U.S. Judge Strikes Federal Rule on For-Profit Colleges

The U.S. Department of Education’s rule designed to prevent for-profit colleges from leaving students with debts they struggle to repay was struck down by a federal judge who said the regulation was arbitrary.

U.S. District Judge Rudolph Contreras in Washington ruled on June 30 the department’s requirement that at least 35 percent of graduates must be repaying their loans for a college to qualify for federal grants wasn’t based on any facts.

“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,” Contreras wrote in the 38-page ruling. “The entire debt measure rule must therefore be vacated and remanded to the department.”

The Obama administration is seeking to protect taxpayers from loan defaults and stop students from taking on debt for degrees that don’t pay off with higher incomes. The industry lobbied against the proposed rules and said that it will reduce access for working adults and military veterans.

More than 190, or 5 percent, of the career-training programs failed to meet new loan-repayment regulations, the government said. Career Education Corp. (CECO) and Corinthian Colleges Inc. (COCO) ranked among the worst schools on the agency’s list.

Funding Requirements

Career colleges need to prepare students for jobs at a price they can afford, Education Secretary Arne Duncan had said. Schools that can’t meet this requirement wouldn’t get state funding, Duncan said.

Officials from the education department didn’t immediately respond to a request for comment on the judge’s ruling after regular business hours in Washington.

Implementation of federal rules would have meant more than 90 percent of programs training security guards and medical assistants could have become ineligible for funding. So could have more than 80 percent of criminal justice programs.

Congress and state attorneys general are investigating the marketing and job-placement claims of for-profit colleges, which can receive as much as 90 percent of their revenue from federal grants and loans that students use to pay tuition. For-profit colleges got almost $32 billion in U.S. student aid in the 2009-2010 school year.

Contreras upheld the government’s disclosure portion of the regulation, which requires institutions to report to students their graduation and placement rates and their students’ median debt load.

The case is: Association of Private Colleges and Universities v. Arne Duncan, in his official capacity as the Secretary of the Department of Education. 11-cv-01314. U.S. District Court for the District of Columbia (Washington).

To contact the reporters on this story: John Hechinger in Boston at jhechinger@bloomberg.net; Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.