• July 24, 2014

Judge Refuses to Restore Vacated Provisions of 'Gainful Employment' Rule

A federal judge has ruled against the U.S. Department of Education on a motion asking the judge to modify part of a decision, issued last summer, that vacated key provisions of the department's controversial "gainful employment" rule.

In a ruling issued on Tuesday, Judge Rudolph Contreras of the U.S. District Court here denied the department's request for the court to reinstate the provisions that were invalidated.

The rule, which was released in June 2011, applies to most programs at for-profit institutions, and to non-degree-granting programs at public and nonprofit private institutions. Its intent is to ensure that federal student-aid dollars flowing to those programs are good investments and that the programs are preparing students for jobs that pay well.

The provisions of the rule that Judge Contreras invalidated last summer include three "debt measures" the department wants to use in determining whether programs are in fact preparing their students for gainful employment. Those measures would examine the income earned and debt repaid by students after leaving the programs, and would require institutions to meet at least one of three benchmarks in order to remain eligible to receive federal student aid.

One of the benchmarks would require that at least 35 percent of a program's graduates be actively repaying their student loans. The other two would require that the median student-debt burden of a program's graduates could not exceed 12 percent of those students' aggregate annual total income, or 30 percent of their annual discretionary income.

The Association of Private Sector Colleges and Universities, the main trade group for for-profit colleges, had sued to overturn the rule, arguing that the department had exceeded its authority in issuing the rule and had arbitrarily set the benchmarks.

In his ruling last summer, Judge Contreras affirmed the department's authority to issue the rule, but agreed with the association's argument that the department had set one of the benchmarks in an arbitrary manner. The other two benchmarks were "inextricably intertwined" with the faulty one, the judge ruled, and were therefore vacated along with it.

Daren Briscoe, a spokesman for the Education Department, said on Wednesday that the department was still reviewing the details of the judge's most recent ruling and were evaluating the next steps to "continue to focus on ensuring quality and affordability."

"America's students deserve career training that is affordable and leads to a good job in their chosen field," Mr. Briscoe said. "And taxpayers rightly expect their investment in federal student aid to reap returns for our economy and our nation."

Amy Laitinen, deputy director for higher education at the New America Foundation, said in a blog post that the judge's latest decision "could make it much more difficult to bring greater transparency and accountability to higher education as a whole."

Trace A. Urdan, a senior analyst at Wells Fargo, said the ruling was "a major victory" for colleges that offer programs subject to the rule. "It now cements the vacation of the gainful-employment rule and sends the department back to the drawing board on methods for justifying gainful employment," he said in a written statement.

U.S. Sen. Tom Harkin, an Iowa Democrat who is chairman of the Senate's education committee, expressed concern in 2011 that the rule, as issued, would not do enough to protect students and taxpayers from underperforming programs. On Wednesday he released a statement criticizing institutions that resist the gainful-employment rule while failing to meet its standards.

The results of preliminary data released by the department last year, he said, confirm that too many graduates of vocational programs are not making enough money to repay their loans.

"Instead of fighting in court the effort to protect students and taxpayers," Senator Harkin said, "I hope that the industry would instead take steps to reform and do a better job serving students so its colleges can meet these basic standards."

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