Federal Judge Strikes Down Gainful-Employment Regulation

A Washington federal judge struck down part of the federal government’s “gainful employment” rule that the Department of Education applied to for-profit career colleges in an effort to hold the post-secondary institutions more accountable for the success of their students post-graduation, last week.

Judge Rudolph Contreras of Federal District Court overturned the debt repayment component of the regulation on June 30, just one day before the measures were scheduled to go into effect.

Secretary of Education Arne Duncan released benchmark data late last month, demonstrating how for-profits have fared in meeting the “gainful-employment” regulations – 5 percent of “career training” colleges did not meet regulation and risk losing their federal aid.

The "GE" rules won't reprimand programs until 2015, as the regulations require the schools must meet one of three gainful-employment tests for three out of four consecutive years:

• 35 percent of students must be repaying their loans.
• average loans payments can't exceed 12 percent of total earnings.
• student debt payments can't be more than 30 percent of their discretionary income.

Judge Contreras ruled that the 35 percent debt-repayment portion of the test was irrelevant to judging for-profit programs.

“No expert study or industry standard suggested the rate selected by the department would appropriately measure whether a particular program adequately prepared its students,” the opinion read.

Colleges are still required to disclose graduation rate, placement rate and students’ median debt load under the ruling.

Peter Cunningham, a spokesman for the Department of Education, said the judge hadn't entirely struck down the gainful employment regulation concept-- just the logic behind why a graduates ability to repay their student debt should be taken into account at all.

“The court clearly upheld our authority to regulate career-college programs while urging a clearer rationale for standards around repayment rates,” Cunningham said.

For-profit schools who accept federally funded student aid typically charge 75 percent more for tuition than their peer organizations, and a quarter of for-profits receive 80 percent of their revenue from student aid. Only 12 percent of higher education students attend a for-profit college, but they constitute nearly half of all student loan dollars in default.

Though for-profit colleges have hotly contested the regulations, many higher education experts have said the regulations are not overly burdensome.

“These aren’t the strictest standards,” Stephen Burd, senior policy advocate at the New America Foundation, said. “That there are programs at 93 schools that don’t meet any of the three [standards] should raise alarms, and the fact we aren’t doing anything about them for a long while from now is worrisome.”

Melissa Brown is a journalism intern for Campus Progress.

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• higher education
• for-profits