The U.S. District Court for the District of Columbia handed for-profit colleges a victory last week when it vacated most of the Education Department's controversial "gainful employment" rule designed to put the brakes on schools like Strayer College and the University of Phoenix if their graduates don't earn enough to pay back their student loans. The idea behind the rule was to set numerical targets to ensure that these schools' graduates are able to obtain jobs that support them. The court said that department was arbitrary and capricious in setting one threshold--requiring at least 35 percent of a program's graduates to be actively repaying their loans--in an otherwise reasonable rule.
The decision was a classic example of how one misstep by a regulator can cause the entire system to come crashing down. Reading Judge Rudolph Contreras's reasoning is like watching the bottom corner of a Lincoln Log house being forcefully yanked from the structure. He batted down at least a dozen other arguments served up by the Association of Private Sector Colleges and Universities, which challenged the rule, before agreeing with just one of them. Why, the judge asked, did the Education Department choose the 35 percent repayment threshold? Because it could put 25 percent of low-performing for-profit colleges out of business. That's a pretty lame explanation. That threshold is central to the entire rule, which means that the rest of it can't hold up, even though court noted that the Education Department was perfectly within its rights to set other targets. The rule's a debt-to-earnings ratio, to ensure that students don't devote more than 30 percent of their discretionary income to loan repayment, was based in sound research, for example.
APSCU threw a lot of wet noodles at the Education Department's rule before it found one that stuck. The association alleged that the gainful employment rule was an "elephant in a mousehole" because it imposed large restrictions using a small window supplied in the higher education law. Contreras was not amused. "Neither the elephant or mousehole is present here," he wrote. "Department has gone looking for rats in ratholes--as the statute empowers it to do." He is clearly sympathetic with intent of the rule, to ferret out the rat schools that lure students with promises of lucrative careers and leave them with no diploma and a mountain of debt, even if it was improperly executed in one critical place.
What is a reasonable definition for "gainful employment?" Is it appropriate to expect colleges to supply their graduates with jobs that can support them? Is it fair to put such requirements solely on for-profit colleges? Are there "rats" in the for-profit college system? If so, how can the government stop their bad behavior? And can it do so without making life difficult for everyone else?