For-profits challenge 'gainful employment' rules

Lawsuit calls regulations 'unlawful, arbitrary, and irrational'

The trade industry of the for-profit higher education sector filed a lawsuit on Thursday challenging recently announced "gainful employment" standards.

The lawsuit against Education Secretary Arne Duncan by the Association of Private Sector Colleges and Universities (APSCU) challenges the so-called 'gainful employment' rules the Obama administration published last week. Under the rules, schools may lose eligibility for the $22 billion in federal student aid given annually if they cannot show that their graduates make enough money to pay back student loans.

DOE announces 'gainful employment' regulations, receives criticism from all sides

The requirements are the Obama administration's second attempt at regulation—a judge threw out the first version in 2012 for being too arbitrary.

Approximately 1.3 million students were enrolled at a for-profit college last spring, according to the National Student Clearinghouse Research Center, and the industry has the lowest graduation rates—but highest student loan default rates.

Background on the rules

Going into effect July 1, 2015, the new rules seek to create:

  • Accountability for preparing students for gainful employment; and
  • Transparency so prospective students can make informed decisions regarding where to attend college.

The law assigns grades to programs based on comparing typical graduates' annual loan payments compared to their annual salary:

  • Pass: Loan payments below 8% of total (or 20% of discretionary) earnings.
  • Zone: Loan payments fall between 12% and 8% of total (or 20% and 30% of discretionary) earnings.
  • Fail: Loan payments above 12% of total and 30% of discretionary earnings.

Programs that receive a failing grade two out of three consecutive years or stay in the warning zone for four consecutive years would be ineligible for Title IV funding. Schools must also make public former students' wages, graduation rates, and debt accumulation via a not-yet-revealed "disclosure template" designed to make data comparable among institutions.

Gainful employment compliance will cost $51 per student, says one expert

Steve Gunderson, APSCU president, calls the regulations and their effect on higher education access "unacceptable," and the lawsuit labels them "unlawful, arbitrary, and irrational."

The Education Department, meanwhile, remains confident the rules "will protect students and taxpayers' investments by bringing more accountability and transparency to career training programs," says spokesperson Dorie Nolt (Hefling, AP/ABC News, 11/6).

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