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On June 30, 2012, Judge Rudolph Contreras of the U.S. District Court for the District of Columbia vacated several provisions of the gainful employment regulations in Association of Private Career Colleges and Universities v. Arne Duncan, Secretary of Education and United States Department of Education. While the Judge stated that “[t]he gainful employment regulations are a reasonable interpretation of an ambiguous statutory command: that the Department provide Title IV funding only to schools that ‘prepare students for gainful employment in a recognized occupation,’” the Judge found that the loan repayment rate rule was “arbitrary and capricious” and vacated it because it was not the product of “reasoned decision-making.” As a result, the Judge vacated the majority of the related rules (the debt measures, the reporting rule, and the new program approval requirements) because he concluded that they were intertwined with the loan repayment rate rule. The Judge did not vacate the gainful employment disclosure requirements.
The decision can be read online by clicking here.
It is not known what action the Department of Education will take. Will it file an appeal to the U.S. Court of Appeals for the D.C. Circuit within the next 60 days and/or will it issue a new round of negotiated rulemaking?
U.S. House Committee on Education and the Workforce Chairman John Kline (R-MN) and Subcommittee on Higher Education and Workforce Training Chairman Virginia Foxx (R-NC) released the following statement:
“As these tough economic times continue, Americans are looking to proprietary colleges and vocational programs for the education and skills necessary to gain a competitive edge in a tight job market. The red tape and bureaucracy associated with the so-called ‘gainful employment’ regulation would have severely limited students’ academic options and made it impossible for many schools to respond quickly to local workforce needs without pre-approval from the Secretary of Education. The court’s decision to strike the most burdensome portions of the ‘gainful employment’ regulation is a welcome development in the fight to remove unnecessary federal rules that restrict choice and opportunities in higher education.”
Here are the consequences of the decision:
- Gainful employment metrics: While the Judge concluded that the debt to earnings metrics were based on expert studies and industry practice, the Judge ruled that the repayment rate metric was arbitrary and capricious. Because the three metrics were intertwined, the Judge vacated all three of the metrics. Therefore, the three metrics do not exist and the FY 2011 Informational Gainful Employment metrics (see below) are irrelevant at the present time.
- Gainful employment reporting: Since the Judge vacated the debt measures of the gainful employment regulations, the Judge also concluded that he also must vacate the gainful employment reporting regulation as well. This regulation would have required institutions to report student-level data for FY 2012 to the Department of Education by October 1, 2012.
- New Program Approval Process: Since the Judge vacated the debt measures of the gainful employment regulations, the Judge also concluded that he also must vacate the regulation requiring institutions to use the gainful employment notification process for any new proposed gainful employment program and, if required, to wait for Department approval of the program. The existing notification and approval requirements are still in effect (i.e., adding new non-degree programs or any non-degree programs if provisionally certified).
- Gainful employment disclosures: Institutions must continue to provide their gainful employment disclosures, which should have been updated as of July 1, 2012 (SOC codes, on-time graduation rate for students who completed the program, tuition and fees, median loan debt for students who completed the program, and the placement rate, if required by accrediting agencies or state agencies.
The summary above is intended for information purposes only. Institutions should consult with their legal advisors regarding the appropriate steps to take in response to this recent court ruling and to any further guidance or actions the Department may issue or take in response to the ruling.
On July 6, 2012, Gainful Employment Electronic Announcement #39 was released from the Department of Education to provide an overview of the U.S. District Court for the District of Columbia. The Electronic Announcement provided a status report of the various provisions of the gainful employment rules. The Department stated that the only provision left in place was the requirement to disclose certain information about each of the gainful employment programs. The Department also stated that it is in the process of reviewing the disclosure template to ensure that it complies with the Court’s decision and further information will be forthcoming. “Institutions are not required to update their disclosures until further information is provided later this month.”
The Department released the following statement, which was included in Electronic Announcement #39:
“The court clearly upheld the authority to regulate college career programs, but found that the Department had not provided enough explanation of its debt re- payment measure, so it has given the Department an opportunity to address that concern. We are reviewing our legal and policy options to move forward in a way that best protects students and taxpayers while advancing our national goal of helping more Americans get the skills they need to compete in the global economy.”
Previously, on June 26, 2012, the Department of Education published informational data that found more than 193 (or five percent) of career training programs at 93 for-profit colleges do not meet any of the Department’s three metrics to be recognized as preparing students for gainful employment in a recognized occupation. Unlike at for-profit colleges, the majority of educational programs, such as degree-granting programs, at community colleges, four-year private institutions, and public colleges and universities are exempt from the gainful employment regulations. Among the limited number of educational programs that are subject to the regulations, a total of 34 programs at community colleges and four-year private institutions failed two of the metrics. Thirty-nine programs at public colleges and universities and 19 programs at private nonprofit institutions failed at least one of the Department’s metrics. While the FY 2011 rates were for information only and not subject to appeal or sanctions, they demonstrate how certain career training programs are impacted by the metrics. Release of these informational rates were intended to give schools time to make needed changes and improvements to their programs before enforcement of the regulations begins in the fall 2012. The Department also released the Gainful Employment Loan Medians for disclosures for 2010-2011.
Information on the disclosures are found in Electronic Announcement #37.
In a press release of June 26, 2012, Secretary of Education Arne Duncan said: “Career colleges have a responsibility to prepare people for jobs at a price they can afford. Schools cannot meet these very reasonable standards are on notice: invest in your students’ success, or taxpayers can no longer invest in you.”
The press release also announced that in the coming weeks, the Administration is planning to release its model financial aid shopping sheet, which the Administration will encourage all institutions of higher education to voluntarily adopt. The financial aid shopping sheet will tell prospective students how much aid they will receive in grants and scholarships; how much they will need to borrow in student loans; the difference between private educational loans and federal student loans; and the average student loan payment after graduation.
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On July 6, 2012, President Obama signed into law H.R.4248, the compromise version of the Temporary Surface Transportation Extension Act of 2012, which included a provision to extend the student loan interest rate of 3.4 percent up through June 30, 2013. On June 29, 2012, H.R. 4248 was approved by the House on a 373-52 vote and passed the Senate by a vote of 74-19.
In order to allow for enough time to prepare the package for signature, a short-term measure, H.R. 6064 was passed to authorize the Secretary of Education to delay the origination and disbursement of Federal Direct Stafford Loans made to undergraduate students until the date of enactment of H.R. 4348, but not later than July 6, 2012.
In order to pay the $6 billion cost for the 3.4 percent interest rate extension, the eventual compromise, brokered by Senator Harry Reid, the majority leader, requires companies to pay higher premiums for federal pension insurance. The bill also establishes a time limit on eligibility for Subsidized Direct Loans, which would be 150 percent of the normal program length of the educational program in which the student is enrolled.
The scheduled increase to 6.8 percent, which would affect about 7 million borrowers taking out new loans on or after July 1, 2012, has been in the works. In 2007, Congress enacted the College Cost Reduction and Access Act (CCRAA), which gradually reduced the interest rate from 6.8 percent to 3.4 percent, before increasing to 6.8 percent on July 1, 2012.
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On June 28, 2012, the Department of Education issued a Dear Colleague letter (GEN-12-09) that clarifies the changes made by the Consolidated Appropriations Act, 2012, with regard to the change in student aid eligibility for students who do not have a high school diploma or the recognized equivalent of a high school diploma. The law removed the ATB alternatives for students who “first enroll in a program of student on or after July 1, 2012.” The DCL states that if a student was registered prior to July 1, 2012 to attend an eligible program at a Title IV institution may still use the ATB alternatives. The letter provides a grandfathering test and several enrollment examples that illustrate the conditions under which a student who was enrolled prior to July 1, 2012, may establish eligibility under one of the previous ATB alternatives.
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On May 31, 2012, the Department of Veterans Affairs issued a letter encouraging colleges and universities that are approved for VA educational benefits to commit to the Principles of Excellence developed in President Obama’s Executive Order 13607 issued on April 27, 2012. The letter requested that all schools provide a written response stating their compliance with the Principles of Excellence no later than Saturday, June 30, 2012.
The American Council on Education (ACE) and the National Association of College and University Business Officers (NACUBO), along with 11 other higher education associations, have asked the Obama Administration to clarify certain provisions in the Executive Order on service members and veterans education. As noted above, VA asked colleges and universities to confirm their intention to adopt these principles of excellence by the end of the 2012-2013 academic year and failure to respond may mean omission from VA’s list of institutions that have indicated they will comply. To complicate matters, some institutions have not received the letter, which was sent May 31, 2012 through state approving agencies. “Colleges and universities want to know that if they commit to achieve a standard, they will be able to meet that standard.” The letter further states: “The Principles embody goals that can be achieved only if the institutions understand the government’s expectations.” Senators Richard Burr (R-NC) and Mike Enzi (R-WY) wrote to Secretary of Defense Leon Panetta, Secretary of Education Arne Duncan, and Secretary of Veterans Affairs Eric Shinseki to delay the June 30, 2012 deadline for institutions to indicate an intent to comply.
Acknowledging concerns raised by schools in a letter of June 29, 2012, the Department of Veterans Affairs extended the response date to August 1, 2012. The letter also stated that the VA was working with the Departments of Defense and Education to develop and disseminate further guidance on complying with the Principles of Excellence.
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On June 27, 2012, Kentucky Attorney General Jack Conway (D) held a press conference to announce a settlement between QuinStreet, a lead generation and marketing company, and 20 state attorneys general. The 20 states include Alabama, Arizona, Arkansas, Delaware, Florida, Idaho, Iowa, Kentucky, Massachusetts, Mississippi, Missouri, New York, Nevada, North Carolina, Ohio, Oregon, South Carolina, Tennessee, and West Virginia. Attorney General Conway was joined at the podium by Delaware Attorney General Beau Biden (D), Illinois Attorney General Lisa Madigan (D), Deputy Secretary of the Department of Veterans Affairs (VA) Scott Gould, Senator Richard Blumenthal (D-CT), Senator Dick Durbin (D-IL), Senator Tom Harkin (D-IA), Senator Kay Hagan (D-NC), and Assistant Director for Service Member Affairs at the Consumer Financial Protection Bureau Holly Petraeus. Conway said that veterans and service members are attractive to for-profit colleges because of the 90/10 rule. Currently, veteran’s benefits count toward the 10 percent in the calculation.
The states alleged that QuinStreet had violated consumer protection laws by running “false, misleading, and deceptive” Web sites, like GIBill.com, that targeted veterans and service members for their educational benefits. For-profit colleges and some nonprofit colleges paid QuinStreet for contact information on prospective students. QuinStreet agreed to pay $2.5 million to 20 states and turn its Web sites, GIBill.com and 18 other domain names, over to the Department of Veterans Affairs. The VA is seeking to trademark “GI Bill.” The company is also required to post a number of new disclosures on its approximately 700 military- and education-related sites that it operates in order to clarify that its military-related Web sites are not government-affiliated and that colleges pay the company to appear on its lists.
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On June 13, 2012, the Consumer Financial Protection Bureau (CFPB) published the comments submitted by the public as a result of the Notice and Request for Information on private education loans and lenders issued November 17, 2011. The CFPB had received over 2,000 comments.
On June 14, 2012, Rohit Chopra, the student loan ombudsman with the CFPB released a blog post identifying the key themes in the public’s comments. Mr. Chopra wrote that the comments revealed that many borrowers expressed confusion and frustration when paying back their loans, particularly when seeking an affordable payment plan. Other borrowers stated that they had not realized that private education loans do not carry the same terms and repayment options as their federal loans. Mr. Chopra said that many of the comments dealt with unemployment and financial hardship.
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On June 22, 2012, the Office of Inspector General (OIG) released a Final Audit Report titled “Department’s Negotiated Rulemaking Process for Gainful Employment” that reviewed the negotiated rulemaking process for the gainful employment regulations. The audit was conducted to determine whether the Department appropriately handled sensitive information during the negotiated rulemaking process, an issue raised by members of Congress and public interest groups. The audit found no improper disclosure of sensitive information by the Department officials in their communications with outside parties, including student advocacy groups, investment companies, for-profit colleges, media representatives, Congressional leaders and staff, or other Executive Branch agencies, between the end of the public negotiation rulemaking sessions and the publication of the gainful employment Notice of Proposed Rulemaking (NPRM).
However, the OIG found that the Department lacked written protocols and transparency in the rulemaking process regarding communications with outside parties before the gainful employment NPRM was published. “Without protocols, current staff with little rulemaking experience or new staff is less likely to understand what types of communications are prohibited, discouraged, or acceptable.” Further, “[a] lack of publicly available information regarding who the Department communicates with while drafting regulations may lead to diminished public trust in the Department’s decision-making process.” In addition, the OIG criticized the Department for not disclosing to officials the financial interests of the employees involved in drafting the gainful employment regulations. The OIG also noted that a former high-level Department official that was “significantly involved” in the gainful employment negotiated rulemaking process engaged in communications with his former employer, potentially in violation of applicable ethics standards.
To correct the identified weaknesses, the OIG made a number of recommendations to the Secretary of Education to ensure that the appropriate Department officials:
- Develop and implement a general written policy on the handling of private communications with outside parties during each phase of rulemaking proceedings and make the policy available to all Department employees;
- Consider publicly disclosing all relevant meetings with outside parties that occur after public negotiated rulemaking sessions and prior to issuance of the NPRM; and
- Require employees who work on rulemakings with the potential to affect publicly traded entities to file confidential financial disclosures.
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