Spotlight for Career Services Professionals
July 18, 2012 

A federal judge has struck down several provisions of the U.S. Department of Education’s (DOE) “gainful employment” rule. Judge Rudolph Contreras of the U.S. District Court for the District of Columbia made the ruling on June 30, one day before the regulations were scheduled to go into effect.  

The DOE’s “gainful employment” rule seeks to establish the detailed “debt measures” that “gainful employment” programs will be required to meet in order to remain eligible for Title IV financial assistance. The DOE has stated that the regulations were promulgated to ensure both that students are equipped to secure gainful employment rather than being left with unaffordable debts and poor employment prospects, and that Title IV student aid dollars are well spent.   

Under the proposed regulations, a program must have met one of the following measures or lose its eligibility for federal student aid:

• At least 35 percent of former students must be current in the repayment of their Federal Direct and Federal Family Education loans.
• The annual loan payment for a student must not exceed 30 percent of the typical graduate’s discretionary income.
• The annual loan payment for a student must not exceed 12 percent of a typical graduate’s total earnings.  

Judge Contreras ruled that the 35 percent debt-repayment standard had no factual justification, stating that “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.”  

While the judge said the other measures that compare graduates’ debt to income were based upon objective and reliable criteria found in studies and industry practice, he overturned them because they were “intertwined” with the debt-repayment measure. 

Similarly, Judge Contreras overturned two additional provisions—one requiring DOE approval for schools wanting to offer a new vocational program and another requiring schools to provide data to its department for calculating debt measures—that depend on elements of the debt-repayment measure.  

The judge did permit the portions of the regulations by which career-college programs must disclose to students their graduation and placement rates, and their students’ median debt load.  

In his opinion, Judge Contreras said that despite its flaws, the gainful employment rule does address a serious policy problem. Recent DOE data showed that roughly 5 percent of vocational programs at for-profits that would have been subject to the gainful employment rule would have failed to meet all three benchmarks.  

A DOE spokesman indicated that the ruling would most likely lead to a reexamination of the department’s benchmarks for the gainful employment rule.