Court Ruling Is Big Win For Obama, Bad News For For-Profit Colleges

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Blake Neff Reporter
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A federal appeals court handed a severe blow to for-profit colleges Tuesday, ruling in favor of an Obama administration rule that denies federal funds to programs whose graduates perform badly on the job market.

The unanimous ruling, delivered per curiam by the D.C. Circuit Court of Appeals, is withering in its rhetoric, aggressively criticizing the reasoning that for-profit schools have sought to have unfettered access to the student loan market.

“It would be strange for Congress to loan out money to train students for jobs that were insufficiently remunerative to permit the students to repay their loans,” the decision says. “It would be a perverse system that, by design, wasted taxpayer money in order to impose crippling, credit-destroying debt on lower-income students and graduates.”

The so-called gainful employment rule, created by the Department of Education in 2014, governs which for-profit college programs are eligible to receive federal student loans. Under the rule, programs whose graduates struggle to find jobs that can repay their loans are first placed on probation, and later, if they fail to improve, are cut off from access to federal loans entirely.

Since a large proportion of for-profit college students finance their education with loans, even a temporary cutoff can be a death sentence for a program. For instance, major for-profit college chain Corinthian Colleges spiraled into bankruptcy almost immediately in 2014 after a federal investigation resulted in a loss of loan money.

The Association of Private Sector Colleges and Universities (APSCU), a lobbying group that represents for-profit schools, has been aggressively challenging the gainful employment rule in court. APSCU argues the rule unfairly singles out for-profit schools while sparing non-profits, and says for-profit schools often serve poorer, less traditional student bodies that often lack access to other college options.

The initial version of the gainful employment rule was struck down in court several years ago, but in 2014 the rule was reborn, and in 2015 APSCU’s legal challenge was rejected at the district court level. Now, the appeals court has reaffirmed that ruling, leaving only the Supreme Court as an outlet for APSCU.

But in a statement following the ruling, APSCU suggested it wanted to work with the Department of Education rather than focusing on additional, possibly long-shot litigation.

“When the first gainful employment regulation was struck down by the courts, we expressed hope that the era of overregulation and litigation would give way to a public-private partnership focused on giving Americans the occupational skills they need to succeed in the workforce,” said APSCU president Steve Gunderson in a statement. “We again call on the Department to engage with us in finding ways to enhance both quality and opportunity for all students – especially those seeking employment skills.”

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