Betsy DeVos Is Right about Gainful Employment

Last Friday, U.S. Secretary of Education Betsy DeVos announced she was killing off gainful employment rules governing for-profit colleges. These Obama Administration era regulations deny federal student financial aid to individuals attending institutions considered not having enough attendees “gainfully employed” after attending school.

On the face of it, this seems like reasonable regulation. Let’s direct federal aid to institutions where there are positive vocational outcomes for most students. However, the devil is in the details, and I believe DeVos made the right decision, for two reasons.

First, the Federal Reserve Bank of New York says that, as of March 2019, 41.3% of recent college graduates are “underemployed,” meaning they are working in jobs that are relatively low-skilled and filled usually by those with lesser education, such as high school graduates. The underemployment rate of all college graduates is also a very high 34.1%. Some of these folks are making a pretty good income (as some relatively lowly educated persons get good paying jobs), but most are not.

The supposition that college has or should have a primary purpose of preparing persons for jobs is debatable, and beyond that there are respected economists (e.g, Bryan Caplan at George Mason University) who have argued exhaustively that little of the higher typical earnings of college graduates is actually attributable to employable skills gained while in college. College degrees are screening devices enabling employers to identify the best, brightest, most reliable and productive potential workers from the rest.

Given this, the whole concept of “gainful employment” is flawed. A school taking in high-performing high school graduates will likely have most of them “gainfully employed” a few years later, even if the college itself added little to the individual’s productivity. Moreover, many would argue that the “bottom line” of college is far more than getting good jobs. Good universities teach virtue, civic responsibility, and other things. Moreover, as Mike Rowe (of “Dirty Jobs” TV fame) and others have demonstrated, many persons with not necessarily high-paying blue collar jobs lead very satisfying lives.

But there is a second reason why gainful employment rules as constituted during the Obama years were inappropriate. They only applied to for-profit schools. They created an uneven playing field among schools competing for students. Public and not-for-profit private universities, constituting 90% or more of enrollments, were exempt from the regulations. Why? The real reason, I feel sure, is that the gainful employment rules were targeted at putting the for-profit institutions out of business, because of a progressive view that “people should not profit off of learning—education is an ennobling activity that should not be sullied by those with the selfish motive of trying to make a profit.”

To be sure, there were a fair number of “bad actors” in for-profit higher education, delivering little of value to students hoodwinked into enrolling in their programs and mounting sizable federal student loan debts. But the same thing can be said of those attending many public universities. Using U.S. Department of Education data, I quickly found three public universities where fewer than one-third of their students graduate within six years, less than one-third had paid down at least one dollar of their outstanding student debt, and where those attending averaged at least 20% less in annual earnings than what the Census Bureau says is the average of full-time adult high school graduates. If public universities were subjected to the same gainful employment rules, there would be an uproar as taxpayer supported institutions were effectively put out of business by the federal government.

The U.S. Constitution says nothing about education, but proclaims (Tenth Amendment) that “powers not delegated to the United States by the Constitution…are reserved to the States respectively, or to the people.” Constitutionally, the feds should not be regulating universities. The immediate solution, however, is to find new, non-governmental ways of financing college, such as privately funded Income Share Agreements, and/or to make schools accountable for student loan debt defaults (make them have “skin in the game.”) Then there would be little need for gainful employment rules, and a level playing field would be reestablished. Who cares about the profit status of colleges? What is important are results.

My newest book is Restoring the Promise: Higher Education in America, published by the Independent Institute.