University found that more than 600 out of the 2,800 programs the Education Department identified actually would likely pass the earnings test, including many in North Carolina, based on their own analysis “after they corrected an apparent error in the earnings thresholds colleges must meet.”
The Education Department withheld data for smaller programs but plans to gather additional data to determine which programs have earnings below the required benchmarks, the Washington Post reported.
There could have been errors in the early research due to the limited staff the Education Department is working with since cutting hundreds of employees, thus losing a lot of institutional knowledge, Bauer-Wolf said. But it also speaks to the gentler approach it is taking compared to the Gainful Employment Rule.
“There is a desire to both sort of publicly proclaim ‘We are for accountability metrics,’ but as we’ve discussed, they could go a lot further in this,” Bauer-Wolf said.
“If we’re seeing some programs that might be flagged as problematic, but still aren’t falling under these new accountability metrics, I would say that might be a consequence of the department applying too light of a touch on this.”
An official earnings test would be conducted in early 2027, and programs would not begin to lose access to federal loans until mid-2028. The NCCC System is unlikely to make any drastic changes if the rule is to go into effect, Merritt said.
“We’re continuously looking at the value of our programs and looking at making sure that our programs are relevant to the workforce needs of their service areas,” he said.
“So I think that when it comes to these proposed rules, I wouldn’t want to see, and I wouldn’t expect our colleges and our presidents of our colleges to discontinue early childhood education or human services or public safety. Those are meeting certain criteria that are established by the feds. … At $76 a credit hour, I think that we just don’t feel the need (to make changes). Many colleges have moved away from participating in the federal student lending over the years, so we’re just less exposed to the federal loan accountability, and I think our colleges have discovered that.”
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