Why Puerto Rican For-Profits Are Exempt From New Gainful Rule

The Biden administration’s new accountability and transparency rules are supposed to ensure students aren’t ripped off by failing academic programs. However, those safeguards won’t extend to students in Puerto Rico and other American territories.

The Education Department decided to exempt institutions in Puerto Rico and the territories from the accountability provisions in its new gainful-employment rule finalized last month, citing concerns over the reliability of earnings data on the island. The rule requires programs at for-profit institutions—as well as nondegree programs in any sector—to pass two tests: One, can graduates afford their yearly debt payments? And two, are they making more than an adult in their state who didn’t go to college? Programs that fail those metrics can lose access to federal financial aid—except in Puerto Rico and the other territories.

The exemption could leave students vulnerable in Puerto Rico, where three times more than the national average attend for-profit colleges and nearly 75 percent of all undergraduates are Pell Grant recipients. (About a third of students in the United States over all receive a Pell Grant.)

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Puerto Rican for-profit institutions argued that the gainful rule could irreparably harm the island’s population, economy and multiple industries by cutting off financial aid and therefore access to career programs that fuel the workforce. About 40 percent of all graduates on the island receive their certificate or degree from a proprietary institution, and for-profits award more than 75 percent of the associate degrees and postsecondary certificates in Puerto Rico, according to the institutions.

“With the economic conditions and the different challenges that employers have been facing, such as Hurricane Maria, bankruptcy, earthquakes and COVID-19, Puerto Rico will need a mechanism that can provide more options to the students in different areas of study,” the Puerto Rico Chamber of Commerce told the Education Department in a comment.

Deborah Santiago, chief executive officer of Excelencia in Education, an advocacy organization focused on Latino student success in higher education, said the exemption seems like a “cop-out” and can send a message that the students at for-profit institutions don’t matter as much as others. She’s concerned about what it will mean for students on the island. After all, she said, “these are all U.S. citizens at birth and under the protection of the U.S. Department of Education and the standards that are set for what is a quality education.”

In 2022, nearly 18,000 students in Puerto Rico and other territories were enrolled in programs that failed at least one of the gainful tests, according to an analysis of a federal data set released in May examining the impact of the rule. The programs that failed received $80 million in federal financial aid in 2022. Over all, the federal government sent more than $1 billion to the territories in loans and Pell Grants that year.

The U.S. has five territories along with three freely associated states, which are in independent countries such as the Republic of the Marshall Islands that have agreed to a Compact of Free Association with the United States. Puerto Rico—the largest of that group—had more than 200,000 students receiving federal financial aid in 2022. It’s also the only territory or freely associated state with failing gainful-employment programs. Most of the advocacy for an exemption or change to the rule came from Puerto Rican institutions and representatives, per a review of public comments.

Over all, about 14 percent of Puerto Rican programs that would’ve been subject to gainful employment fail, according to the analysis. That’s one of the highest fail rates among the states and territories—second only to Louisiana, where 15 percent of programs failed. Nationally, about 5.5 percent fail.

A department spokesperson said in a statement that the agency “will continue to monitor how these institutions serve their students and might adjust our approach in the future.”

For-Profits Push for Exemption

For-profit institutions in Puerto Rico said in public comments on the proposed regulations that the Education Department failed to account for Puerto Rico’s “unique circumstances.” They pushed for a three-year moratorium but got a blanket exemption. The Puerto Rico Chamber of Commerce and several members of Congress echoed the for-profits and supported the delay.

“While we acknowledge the Department’s worthwhile goal of ensuring graduates have adequate earnings and manageable debt, the fact remains that the proposed GE rule is designed in and for the mainland United States—to apply it to Puerto Rico without acknowledging the different economic and social realities on the Island would lead to devastating and unintended consequences,” officials with NUC University in Puerto Rico wrote in their comment.

NUC is one of the largest providers of for-profit education on the island. Officials with NUC did not respond to a request for comment.

The university and others argued that earnings data for Puerto Ricans are unreliable and that gainful regulations could hinder access to higher education on the island. Puerto Rico doesn’t have a community college system, so students are more reliant on for-profits for career-oriented training, they argued.

“Forcing Puerto Rico’s proprietary institutions to close would not cause students to attend a different institution—it would leave many of them without viable access to any institution,” NUC officials wrote. “These individuals would have to abandon their pursuit of higher education entirely, or seek opportunities on the mainland, exacerbating PR’s already-severe population loss.”

Prompted by the for-profits’ comments, the department investigated data-quality issues in Puerto Rico and other territories, finding that the earnings data weren’t reliable enough to calculate an earnings premium or to gauge whether a student’s debt was affordable.

“While we considered using a different threshold, such as 150 percent of the Federal Poverty Level, available data … suggested this approach would yield a threshold that is dramatically higher than high school earnings,” department officials wrote in the final rule. Federal poverty guidelines don’t include the territories.

Thus, all programs in the territories are exempt from most of the requirements in the department’s new financial value transparency framework as well as the accountability provisions in the gainful-employment rule.

That means the department will still report debt and earnings for programs, but institutions won’t face any consequences for what those data say about their student outcomes. Institutions will have to report data annually on how many students complete or withdraw from programs and student-level information about the cost of those programs. But the department won’t calculate whether a program provides students with an earnings premium—or more money than what a high school graduate makes.

Most of the programs in Puerto Rico that would’ve been subject to the rule would fail the earnings test, according to the analysis of federal data.

‘Higher Standards’

Santiago, with Excelencia in Education, said that she understands the data challenges. But she would’ve preferred to see the department outline a plan to gather and improve the earnings data “rather than just giving them a blanket permission slip to not be accountable.”

“I do think it’s going to be a challenge for folks who are looking at … the value of the education that students who are in for-profit institutions on the island are getting,” she said. “Without this earnings premium test and the ability to look at the data, it’s an unanswered question.”

Excelencia in Education calculated an earnings premium for Puerto Rico, finding that low-income students saw a higher return on investment compared to those of the 50 states and District of Columbia.

Santiago said she’s not swayed by the argument that the exemption is needed to ensure access to higher education. “I don’t want to minimize that access to opportunity,” she said. “But I think we need to have higher standards of what [students are] getting access to and what they’re paying for, and a little bit more of a guarantee that if [students] do their part, the institutions will do their part.”

Rima Brusi, a professor at Northern Arizona University who previously taught at the University of Puerto Rico–Mayagüez and has written critically about for-profit education on the island, said the exemption will hurt Puerto Rican students. The institutions “will be selling degrees that are not probably not going to improve the situation on the island,” she said.

Brusi co-authored a paper for the Century Foundation, a progressive think tank, with Ricardo Fuentes-Ramírez, a professor of economics at the University of Puerto Rico–Mayagüez, about how for-profit colleges and universities have sought to fill gaps left by Puerto Rico’s public university system, which has faced a number of budget cuts over the years.

“The island needs a higher education system that values and treats Puerto Rico’s students as the nation’s future, and not as mere consumers tasked with generating profits,” Brusi and Fuentes-Ramírez wrote. “We urge policy makers to take all this into account, increase investment in public higher education, and put systems in place to keep for-profit institutions accountable.”

Brusi said students who stay on the island are “desperate to increase their chances of getting a decent job.” However, the current economic state of Puerto Rico means that “even if the degrees were worth something, they still will be unlikely to get a job at that level,” she said.

“If the for-profits can produce some programs that give people earnings and don’t leave them in desperate debt, then hey, welcome,” she said. “That’s not what I’m seeing. But as long as they don’t report it, there’s no way of knowing.”