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Gainful-Employment Rule Survives For-Profit Group’s Court Challenge

[Last updated at 8 p.m., 6/23/2015, with additional comments about the proposed rule and its effect.]

The U.S. Education Department’s gainful-employment rule is one step closer to taking effect.

A federal judge on Tuesday rejected a serious legal challenge, brought by the Association of Private Sector Colleges and Universities, to the controversial rule. The lobbying group’s lawsuit was the highest hurdle remaining for the proposed rule, which will judge career-oriented programs on their graduates’ ability to repay their student loans. The rule is slated to take effect on July 1.

The department originally introduced the rule in 2011. The effort was dealt a major setback a year later, when a section of the rule was thrown out as a result of an earlier court challenge by the association, the main lobbying group for for-profit colleges. The group’s second challenge, to a revised rule, used many of the same arguments, asserting that the department had exceeded its authority in issuing the rule and that the rule was capricious and arbitrary.

In his ruling on Tuesday, Judge John D. Bates of the U.S. District Court for the District of Columbia dismissed those claims, saying the association “throws a host of arbitrary-or-capricious arguments against the wall in hope of a different outcome. None of them stick.”

Arne Duncan, the secretary of education, said in a written statement that the ruling was “a win for America’s students and taxpayers.” He added that every student “who enrolls in college of any kind deserves a fair shot at a degree or credential that equips them for success,” and said the department would “continue to fight until that’s a reality.”

Also in a written statement, the private-sector association’s general counsel, Sally Stroup, said the group was “disappointed” in the court’s decision and was considering its options. “Indeed, as numerous commentators have observed, the primary impact of the regulation will be to deprive hundreds of thousands of students of access to higher education,” she added.

The final rule, which was released last fall, is expected to cause 1,400 programs, 99 percent of them at for-profit colleges, to be put at risk of losing eligibility for federal student aid.

The victory for the department occurred on the same day a committee of the U.S. Senate approved a spending bill that would ax the gainful-employment rule and the department’s college-ratings plan.

Young Invincibles, a nonprofit group that lobbied for a tough gainful-employment rule last year, said in a statement on Tuesday evening that lawmakers “should allow the rule to go into effect — as planned — on July 1. It’s long past time for failing programs to be held accountable.”

Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education, said the court’s ruling “was not a great surprise” because after the first rule was thrown out on legal grounds, “the department went to great lengths to make its regulation legally bulletproof.”

Mr. Hartle, whose organization has endorsed proposals to eliminate a number of Education Department regulations, including this one and the proposed college-ratings system, said he was not sure if the regulation would achieve the results its backers want. “No one really knows what the impact will be,” he said.

“It will create burdens for institutions,” he said, referring to the extra administrative and reporting requirements for many community colleges that offer career-focused certificate programs. Few such programs were predicted to fail any of the gainful-employment tests because those colleges don’t charge as much as for-profit colleges do. But community colleges are still required to administer the rule. And he said, “it may or may not provide information that will influence student decision making.”

Mr. Hartle also noted that many advocates of the rule were concerned that the revised regulation wasn’t tough enough to close down programs that are costly to students and leave them too deeply in debt. But after years of legal wrangling over the regulation, he said, “today’s decision pretty much guarantees that we’ll find out.”

Several for-profit-college companies said they had already taken steps in anticipation of the regulation, in some cases eliminating high-priced programs. Some, like ITT Educational Services, said they had also increased their spending on scholarships, which has reduced debt levels for students.

Despite the concerns of some student and consumer advocates over potential weaknesses in the regulation, Kevin Kinser, an associate professor at the State University of New York at Albany who studies for-profit colleges, said the revised rule was a step forward.

“There are very few ways to hold institutions accountable for the financial aid they are given,” Mr. Kinser wrote in an email to The Chronicle. “So now the Department of Education has another one. It’s the ‘skin in the game’ that Arne Duncan keeps talking about.”

“That said,” he added, “it’s pretty weak tea as far as immediate impact. But it’s a model for other kinds of accountability measures that could transform financial-aid policy from being only about access to something that actually cares about outcomes as well. That is something that all of higher education — not just the for-profits — should watch for.”

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