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What is Gainful Employment?

Gainful Employment is a hot topic in the financial aid world! So how does it affect your school and students? What are some of the challenges it comes with? Let’s dive in and learn more about gainful employment! 

What is Gainful Employment (GE)? 

Gainful employment is when individuals have jobs that provide them with reasonable incomes, allowing them to afford basic life necessities. 

Students holding up different objects to represent their gainful employment careers.

What does Gainful Employment do?  

Gainful employment ensures that income earned from jobs is sufficient to cover essentials like housing, food, transportation, and other fundamental needs. Simply having a job is not always enough; it is also about maintaining it over time. Stable employment provides a sense of security and confidence for future planning.  

Individuals should have the opportunity to advance in their career and grow beyond entry-level positions. Those who learn to enhance their skills and work hard should have the opportunity to level up in their career. An element that is often overlooked in GE is job satisfaction. Being in a positive work environment often translates in higher productivity and a greater likelihood of long-term employment.  

Magnifying glass looking at Job opportunities

Gainful Employment Regulations: 

The Department of Education introduced new regulations concerning GE on May 19, 2023. The Financial Value Transparency (FVT) provisions are meant to enhance the amount and quality of information available to students prior to enrollment. 

These regulations include: 

  • Using both annual and discretionary debt-to-earnings (D/E) ratio to evaluate qualifications for Title IV programs. 
  • Setting the threshold for the discretionary D/E ratio at ≤ 20% and for the annual D/E ratio at ≤ 8%. 
  • If the program fails the metric in any two out of three consecutive years, it will lose Title IV eligibility 
  • Implementing a two-year cohort period and extending it to a four-year period for programs with fewer than 30 individuals who successfully complete the two-year cohort. 

Challenges with Gainful Employment: 

For-profit schools, especially health and beauty schools, are particularly affected by these challenges. Only certain types of financial aid are considered in the calculation of a student’s debt, and if students take out more loans than necessary, it can negatively impact the D/E ratio. In the health and beauty sector, where a significant portion of income often comes from tips that may not be reported for taxes, the reported income may be lower than what students actually earn. 

Employee putting cash tips in pocket

Title IV funding is important for many students to afford education. If a program fails for one year, the school must warn current and prospective students about the potential loss of Title IV eligibility, which may lead students to reconsider enrollment if they cannot afford it without funding. 

If you still have questions regarding Gainful Employment, reach out to our compliance department!  

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