Gainful Employment Take Two: Concerns for Rural Community Colleges

Introduction

Last week, we wrote about the new gainful employment (GE) rules that go into effect this summer, along with the history and motivation of the GE policy. Beginning in July, higher education institutions across the country must begin submitting detailed data to the U.S. Department of Education (DOE) on all programs that are eligible for federal financial aid, namely the Pell Grant and federal student loans. All programs at for-profit institutions and non-degree programs at nonprofit institutions (including all community colleges) are subject to GE scrutiny, which includes an earnings premium (EP) test. Programs that do not pass this test could lose financial aid eligibility as early as 2026.

The motivations behind the policy are noble. The primary goal is to protect students and their families from enrolling in programs that do not result in expected wages after completing a postsecondary education. In addition, the federal government aims to protect taxpayer dollars that are used to fund these programs via federal financial aid. However, we believe that community colleges, especially those in rural areas, are likely to be disproportionately harmed by the EP test — likely an unintended consequence of the policy.

The Outsized Role of Federal Financial Aid at Community Colleges

Federal financial aid is a key funding source for all community colleges. More specifically, the Pell Grant is one of the primary funding sources for almost all community colleges. Federal student loans are also a revenue source, but it is generally much less important to a community college's revenue stream because many students do not need to take out federal student loans due to the relatively low cost of community college attendance. Last month, one of our colleagues explained how the Pell Grant works and its importance for community colleges across the Fifth District and beyond.

Anticipated Impacts to Community Colleges

Administrative costs will burden small schools.

While only certificate programs are subject to GE eligibility and accountability requirements, community colleges must submit detailed program data for all programs that receive revenue from federal financial aid under the Financial Value Transparency framework. Many rural schools are resource constrained, and staff may lack the capacity or expertise to collect and report additional data. The Association for Institutional Research suggests that "institutions will likely need to set up teams of staff to manage these new reporting requirements," including staff from the offices of institutional research and effectiveness, information technology, financial aid, and the registrar. These submissions will be required on top of the schools' regular submissions to the Integrated Postsecondary Education System and to the National Student Loan Data System, but no additional funding is provided to cover these increased administrative burdens. At schools where staff have responsibilities beyond their formal roles, time spent on GE data collection and submission could mean time away from more direct student support and instruction.

Earnings and cost of living are often lower in rural areas.

Most federal aid recipients at community colleges receive Pell Grants rather than loans, so the EP test is the consequential metric for most programs. With limited exceptions, the DOE will compare a cohort's annual median earnings three years post-completion to the annual state median earnings for the reference group — labor force participants with no more than a high school degree who are ages 25-34.

For example, consider the EP test for a cohort of 40 students who earn a one-year certificate in early childhood development. The students in this cohort could range significantly by age, family situation, gender, race/ethnicity, and career goals. For the program to remain eligible for federal financial aid, the cohort median income would have to exceed Virginia's median income for the reference group ($25,569 in 2019). This reference group could include:

• A significantly different demographic composition than the certificate program cohort. Child care workers are predominantly women and often women of color, who have broadly lower wages than White male workers.
• Workers who are 10-15 years into their careers. A 33-year-old non-degree-holding welder may not be an appropriate reference group member for a recent certificate completer.
• Workers who have obtained high value non-credit credentials. For example, workers who graduated from high school and transitioned into the workforce but earned stackable credentials through on-site training or through non-credit programs at local community colleges.
• Individuals from more affluent parts of the state. The early childhood graduates from rural community colleges, many of which are located in counties with wages that lag the state average, will be compared to the overall state median wage for the reference group. In Virginia, this means that rural certificate completers will be compared to a reference group that includes individuals from more affluent parts of the state such as Northern Virginia.

Community colleges are often the sole public provider of credentials for important career pathways that have low wages relative to other occupations. In May 2022, the U.S. Bureau of Labor Statistics estimated that for child care workers in Virginia, regardless of education level, age, or experience, the median wage was $28,038, while the median wage across all occupations was $48,298. There is also considerable variation in child care wages within the state. Part of the differential in pay across counties reflects the differing cost of living between rural and urban areas. For example, the average weekly wage paid by private sector child care services employers surveyed in the third quarter of 2023 was $349 in rural Campbell County. In urban Arlington County, the average wage was $829. Comparing entry level wages in rural areas to state median wages disadvantages graduates from rural GE programs. Additionally, while certain certificates like early childhood education may not yield a high wage three years post-certificate completion, it can be an important step into the labor force for some individuals. They may still make less than the median high school graduate, but they may have increased their own personal income potential considerably.

Requirements could worsen worker shortages and economic opportunity in rural communities.

Using a sample of programs from the 2022 Program Performance Data, the DOE estimates that 3,149 undergraduate programs in the Fifth District would be subject to the new GE rules. These estimates use rather broad industry codes (4-digit Classification of Instructional Programs (CIP)). However, once the policy is in effect, schools will submit data for programs using more narrow industry codes (at the 6-digit CIP level), so the actual number of programs subject to the GE rule will be higher than estimates show. For example, the DOE estimates calculate GE metrics for CIP 5139 — Practical Nursing, Vocational Nursing and Nursing Assistants — which could include both nursing assistant certificate (CNA) programs and licensed practical or licensed vocational nursing programs (LPN/LVN). In contrast, schools will need to submit data for each covered GE program individually. According to estimates, nearly three-quarters of the programs subject to GE scrutiny (2,338 programs) are certificate programs offered at one of the Fifth District's 121 community colleges. Every community college has at least one GE program, and some have as many as 49 programs. The 73 rural community colleges in Maryland, North Carolina, South Carolina, Virginia, and West Virginia account for 1,212 of the GE programs in the Fifth District.

Of the 2,338 GE programs identified among Fifth District community colleges, the DOE had sufficient data to calculate the one-year rule impact estimates for 53 programs (2.2 percent of GE programs) due to data limitations. Of the programs, 13 failed at least one metric (including eight at rural community colleges), and 40 passed both tests. The lack of data included in the rule impact estimates creates considerable uncertainty as the rule goes into effect. At rural Fifth District community colleges, the certificate programs likely to be subject to GE tests are concentrated in health, engineering, business, and computer/information science fields. The DOE expects that programs in the culinary arts, family and consumer sciences, and health fields are most likely to fail at least one of the GE tests. Within the health professions and related programs, the top 4-digit CIP category is practical nursing, vocational nursing, and nursing assistants. The credentials in this category, particularly CNA, are often early steps for community college students pursuing more advanced nursing degrees.

On aggregate, the DOE estimates that the total number of students affected at nonprofit schools will be small. However, even a handful of programs at risk of losing eligibility at rural community colleges could have significant consequences for the students, schools, and communities affected. Many rural areas are in dire need of child care workers, nursing assistants, and mental health counselors. The starting wages for these tend to be low and often don't reflect the critical input role they play. Losing training programs in rural communities may increase existing shortages of health care workers in rural areas.

Eligibility requirements could threaten the unique mission and role of community colleges.

If a school closes a program in which a student planned to enroll, what are his or her options? One goal behind the GE rules is that by pulling funding from low-quality programs, students will select into high-quality programs. At a community college, students may have the opportunity to switch to a similar program at the same institution in their field of choice if that program is available. For example, if a school ends its CNA program due to lost federal funding, a prospective student could opt to enroll in its LPN program that passes the GE tests, or even its associate degree in nursing (ADN) program instead.

However, this substitution is not as easy as some might think. Some students do not have the opportunity or flexibility to enroll in a longer-term academic program. A student interested in a short-term credential and opportunity to gain workforce experience prior to advancing his or her nursing career may have to travel to another geographic area if he or she wants to become a CNA. For many community college students who represent a broad cross-section of the population, this may not be a viable option as the next closest community college could be far away. Another alternative is switching to a different field entirely in order to remain at the community college, which may be a good fit for some students. For others, it may mean they delay or cancel their plans to attend community college and enter the nursing field.

Locally focused education and training is a mission unique to community colleges: Students can develop workforce skills and earn credentials without leaving their community. In many cases, those skills remain in the community and benefit the local economy, such as adults who want to transition careers, upskill, or reenter the workforce while staying close to home. Community colleges also represent an accessible and approachable step for young students to find their footing in the workforce, build confidence, and successfully transition into adulthood. The faculty and staff care deeply about their communities and are committed to supporting students within and outside the classroom. For rural communities and students who deeply value the familiarity and support system close to home, relocating to attend a program that passes the GE metrics has significant trade-offs.

Conclusion

While the EP achieved from consuming higher education is certainly an important benefit, it is not the only value that students, and society, receive from that consumption. This has long been established in both the economics and education literature and is acknowledged in the preamble to the DOE's final rule. Individuals with more education are typically more engaged citizens, have better health outcomes, lower unemployment rates, and are less likely to rely on government support, just to name a few. While these benefits seem to be accepted and established for those with degrees, there is far less acknowledgement or understanding about the benefits from shorter-term credentials, like certificates. The GE earnings test only applies to these non-degree programs at community colleges. As we discussed in last week's article, this is primarily due to the wording of the Higher Education Act of 1965, which lumps non-degree programs with all for-profit institutions. Is this grouping of programs appropriate nearly 60 years later? Is it fair to hold certificate completers to different standards than associate and bachelor's degree-holders? As we discussed in last week's article, this is primarily due to the wording of the Higher Education Act of 1965, which lumps non-degree programs with all for-profit institutions. Is this grouping of programs appropriate nearly 60 years later? Is it fair to hold certificate completers to different standards than associate and bachelor's degree holders?

There is no doubt that market wages in some fields are lower than necessary to sustain a family. Our primary question is how can a community college impact these wages directly? If their early childhood program loses federal financial aid eligibility, and they can no longer offer it unless wages increase (relative to the state median wage), what levers can they utilize to make this change? Can the quality of the community college itself increase wages in a significant way? This seems unlikely in most circumstances.

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.