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 Court Vacates Most of ED's Gainful Employment Regulations 

7/2/2012

In an opinion released June 30, U.S. District Court Judge Rudolph Contreras vacated major elements of the U.S. Department of Education's (ED) gainful employment (GE) regulations. The ruling came in a lawsuit brought by the Association of Private Sector Colleges and Universities, the trade association of the for-profit colleges that are the principal target of the regulations.

The GE regulations established three metrics to determine whether a program truly leads to gainful employment. Two of these metrics are maximum debt-to-income ratios, requiring that the average debt of a program's completers not exceed 12% of their total earnings and 30% of their discretionary earnings, respectively. To pass the third metric, at least 35% of a program's enrollees must be paying back their student loans. The opinion found the loan repayment metric to be "arbitrary and capricious," noting that ED had not cited any research or other information backing the 35% threshold. Furthermore, because the judge found that all three metrics were interdependent, they were all vacated.

Judge Contreras also vacated the reporting requirements that had institutions reporting information to ED that allowed the department to operate the GE metrics and the requirement that institutions notify ED about new GE programs and, in some cases, obtain ED's approval.

The one major part of the regulations left standing is the disclosure requirements that compel schools to disclose certain facts about GE programs—including an "on-time" completion rate—to potential students. AACC intends to advocate for ED's withdrawal of these disclosure requirements.

The future of GE regulations is unclear. ED may choose to appeal the ruling or may proceed with a new round of rulemaking to establish new regulations. While the district court's ruling gutted these particular regulations, it upheld ED's authority to regulate the meaning of gainful employment. The outcome of the presidential election will play a major role, as a Romney administration almost certainly would not regulate in this area.

The ruling comes shortly after ED released data showing how institutions fared with regard to the metrics.

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