Gainful Employment Rules Survive Another Hurdle, Judge Strikes Down For-Profit College Industry Lawsuit

Gainful employment rule: 2, for-profit education industry groups: 0. A federal judge struck down a second lawsuit to block new regulations aimed at reining in for-profit colleges set to take effect in just one week.

The Associated Press reports that the U.S. District Court for the District of Columbia Judge John Bates upheld the rules, putting an end to the second of two lawsuits filed by the for-profit education sector intended to diminish or block provisions that would penalize for-profit colleges if too many of their graduates failed to succeed.

For-profit colleges, which receive about 90% of their funding from student aid, have continually come under scrutiny for failing to demonstrate that students could find gainful employment in the fields in which they had been trained.

The Association of Private Sector Colleges and Universities filed the 77-page lawsuit [PDF] lawsuit back in November 2014, asking the court to strike down the gainful employment rule, saying that such regulations are “unlawful, arbitrary and irrational and will needlessly harm millions of students who attend private-sector colleges and universities.”

The suit – which named Secretary of Education Arne Duncan as a co-defendant – called into question the Department’s central feature of the regulation – a test to determine if a school has provided adequate tools for students to find employment – saying it “lacked reasoned basis.”

In his 37-page opinion, Judge Bates dismissed APSCU’s argument, ruling that the Department of Education has the right to demand that schools show their graduates make enough money to repay their student loans.

“Of course, the association might not agree with the department’s explanations,” he wrote. “But that alone does not make them irrational, arbitrary, or capricious.”

General counsel for APSCU, Sally Stroup, tells the AP that the group is disappointed in the court decision and would continue to consider other options.

Under the new rules [PDF], which take effect July 1, for-profit colleges will be at risk of losing their federal aid should a typical graduate’s annual loan repayments exceed 20% of their discretionary income, or 8% of their total earnings.

Discretionary income is defined as above 150% of the poverty line and applies to what can be put towards non-necessities.

So for example, say the typical recent graduate of a career education program earns $25,000. That student would need to average annual student loan payments less than $2,000, or the school would be at risk for losing federal financial aid.

According to the government, about 1,400 programs serving more than 840,000 students would not pass the new accountability standards set forth in the finalized rules, but ASPCU says those finding are unsubstantiated.

The court’s decision to uphold the upcoming rules was met with approval from several legislators who have worked to bring the unscrupulous nature of some for-profit colleges to light.Illinois Senator Dick Durbin called it “good news for students – too many of whom have been lured into worthless for-profit college programs that leave them deep in debt and unable to find a job.”

“Multiple attempts by the for-profit college industry to escape accountability and block the implementation of the Gainful Employment Rule have now failed,” Durbin said in a statement. “In light of this clear court ruling, any attempt by Congress to block implementation of these regulations is nothing more than shielding an industry that accounts for 44% of all student loan defaults from the scrutiny it deserves.”

Tuesday’s court decision comes just less than a month after the U.S. District Court of New York ruled against the for-profit industry in a similar suit. 

While Bates’ ruling is a victory for the upcoming gainful employment rules, the regulations continue to face opposition from not only the for-profit industry but legislators.

Just last week, the House Appropriations Committee released a spending bill that would prohibit the Dept. of Education from enforcing the rules.

According to the bill [PDF], the Dept. of Education would not be allowed to use its funding to “implement, administer, or enforce the final regulations” related to gainful employment.

That includes preventing the Department from moving forward with establishing a college ratings system, placing new requirements on teacher preparation, defining “credit hour,” and dictating how states must license institutions of higher education.

While gainful employment rules will still go into effect as planed on July 1, if the proposed provisions gain approval and are signed into law, the new protections would be repealed in October.

US court upholds tough rules on for-profit college loans [The Associated Press]