Given high unemployment rates over the past few years, you may be thinking of returning to school to enter a new career offering higher job security or pay. As you begin to research different programs, take advantage of the new Gainful Employment law which requires private career schools to supply students with some key facts about cost, loan debt, potential salary, and job placement.  By comparing these facts between schools, you’ll be able to make a better decision on which program to attend.

Most career programs advertise that graduates of their schools will be able to to find competitive-wage jobs easier than those who did not receive such training. The gainful employment legislation basically requires schools to verify that this claim is true and to make the data publicly available on their websites for prospective students.  If they don’t, they can lose the option to offer government-backed financial aid.

The Gainful Employment legislation applies a special formula to career-oriented programs to determine which programs lead to gainful employment upon graduation. The term “gainful employment” refers to entry-level jobs that are expected to show enough of a salary growth rate that graduates will be able pay for living expenses, pay off their loans, and build savings.  Important to note is that the gainful employment legislation applies only to for-profit career colleges and to students enrolled in non-degree career-oriented programs within public and private schools.  Many such non-degree programs award certificates upon completion.

Gainful employment is affected by student loan obligations. Most students who attend career programs take out government-based student loans to meet tuition and related expenses. These loans will then need to be repaid after graduation and this debt can substantially influence whether graduates have indeed obtained gainful employment.  If students must spend a large part of their salaries to pay back the loan, can this job then be accurately defined as gainful employment, with the word gainful implying that the student earns over and above the amount needed to meet expenses? For example, if a student earns $1300 per month but must make a loan payment of $350 how much is then left over for rent, living expenses, and savings? More precisely, what has been gained? Students must earn a salary that will be sufficient to help them meet all expenses with enough left over to live comfortably and build savings.

Here are some important metrics with regard to student loans are the repayment rate and debt-to-student ration:

  • Repayment rate requirement: This requirement stipulates that 35 percent of graduates must be repaying their loan on time, as demonstrated by a loan balance that goes down by at least $1.00 over the year (as determined by loan size).
  • Debt-to-discretionary income ratio: The regulation holds that the annual loan payment does not exceed 30 percent of a graduate’s discretionary income (income earned after paying taxes). For example, if a student earns $32,000 per year in discretionary income, the annual loan payment cannot exceed 30 percent of this figure or $9,600 ($32,000 x .30).
  • Debt-to-total earnings:  This means that the annual loan payment cannot exceed 12 percent of the graduate’s total annual earnings (before taxes). For example, if the student earns $35,000 in total earnings, the annual loan payment cannot exceed $4,200 or 12 percent of this figure ($4,200 x .12).

Criteria for successful loan payments include:

  • Loan balance reduced by at least $1.00 per year; or
  • Loan is paid-off in full or;
  • Loan is forgiven due to public-service employment (e.g. teachers or nurses working with underserved populations) or;
  • The student is making payments on an interest-only basis or income-based repayment plan.

As per the Gainful Employment legislation, career programs are now required to provide this data to all prospective students. Information on each of the above metrics and other aspects of the gainful employment legislation, along with tuition costs, placement rates, and courses of study may be found on school web sites. Most schools have provided a link to the gainful employment regulations. These links may be titled “Gainful employment disclosures”; “Student Consumer Information; “Consumer Disclosure”. You might also type “Gainful employment into the search bar of the school Web site or Google “{School name} Gainful Employment.”

When considering costs be sure to consider actual tuition as well as associated fees such as books and supplies. From this figure determine how much you will need to borrow and then peruse the salary data for your program which may be found in the career/placement office of the school. If the results do not satisfy the above requirements in terms of debt-to-earnings ratios, you may want to consider another program where the numbers may work better for you.

When you research salaries, keep in mind that the figures will likely be provided as a median or average and that graduates earn both below and above the stated numbers. Verify the school’s figures by researching current salaries for your field on such sites as salary.com or payscale.com. These sites allow you to narrow your search to location and year’s of experience.  You want to know the lowest salary you might earn so you can plan appropriately in terms of future loan obligations.