FAIL: For-Profit Education Sector Dealt Major Blow

By: Nicole Kardell

For-profit education was dealt a major blow in a federal court case challenging the Department of Education’s Gainful Employment Rule. U.S. District Court Judge Lewis Kaplan of New York dismissed a lawsuit that was filed last November by the Association of Proprietary Colleges. The lawsuit is one of two filed in federal court shortly after the Department of Education issued its revised version of the Gainful Employment Rule. The second lawsuit, brought by the Association of Private Sector Colleges and Universities, is still pending before a federal judge in D.C.

In his opinion, Judge Kaplan rejected APC’s arguments that the Gainful Employment Rule (1) violates colleges’ constitutional due process rights, (2) violates the plain language of the statute, exceeding statutory authority, and (3) is arbitrary and capricious. Kaplan held there could be no due process issues as for-profit colleges do not have a “vested right” to participate in federal student aid programs. He discounted as ill-conceived or misleading arguments that the rule exceeds statutory authority. And he dismissed APC’s allegations that the rule as drafted is arbitrary and capricious.

Judge Kaplan’s rejection of APC’s lawsuit is hailed as a victory by detractors of the for-profit education industry who are anxious to see the new rule implemented this July. Some project that Kaplan’s opinion will influence the direction of the pending federal case in D.C. But, despite these portents, the legal theories in the two suits are distinct enough that APSCU’s case should not be overshadowed. The APSCU’s suit centers on how and why the Gainful Employment Rule, as drafted, would disparately impact populations, identifying concern that the rule would “impose massive disincentives” on schools from recruiting “low-income, minority, and other traditionally underserved student populations, because, as an historical matter, those demographics are widely recognized as most at risk of failing the Department’s arbitrary test.”

The complaint also identifies concerns regarding the DoE’s rulemaking process, which it alleges was marred by “well-substantiated allegations of bias and misconduct that led several Members of Congress to accuse the Department of bad faith.” Perhaps it will not go without notice, the next opinion around, that the DoE’s proposed rule more than doubled in size at the 11^th hour of the rulemaking process, flying in the face of the purpose of the public notice and comment period.

It is surprising to see so many consumer advocate groups cheering a marred process and pushing for standards that will have the effect of discouraging education opportunities for historically underserved low-income and minority students. It can’t be that their intentions are bad. It is more likely that detractors of for-profit education are narrowly focused on examples of bad actors in the field—that have been called out by authorities for predatory lending practices and misrepresenting the quality or results of their programs. Indeed the industry is not shy of regulators scrutinizing and penalizing bad practices. For-profit education has the likes of the SEC, CFPB, FTC, and a bevy of state attorneys general at the ready. You might think that those skeptical of for-profit education could look to the work done by these agencies and be satisfied that problems are being addressed.

While detractors breathlessly anticipate another judicial benediction of the DoE’s rulemaking, hopefully the next round of judicial opining will address not just the extent of the DoE’s statutory authority but also how the DoE can and should carry out its purpose. In the meantime, for-profit educators would do well to continue efforts to disseminate data that shows how they meet important needs that other schools do not and how their costs compare to actual costs of other schools (e.g., including data on taxpayer funding of community colleges). Perhaps many of the well-intentioned skeptics would be less anxious to see the end of the industry.