NAICU Washington Update

Court Rejects Attempt to Resurrect Gainful Employment Rules; Decision Relies Partly on Student Unit Records Ban

March 28, 2013

Efforts by the Department of Education to reverse the June 30, 2012, U.S. District Court for the District of Columbia decision that shut down parts of its controversial gainful employment regulations have failed. Judge Rudolph Contreras’ March 19 decision to deny the Department’s motion to alter his earlier ruling, relied, in part, on the prohibition against creation of a federal student unit record data system.

Background: The 2012 Decision

The Department’s gainful employment (GE) regulations are the centerpiece of a 14-part set of rules designed to combat fraud and abuse in student aid programs. In essence, the GE rules would eliminate from student aid eligibility any credentialing programs in which a high proportion of graduates – the Department’s benchmark was 35 percent - were not making enough progress in repaying their student loans. Although there have been some mistaken suggestions that the regulations apply only to for-profit institutions, in fact, they apply to the credentialing programs in all sectors. Therefore, the majority of post-secondary institutions also are affected by the GE rules.

The for-profit sector vigorously fought the rules, both on Capitol Hill and in court. The court battle resulted in Judge Contreras’ June 2012 decision finding that the 35 percent benchmark was arbitrary. The judge vacated three related regulations governing gainful employment programs pertaining to: (1) notice and approval of new gainful employment programs, (2) information about students in those programs, and (3) the income earned and the debt held by those students. He also vacated the requirement that institutions report student and program information to the Department of Education. As a result of those sections being struck down, the GE regulations effectively lost their teeth.

The rules were not totally rejected, however. The court left in place the requirement that, for their gainful employment programs, institutions disclose the occupations that students plan to study, on-time graduation rates, tuition and fees, placement, and median loan debt rates. Therefore, despite the court’s ruling, most institutions have continued to face a significant reporting burden (see earlier articles in Washington Update).

The court confirmed that the Department had a right to regulate in this area, but found that it had failed to provide an adequate explanation for setting its debt repayment benchmark at 35 percent, which was an essential element of the disputed regulatory approach. The court expressly suggested that the Department consider offering a more coherent rationale.

The New Ruling

In July 2012, the Department filed a motion asking the court to amend its ruling. However, in his decision denying that motion, Judge Contreras held that the Department still had not provided an adequate rationale for its 35 percent benchmark. Rather, he said, the Department had simply argued that it needed the information the court had invalidated in order to support those parts of the regulations that were still in effect. That circular argument did not sway the court.

In his decision rejecting the Department’s motion, Judge Contreras relied heavily upon a 2008 prohibition against any federal student unit record data system other than those already in existence for Title IV purposes. With a detailed and revealing analysis of the student unit record ban, the court denied the Department’s motion because the gainful employment rules – which went into effect after the 2008 prohibition became law - would have collected information on all students, and not only those receiving federal student aid, thereby violating the ban.

The new ruling leaves in place the disclosure requirements of the regulations, although the court acknowledged that institutions will find it difficult to obtain the information necessary to disclose the median loan debt for their programs. The decision could affect other data collection efforts that seek personally identifiable information, as well as make further appeals by the Department difficult.

For more information, contact: 

Susan Hattan, (student unit records)
Maureen Budetti, (gainful employment)

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