For-Profit Colleges Sue The Federal Government Over Student Loan Rules

Enlarge this image toggle caption Jacquelyn Martin/AP Jacquelyn Martin/AP

A trade group representing more than 1,400 for-profit colleges has filed a lawsuit against the federal government over regulations aimed at curbing industry abuses.

The group seeks to stop a federal regulation, known as the "gainful employment rule," that was formally put into place last week by the U.S. Department of Education. The rule restricts access to federal student-aid dollars for institutions deemed to have too many students who struggle to pay back their student loans.

The rule is aimed at cracking down on institutions that charge excessive tuition, especially for programs that have little value on the job market. The Department of Education says the regulation could potentially affect up to 840,000 students, and, the trade group says, 3.5 million in the next 10 years. Two million students are currently enrolled in for-profits.

The for-profit colleges depend heavily on federal aid money, and the lawsuit filed Thursday is the latest salvo in a battle that has now stretched over five years and at least one other lawsuit.

At issue in the current suit are the criteria used to determine whether, and how many, students are struggling. The Education Department is proposing to compare graduates' student loan debt to their earnings. The schools say such a measure is unfair because how much money students make after graduating is not in their control.

"The gainful employment regulation is nothing more than a bad-faith attempt to cut off access to education for millions of students who have been historically underserved by higher education," Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities, which brought the lawsuit, said in a statement.

Dorie Nolt, the Education Department press secretary, said, "We're confident that 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."

Barmak Nassirian, an independent policy analyst, says the legal case is really trying to get at something much bigger: "An industry is really challenging the right of an agency to question its entitlement to free federal money."

Both he and Ben Miller, a senior education policy analyst at the New America Foundation, say that even should the rule survive this new challenge in court, enforcement efforts could be defunded by the new Republican-controlled Congress, or the idea could be axed altogether by the next president.

Bottom line, Nassirian says, "I think 'gainful' is as good as dead politically."

And, Miller points out, in the long run having the rule on the books may be beside the point.

He notes that enrollment in for-profit colleges fell by about 250,000 students between 2010 and 2012. "Three things happened," he explains. "First, when the department started this process in 2010, it started to freak schools out and force them to go re-evaluate programs and close or shrink the poor performers."

Miller points to the example of one-year certificate programs in criminal justice that advertised after the popular CSI drama series on TV but gave graduates few plausible job prospects.

Second, media attention over the past few years has highlighted the problems with these and other practices in the for-profit industry.

"Continued public attention got students to be more discerning in consumer choices," Miller said.

Finally, he added, the financial troubles and collapse of Corinthian Colleges this summer took one of the most frequently criticized large players out of the picture.

All of which means, Miller said, that "the idea behind the rule works faster than the rule itself."