For-Profit College Regulations Struck Down In Part By Federal Judge

Federal Judge Strikes Down Crux Of Obama For-Profit College Rules

A federal judge has struck down central parts of hotly debated new federal regulations meant to rein in for-profit colleges that often leave students saddled with debts they cannot repay.

In a ruling released on Saturday, U.S. District Judge Rudolph Contreras invalidated parts of the Obama administration's so-called gainful employment regulations, ruling that the Department of Education "failed to provide a reasoned explanation" in arriving at guidelines to assess students' ability to pay down loans after attending a career training program.

Saturday's ruling was the culmination of a federal lawsuit filed last July by a key for-profit college trade group, the Association of Private Sector Colleges and Universities.

The decision is a setback for the Department of Education, which issued the gainful employment regulations last summer in the middle of an intense Washington lobbying battle waged by the for-profit college industry. But while the judge invalidated major parts of the regulations, he wrote that the department clearly had the authority to issue the rules -- which the for-profit college group had contested in its lawsuit.

The ruling centered on a more technical question -- whether the department had done enough studies to craft specific parts of the guidelines. That could leave the door open for the department to revisit the regulations -- potentially a time-consuming process, given that the gainful employment guidelines took nearly two years to develop.

A spokesman for the Department of Education, Peter Cunningham, wrote in a statement on Sunday: "The court upheld our authority to regulate career college programs while urging a clearer rationale for standards around repayment rates."

"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," he wrote.

Cunningham declined to comment beyond the statement.

Steve Gunderson, president and chief executive of the Association of Private Sector Colleges and Universities, said his group was "very pleased" with the judge's decision. The debate over gainful employment "has only served to distract from our joint, core responsibility and mission, which is to provide students -- particularly non-traditional ones such as veterans, adults and parents - with the education and skills they need to achieve their very own version of the American Dream," he wrote in an email.

"It is my personal hope, and that of our members, that the era of litigation is over, and the era of public-private partnerships in putting people to work in high-quality, good-paying jobs is ahead," Gunderson added.

The administration's gainful employment regulations have been the subject of a bruising Washington battle over political influence. The for-profit college industry, which receives the vast majority of its revenues from federal government loans and grants, spent millions of dollars last year hiring an all-star cast of lobbyists to defeat the new regulations and still retain access to a steady stream of federal dollars.

Major industry players such as the Apollo Group, which owns the University of Phoenix, and Career Education Corp., parent company of the Le Cordon Bleu culinary school chain, each spent more than $1 million on lobbying in 2011.

Amid evidence that for-profit schools have been taking in disproportionate amounts of federal student aid dollars even as their students have defaulted on federal loans at much higher rates than their counterparts in other sectors of higher education, the Obama administration has attempted to hold such colleges accountable for their students' outcomes.

The final rules, which were watered down from an original proposal after the lobbying blitz, evaluated schools based on a handful of measurements of student debt: whether a graduate has an excessive debt burden when compared with his or her income (evaluated by examining total income and discretionary income) and whether students are able to repay at least a portion of their loan debt each year. Schools that failed each of those tests in three out of four years were to be cut off from federal student aid funding.

It was the last measurement -- the loan repayment rate -- that was central to the judge's decision on Saturday. The Department of Education said at least 35 percent of students in a particular program must be repaying at least $1 of their student loan balance every year.

Contreras wrote in his ruling that the 35 percent threshold was "not based upon any facts at all."

"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," he wrote.

The judge found that the other parts of the guidelines, assessing the debt-to-income ratio, had been supported by studies and industry standards, but because they all worked in tandem, he invalidated the proposed regulations.

The gainful employment regulations would have gone into effect on Sunday, July 1. Beginning this fall, for-profit college and other vocational college programs would have been judged by the debt guidelines.

A sample batch of data released last week by the Department of Education showed that only 5 percent of career college programs would have failed all three tests, based on data from the last school year.

This story has been updated to include a comment from the Association of Private Sector Colleges and Universities.

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