Appeals Court Shuts Down For-Profit College Industry’s Effort To Avoid Accountability

Image courtesy of (D. Michelson)

The for-profit college industry lost an important legal battle today, when a federal appeals court upheld last year’s lower court ruling in favor of new regulations intended to hold these controversial schools accountable.

One of the most frequent criticisms of for-profit schools is that they charge tuitions similar to private universities, but provide training that could be obtained for significantly less money at community and city colleges. Many students at for-profit colleges take student loans to cover their costs, but these students often have significantly higher delinquency and default rates on their loans.

For nearly half a decade, the U.S. Department of Education has been battling with the for-profit education industry over the so-called “gainful employment” rules, which require schools to demonstrate that a sufficient number of their graduates are going on to earn manageable livings, ideally in their fields of study.

Industry lobbyists were able to scuttle the first attempt at drafting these rules, but in 2014 the government tried again.

In Oct. 2014, the Education folks finalized the rules. Under these guidelines, 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.

But before the rules could go into effect, industry trade groups sued to block them from being enforced.

In one complaint, the Association of Private Sector Colleges and Universities (APSCU) said the rules are “unlawful, arbitrary and irrational and will needlessly harm millions of students who attend private-sector colleges and universities.”

Both lawsuits eventually failed at the District Court level. In May 2015, a federal judge in New York upheld the rules, noting that the “DOE has a strong interest in ensuring that students – who are, after all, the direct (and Congress’s intended) beneficiaries of Title IV federal aid programs – attend schools that prepare them adequately for careers sufficient for them to repay their taxpayer-financed student loans.”

A month later, a D.C.-based District Court threw out the APSCU’s lawsuit, pointing out that just because the industry doesn’t agree with the rules, “that alone does not make them irrational, arbitrary, or capricious.”

Losing in the courtroom, the industry pulled the pursestrings on Capitol Hill and pushed for lawmakers to attach riders to important pieces of legislation. These add-on pieces of political pork would have blocked regulators from enforcing the gainful employment rules. Cooler heads prevailed and the riders were among several anti-consumer items axed from the final budget bill.

Meanwhile, the APSCU appealed the District Court ruling, arguing that “gainful employment” referenced in federal law only requires that schools train students for paying jobs, not jobs that provide them employment meeting regulators’ arbitrary metrics.

But the appeals court disagreed.

“The educational programs at issue must ‘train’ students to ‘prepare’ them for ‘gainful employment,’” reads today’s opinion [PDF], referring to the language in the statute. “Those verbs suggest elevation to something more than just any paying job.”

The court also noted that Congress could have simply chosen to use the term “employment” if that’s what it meant, but that lawmakers specifically used the words “gainful employment” in a “recognized” profession or occupation.

“It would be strange for Congress to loan out money to train students for jobs that were insufficiently remunerative to permit the students to repay their loans,” concluded the appeals panel. “And it would be a perverse system that, by design, wasted taxpayer money in order to impose crippling, credit-destroying debt on lower-income students and graduates. Had Congress been uninterested in whether the loan-funded training would result in a job that paid enough to satisfy loan debt, it would have created a federal grant system instead of a federal loan system focusing on preparation for gainful employment.”

In response to today’s ruling, APSCU president and CEO Steve Gunderson said the industry wants to work with regulators.

“Judging an academic program by a debt to income ratio does not define academic quality. If it did, many programs all across higher education would fail,” said Gunderson in a statement.