While some of the Department of Education’s controversial gainful employment rules were upheld, a decision issued by a U.S. District Court Judge vacated key provisions that would have removed federal funding to hundreds of vocational programs.
The gainful employment rules were enacted in 2011 in order to ensure student-aid funds go to vocational and technical programs that prepare students for well-paying jobs. The rules, which were scheduled to begin phasing-in this month with final implementation in 2013, would have required approximately 55,000 vocational programs around the country to meet at least one of three benchmarks in at least three of four consecutive years to remain eligible for student-aid.
Much of U.S. District Court for the District of Columbia Judge Rudolph Contreras’ decision ruled in favor of the Department of Education and rejected the Association of Private Sector Colleges and Universities broad-based challenge to the department’s authority to issue the rule.
Judge Contreras found that the gainful employment regulations are “a reasonable interpretation of an ambiguous statutory command;” namely that the Department of Education only provide funding to schools that prepare students for gainful employment in a recognized occupation. However, Judge Contreras determined that one of the benchmarks the Department used to determine the enforcement of the rule, that at least 35% of a program’s graduates be actively repaying their student loans, was not the product of “reasoned decision-making.”
The Department of Education stated that it chose the 35% threshold because, “approximately one-quarter of gainful employment programs would fail a test set at that level.” Judge Contreras determined that, because the department failed to provide a factual basis for why a repayment rate of 35% was a meaningful performance standard, the yardstick was capricious and arbitrary.
When the first draft of the gainful employment rule was announced in October 2010, the student debt-repayment threshold was set at 45%. The department decided to reduce the rate because of concerns that too many schools could lose financial-aid eligibility.
Judge Contreras also vacated three other parts of the rule because of their reliance on the debt-repayment metric. Even though one of the measures vacated, a provision that compared graduates’ debt to their earnings, was based on expert analysis and industry wide practice, the fact that it was intertwined with the debt-repayment measure forced Judge Contreras to vacate it.
The debt-to-earning provision restricted the median burden students could accrue to no more than 12% of aggregate annual income, nor 30% of their discretionary income.
Judge Contreras used the same reasoning to throw out a provision of the rule that would have required institutions to seek Department of Education approval before offering a new vocational program, and one that would have required institutions to provide the department with data for calculating the debt-repayment measurement.
A provision that requires institutions to disclose a vocational program’s cost as well as the median loan debt, placement rate, and on-time graduation rate for students was allowed to stand.
The ruling came just days after the Department of Education released data finding that roughly 5% of 3,695 programs at 1,336 schools surveyed risked losing student-aid funding under the gainful employment rule. The survey judged schools on their programs’ debt-repayment and debt-to-earnings rates. Had the original 45% requirement been applied to the data, the amount of failing programs would have risen to 16%.
Of the programs examined, which comprised 43% of the students in career training, 35% met all of the metrics while 31% percent met two of three, and 29% met one of the three. The 193 programs, at 93 institutions, that failed to meet any of the metrics were primarily those that train students for careers in security, medical-office assistance, and law-enforcement administration.
Many of the campuses in Career Education Corporation’s Sanford-Brown subsidiary, Corinthian College’s Everest division, and Education Management Corporation’s Art Institute group were amongst the schools that failed all three metrics.
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