Judge Strikes Main Element of For-Profit College Rules
Judge Strikes Main Element of For-Profit College Rules
By TAMAR LEWIN, New York Times, 7/1/2012, original
A federal judge in Washington has overturned a main component of the federal Department of Education’s “gainful employment” rules, which were applied to career-training programs and were hotly contested by for-profit colleges, saying that regulation was arbitrary.
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The ruling by Judge Rudolph Contreras of Federal District Court was released on Saturday.
The gainful-employment regulations, which were issued last year and were scheduled to go into effect on Sunday, were devised to prevent for-profit colleges, which get the bulk of their revenues from federal student aid, from leaving students with huge debt loads and credentials that provided little help in landing them a job.
Under the regulations, programs had to meet one of three tests or lose their eligibility for federal student aid: at least 35 percent of graduates must be repaying their loans, the typical graduate’s estimated annual loan payments must not exceed 12 percent of earnings, or they must not exceed 30 percent of discretionary income.
But Judge Contreras ruled that the 35 percent debt-repayment standard had no basis. “No expert study or industry standard suggested that the rate selected by the department would appropriately measure whether a particular program adequately prepared its students,” the opinion said. “Instead, the department simply explained that the chosen rate would identify the worst-performing quarter of programs. Why the bottom quarter? Because failing fewer programs would suggest that the test was not ‘meaningful’ while failing more would make for too large a ‘subset of programs that could potentially lose eligibility.’ ”
The judge left standing the disclosure portion of the regulations, under which career-college programs must disclose to students their graduation rate, their placement rate and their students’ median debt load.
A spokesman for the Department of Education, emphasizing that the judge had not rejected the concept of such gainful employment regulations, said the ruling would probably lead to another round of examination of where benchmarks should be set.
“The court clearly upheld our authority to regulate career-college programs while urging a clearer rationale for standards around repayment rates,” said Peter Cunningham, a spokesman for the department.
At the time the regulations were issued, even as the for-profit colleges said the department was overreaching its authority, many consumer and student advocacy groups said the benchmarks were set too low to ensure any real protection for students.
For-profit colleges, which tend to attract the poorest and least-prepared students and offer programs far more expensive than those at community colleges, account for about 10 percent of the nation’s college enrollment, but nearly half the defaults. And with student debt a growing problem, legislators and advocacy groups have become increasingly concerned about the role the for-profits play in leaving a generation of students mired in debt that they will not be able to repay.
The Department of Education issued data on Tuesday showing that 5 percent of career-training programs, all of them at for-profit institutions, failed all three requirements of the department’s new gainful-employment regulations. That initial report had no consequences, though, since the regulations are not yet fully in effect. No program will lose federal aid until at least 2015, and even then, schools will lose their aid eligibility only if they fail all three tests for three of four consecutive years.
Only about a third of the programs met all three tests. And while many of the programs with the worst numbers were small local operations, some large, publicly traded for-profit college companies, notably Corinthian Colleges and the Education Management Corporation, performed poorly as well, with a significant share of their programs failing the tests.