The U.S. Department of Education adopted new rules on Oct. 31, 2014 aimed at for-profit colleges in an effort to protect students from becoming overburdened with debt that they cannot repay. Under the new rules, for-profit and certificate programs at private non-profit and public institutions must prepare students for “gainful employment in a recognized occupation” or risk losing access to federal student aid. The Department stated:
These regulations will hold career training programs accountable for putting their students on the path to success, and they complement action across the Administration to protect consumers and prevent and investigate fraud, waste and abuse, particularly at for-profit colleges.
Schools will only pass the test for gainful employment if the projected annual loan payment of a typical graduate does not exceed 20 percent of his or her discretionary income or 8 percent of total earnings.
The new gainful employment regulations follow an extensive rulemaking process involving public hearings, negotiations and about 95,000 public comments. The regulations, which will go into effect on July 1, 2015, reflect feedback the Department of Education received. It intends to protect students from unscrupulous career training programs by targeting institutions that leave students deep in debt with little chance to repay it. These students regularly find themselves struggling to find gainful employment while for-profit schools continue to register as many students as possible and rake in the federal funds.
The Association of Private Sector Colleges and Universities (APSCU) has filed suit in Washington, D.C., against the U.S. Department of Education, challenging the newly adopted gainful employment regulations. The APSCU, which is made up of more than 1,400 accredited, private postsecondary schools, is attacking the constitutionality of the newly enacted rules. Specifically, the complaint states that the new rules “are unconstitutional; contrary to Title IV of the Higher Education Act of 1985, as amended; arbitrary and capricious; and otherwise in violation of the Administrative Procedure Act.” This challenge comes as no surprise as the Department estimates that about 1,400 schools serving 840,000 students – of whom 99 percent are at for-profit institutions – would fail the new accountability standards. If you need more information on this subject, contact Jake Jeter, a lawyer in our Consumer Fraud Section, at 800-898-2034 or by email at Jake.Jeter@beasleyallen.com.
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