Education Department Asks Court to Reinstate Some Reporting Requirements of Gainful-Employment Rule

July 31, 2012

The Department of Education has asked a federal court to modify part of a decision issued on June 30 that vacated key provisions of the department's "gainful employment" regulations.

In a motion filed on Monday, the department argued that the court should reinstate the requirement that institutions report information about their students' loan-repayment rates and debt-to-income ratios. The court incorrectly threw out the reporting aspect of the rule, the department argues, based on a "misunderstanding" of the complexities of the regulations and how the debt measures are calculated.

The gainful-employment rule, issued last year, was set to begin taking effect the day after the court ruling came out. It applies to most programs at for-profit institutions and nondegree-granting programs at public and nonprofit private institutions. The rule was designed to ensure that federal student-aid dollars flowing to those programs are good investments and are helping prepare students for jobs that pay well.

While the court ruled that the department had the authority to compel vocational programs to disclose their debt-repayment rates and debt-to-income ratios, it said that the department's threshold for declaring a program failing—a determination that could eventually lead to the loss of federal aid—was arbitrary and capricious. The department's benchmark required that at least 35 percent of a program's graduates be actively repaying their student loans to pass that metric.

In its ruling, the court said that the department could require programs to disclose gainful-employment measures to prospective students, but that the information did not have to flow through the department first.

In the motion filed on Monday, however, the department argues that the court erred in assuming that institutions could calculate those measures on their own. In fact, the programs must provide some data to the department in order to calculate some of the measures, it says. For example, the institutions must provide student data to the department so that it can obtain from the Social Security Administration the earnings data needed to determine debt-to-income ratios.

In addition, even though the court struck down penalties for programs that perform poorly on what it viewed as ill-conceived metrics, the department argues that there is still value in having institutions report those metrics to the department.

"Requiring institutions to report student-loan-debt data to the department will ensure that valuable information is disclosed to prospective students," Justin Hamilton, a department spokesman, said in a written statement. "Institutions can also use this data to evaluate and improve programs that are not serving students well."

The department did not seek a full appeal of the case on Monday, and is still deciding how to proceed. "We're still weighing all our legal and regulatory options," Mr. Hamilton said.

The Association of Private Sector Colleges and Universities, the main trade group representing for-profit colleges and the plaintiff in the lawsuit against the department, said on Tuesday that it was reviewing the department's filing and declined to comment further. The association declined the department's offer to join the motion, according to the court filing.

Correction (8/1/2012, 12:47 p.m.): This article originally misreported the types of colleges and universities that would be subject to the gainful-employment rule. It would apply to most programs at for-profit institutions and nondegree-granting programs at public and nonprofit private institutions. It would not apply to "nondegree-granting vocational programs at both for-profit and nonprofit institutions." The article has been updated to reflect this correction. A previous article that employed the same language has also been corrected.