A few weeks ago, we wrote about new regulations that were to take effect on July 1 to ensure career education programs were preparing their students for gainful employment.
But on June 30, a federal district judge vacated the regulation’s debt-measure scheme, as well as portions of the regulation it ruled were "intertwined" with the scheme.
The result? Gainful employment is on hold.
Career education programs at public, nonprofit, and for-profit colleges were subject to the regulation. And, while he ultimately struck down this iteration of the regulation, U.S. District Judge for the District of Columbia Rudolph Contreras upheld the Department’s authority to regulate these programs in this way.
So why, then, did Judge Contreras vacate the regulation? To determine the worst-offending programs, the Department was to look at three different debt measures. A program would be unaffected if: its graduates’ annual loan payments are less than 12 percent of their annual incomes; or its graduates’ annual loan payments are less than 30 percent of their discretionary incomes; or more than 35 percent of its former students are successfully repaying their loans. Only if a program failed all three of these measures—and did so for three out of four consecutive years—would its eligibility be revoked.
The three-pronged test was very loose–as long as a program met one prong, it would be fine. Three prongs meant three opportunities to escape scrutiny.
But in the end, the court found that the Department did not provide an adequate rationale to support the final prong, the 35 percent repayment threshold. The entire scheme was struck down because the three measures work together (since a program would have to fail all three prongs).
According to the Department, the 35 percent threshold was selected because it would weed out the bottom 25 percent, the worst performing programs. In practice, according to information collected by the Department, only 5 percent of programs were expected to fail the three-prong test.