Judge Strikes Down Several Provisions of ‘Gainful Employment’ Rule

A federal judge has vacated several provisions of the controversial “gainful employment” rule, which the Department of Education issued last year in an effort to ensure that federal student-aid dollars flowing to vocational programs were good investments and helping prepare students for jobs that pay well.

The decision, by Judge Rudolph Contreras of the U.S. District Court for the District of Columbia, was released Saturday in a case brought by an association that represents for-profit colleges, which have lobbied strongly against the rule.

Much of the ruling goes in the department’s favor, rejecting a broad challenge to its authority to issue the rule. “The gainful employment regulations are a reasonable interpretation of an ambiguous statutory command: that the Department provide Title IV funding only to schools that ‘prepare students for gainful employment in a recognized occupation,’” Judge Contreras wrote.

In looking at how the department arrived at the benchmarks it set for enforcing the rule, however, the judge found that one of them, a debt-repayment measure, was not the product of “reasoned decision-making.” That measure requires that at least 35 percent of a program’s graduates must be actively repaying their student loans.

But Judge Contreras says the department failed to provide a factual basis for why a repayment rate of 35-percent would be a “meaningful performance standard.” Instead, he wrote, it has said it chose that figure “because approximately one quarter of gainful employment programs would fail a test set at that level.” But the department could have chosen a percentage under which only one-tenth of the programs would have failed and justified it by the same rationale, he said. Therefore, he accepted the argument that the standard was arbitrary and capricious.

The judge rejected a similar argument against the rule’s other debt measures, which compare program graduates’ debt to their earnings. Those, he said, “were based upon expert studies and industry practice—objective criteria upon which the Department could reasonably rely.” But because the debt-to-income measures were intertwined with the debt-repayment measure, he said, he had to vacate them too.

By the same reasoning, he also vacated two other provisions that rely in part on the debt-repayment measure: one that requires institutions seeking to offer a new vocational program to get prior approval from the Education Department, and one that requires institutions to provide data to the department for calculating the debt measures.

The judge allowed to stand another provision that the college association had challenged. That provision, the disclosure rule, requires institutions to disclose to potential students information about a vocational program’s costs, the on-time graduation rate for students who have completed the program, and the placement rate and median loan debt for those students.

Steve Gunderson, president and chief executive officer of the Association of Private Sector Colleges and Universities, which brought the lawsuit, praised the ruling. “We are very pleased to report nearly all of the regulation’s overreaching elements were vacated,” he said in a written statement. He added that the association looks forward “to working with the federal government to prepare more Americans to compete successfully for 21st Century jobs and to move our nation’s economy forward.”

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