NAICU Washington Update

Court Rules Against Portion of Gainful Employment Rule

July 05, 2012

The U. S. District Court in Washington, D.C., ruled against key portions of the Department of Education's Gainful Employment regulation, only hours before its July 1 effective date.  While the for-profit colleges - which brought the case to court - were gleeful in victory, it's not clear that the court ruling will help them in the long run.  (See July 3 Inside Higher Ed article)

In essence, the court ruled that, in meeting eligibility for federal student aid, one of the three criteria each career program must meet was arbitrary.  The section the court ruled against was the requirement that 35 percent of a program’s completers must be making loan repayments on their loans’ principal.  The judge ruled that the percentage was not based on any known standard.  Interestingly, this prong of the test actually protects five percent of all for-profit programs from failing the three-part test; without it, the failure rate of for-profit programs would rise from about 5 to about 10 percent.  (See June 26 Chronicle of Higher Education story)

Data issued earlier last week showed that, while 5 percent of for-profit colleges would have failed the test, no public or non-profit college would have failed. (See June 26 Inside Higher Ed article)

Because the 35 percent standard was so intertwined with the other two standards, the judge also struck down the rest of the test - but  indicated that the Department was fully within its authority to regulate in this area.

The ball is now in the Department of Education’s court.  In general, they appear to have two choices, each of which is costly and time-consuming:  (1) write a new regulation, which would require a new negotiated rulemaking process, or (2) pursue an appeal of the district court’s ruling.

The Department has posted a brief statement on its website, as well as a downloadable spreadsheet of all institutions' 2011 gainful employment "informational rates."

The district court ruling did vacate the gainful employment reporting requirements vexing so many institutions.  Still, a new regulation or a contrary ruling by a higher court could still cover current cohorts of students.  Early indications are that most colleges don't see themselves getting much relief from their need to track students.  Also, the ruling didn't vacate the portion of the rule on disclosure to prospective students.  This means colleges still have to provide them information on the occupations they plan to study, on-time graduation rates, tuition and fees, placement, and median loan debt rates.

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