Stats of the Week: New “Gainful Employment” Rule The Death Knell For For-Profit Law Schools?

Bad news for for-profit law schools.

A new U.S. Department of Education “gainful employment” regulation governing for-profit higher education institutions’ access to federal student loans went into effect this month. Access to federal loan money will be based on graduates’ incomes and debts, and this is dire news for for-profit law schools.

The new rule requires for-profit higher education institutions to meet minimum thresholds with respect to the debt-to-income rates of their graduates:

• Schools whose graduates have annual loan payments less than 8 percent of “total” earnings or less than 20 percent of “discretionary” earnings are considered to be in compliance
• Graduates with annual loan payments between 8 percent and 12 percent of total earnings or between 20 percent and 30 percent of discretionary earnings are considered to be “in the warning zone.” (C’mon! Why not “danger zone”?)
• Failure occurs if student debt payments exceed 12 percent of annual or 30 percent of discretionary incomes
• A school will be ineligible for federal loans if it fails both the discretionary income test and the annual income test in any two of three years, or is in the warning zone for four years

Only six ABA-accredited law schools are run for profit. (One of them, Charleston School of Law, has of course been a mainstay of these pages in recent months.) Those six schools are both heavily dependent on federal student loans and have awful debt/income outcomes.

Check out this table from a recent Amlaw piece by Matt Leichter:

source: The American Lawyer

The two annual income columns show the minimum average earnings graduates would need to either meet the minimum threshold or stay “in the zone.” (No data on debt for John Marshall apparently.) Ditto for the two columns for minimum discretionary incomes. For anyone who has been paying attention, those thresholds would seem unobtainable. It is hard to imagine the survival of these six schools if this gainful employment regulation is actually enforced. (Here is Leichter with a hypothetical look at how the gainful employment rule would affect all ABA-accredited law schools. Spoiler: it would jeopardize “at least 50 schools.”)

Sponsored