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For-profit higher education institutions were given a little breathing room by the recent court decision on gainful employment regulations. On June 30, 2012, the U.S. District Court for the District of Columbia issued its opinion.

Program Integrity Rules Set Aside

  • 7/20/2012

Program Integrity Rules Set Aside

For-profit higher education institutions were given a little breathing room by the recent court decision on gainful employment regulations. On June 30, 2012, the U.S. District Court for the District of Columbia issued its opinion on the civil action, Association of Private Colleges and Universities v. Arne Duncan, in his official capacity as Secretary of the Department of Education, and United States Department of Education.

The opinion stated the Department of Education’s repayment rate metric to assess whether a program provides training that leads to gainful employment was “arbitrary and capricious” and will be vacated.

“The court only agreed with one of the arguments challenging the program integrity rules,” says Diane DiFebbo, a partner at CliftonLarsonAllen, “But that was enough. The issue remains unsettled, though, so we’ll be watching for the Department of Education’s next step.”

Program integrity rules

In 2010, the U.S. Department of Education attempted to address concerns about the high percentage of loan defaults (nearly 50 percent) from students who had completed their education in career college programs (for instance vocational or technical schools). The result was the program integrity rules, which attempted to measure the effectiveness of for-profit programs. If programs did not meet the following guidelines, they would lose eligibility for federal student aid:

  • At least 35 percent of graduates must be repaying their loans
  • The typical graduate’s annual loan payments must not exceed 12 percent of earnings
  • The typical graduate’s annual loan payments must not exceed 30 percent of discretionary income (income above 150 percent of the poverty level).

The court found that the Department of Education did not provide a reasonable and objective explanation for how it came up with the 35 percent repayment rate. The Department of Education had no adequate response that further explained its reasoning. Since the 35 percent metric was only one of a three-pronged analysis to be used together to determine if programs would pass or fail the gainful employment rule, the court set aside the entire rule.

What happens next?

In response to the ruling, the Department of Education issued a statement saying that the “court clearly upheld the authority to regulate college career programs ….” This does seem to be the case considering that the court’s only major objection was the repayment rate metric. In sending back the rules, the court has given the Department of Education the opportunity to revisit their reasoning concerning the repayment rate and make a more persuasive argument for the metric.

Though there are several paths the Department of Education may take at this point, one of the following seems to be the most likely course of action:

  1. Throw out repayment percentage requirement, but leave the other two debt metrics. Separated from the first metric, the other two would probably stand on their own.
  2. Rewrite the repayment metric with stronger substantiation.
  3. Do nothing. Rewriting will mean negotiations, which may take a significant amount of time. So for the foreseeable future, there may be no further action.

How we can help

CliftonLarsonAllen will keep you informed on this issue. Though the Department of Education does not have a deadline to complete its work on the program integrity rules, if it rewrites the explanation or the entire repayment rate metric, it would be difficult to challenge the rules and prevail in court.

Once there is clarity on this issue, we will be able to develop concrete strategies to move forward. In an unusual situation we heard about recently, one organization made the transition from for-profit to nonprofit. That won’t work for every case, but together we can find a solution that is appropriate for your business model.


Diane DiFebbo, Partner
diane.difebbo@cliftonlarsonallen.com or 407-244-9309