SHARE THIS ARTICLE Share Tweet Post Email

A group representing for-profit colleges, which rely on federal grants and loans for as much as 90 percent of revenue, sued to block an Education Department rule denying funds to schools that saddle students with debt.

The Association of Private Sector Colleges and Universities today asked a federal judge in Washington to strike down the so-called “gainful employment rule.” Under the measure, set to take effect July 1, for-profit colleges whose graduates use more than 30 percent of their discretionary earnings and 12 percent of total income to repay loans risk losing access to government funds.

The rule “is unlawful, arbitrary and irrational and will needlessly harm millions of students who attend private-sector colleges and universities,” the group said in a complaint naming the department and U.S. Education Secretary Arne Duncan.

The rule, announced last month, seeks to weed out poorly performing for-profit schools. At a press conference last month, Duncan said, “Too many of these programs fail to provide students with the training they need while burying them in debt they cannot repay.” Congress, state attorneys general and federal regulators have scrutinized the industry’s loan and marketing practices for years.

Programs won’t be eligible for U.S. student-aid dollars if they fail to meet the loan-repayment standard in two of any three straight years or are borderline for four consecutive years. Graduates’ payments of 20-to-30 percent of discretionary earnings or between 8-to-12 percent of total income are considered borderline.

Free Speech

The group said in its complaint that the rule exceeds the department’s authority, isn’t the product of “reasoned decision making” and violates college officials’ free speech.

“The department is within its legal authority in issuing gainful employment regulations that will protect students and taxpayers’ investments by bringing more accountability and transparency to career training programs,” Dorie Nolt, a spokeswoman for the agency, said in an e-mail.

APSCU successfully challenged an earlier version of the rule that the Obama administration released in 2011. The court agreed with APSCU’s contention that one of the standards in the prior version didn’t show whether for-profit programs had prepared students for the workforce.

The case is Association of Private Sector Colleges and Universities v. Duncan, 14-cv-01870, U.S. District Court, District of Columbia (Washington).

(Updates with department comment in seventh paragraph.)