Judge strikes ‘gainful employment’ rule

Parts of the Education Department’s “gainful employment” rule are invalid, a federal judge ruled Saturday. The for-profit colleges’ trade association had challenged the rule, which could cut off student loan eligibility to vocational programs whose graduates don’t earn enough to pay off their loans. The department has authority to regulate career programs based on graduates’ earnings and debt levels, ruled Judge Rudolph Contreras of the U.S. District Court for the District of Columbia. However, the rule requiring at least 35 percent of graduates to be repaying their student loans was “arbitrary and capricious.”

. . . 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.

The rule’s other provisions, which compare graduates’ debt to earnings, “were based upon expert studies and industry practice—objective criteria,” the judge ruled.

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 Education Department also ordered institutions to disclose a vocational program’s costs, on-time graduation rate, job placement rate and median loan debt to potential students. That part of the rule will stand.

A 35 percent repayment rate is embarassingly low, writes Ed Sector’s Kevin Carey. Can the industry really make an argument for a lower rate? 

The for-profit industry’s trade group is standing up in front of the world and saying it can’t live with a rule that excludes programs from federal financial aid only if two-thirds of students are failing to pay loans back and–emphasis, and–the program also fails both debt-to-income measures, for three out of four years.

The Education Department is likely to appeal the ruling. The judge wants more justification for the repayment rate. That ought to be doable.

POSTED BY Joanne Jacobs ON July 3, 2012

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