WASHINGTON (CN) – A federal judge vacated a new federal rule that would have allowed the Department of Education to kill some federal funding to profit-seeking colleges if a certain percentage of their students could not repay their student loans.
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The Department of Education proposed its rule in 2011, after congressional investigators found widespread fraud in chain colleges’ recruitment and advertising.
But U.S. District Judge Rudolph Contreras vacated as arbitrary and capricious the rule that would test for-profit colleges’ compliance with federal regulations by examining the debt, earnings and debt repayment status of former students.
The rule would have allowed federal funding to such schools to be killed if 35 percent of their former students couldn’t pay off their student loans.
“The Department has set out to address a serious policy problem, regulating pursuant to a reasonable interpretation of its statutory authority,” U.S. District Judge Rudolph Contreras wrote in a 38-page ruling. “But it has failed to provide a reasoned explanation for a core element of its central regulation. Both that regulation and those that depend upon it must therefore be vacated.”
It’s a big victory for the Association of Private Colleges and Universities, which represents profit-seeking colleges. The industry was smarting – in the public eye, if not financially – after an August 2010 Government Accountability Office report that found all 15 of the chain colleges it investigated made “deceptive or otherwise questionable statements to GAO’s undercover applicants.”
The Association of Private Colleges and Universities sued the U.S. Department of Education, challenged the rule it published in 2011. The rule put in peril profit-seeking schools’ federal money, provided under Title IV of the Higher Education Act, if too many graduates could not pay off their loans with the jobs they received after college.
In other words, the federal government would determine the success of colleges by measuring students’ debt against their earnings.
The Association claimed the federal government exceeded its statutory authority by interpreting the meaning of “gainful employment,” which fails to consider other employment factors, such as individual choice and market demand.
“Although the Association rightly notes that the Higher Education Act only requires that certain programs prepare students for gainful employment and not that they guarantee it, the adequacy of a program’s preparation is difficult to measure – and it is reasonable to consider students’ success in the job market as an indication of whether those students were, in fact, adequately prepared,” Contreras wrote.
Current and former students of for-profit schools have filed more than 100 lawsuits in recent years, including several class actions, accusing the schools of fraudulently marketing substandard programs and milking the government for federal money using bogus enrollment statistics.
The association has fought to clean up its image in the press, taking out full-page ads in major newspapers, including The New York Times, claiming that profit-seeking schools help disadvantaged students, including minorities, single parents and poor people, who allegedly account for a large sector of students at the schools.