Federal Court System Overturns the “Gainful Employment Act” | Edcor

Federal Court System Overturns the “Gainful Employment Act”

Recently, the federal court system has overturned the “Gainful Employment Act” that was put into place last year. While the decision could be looked at as a victory for the many for-profit institutions, the revised gainful employment rules could affect more programs at for-profit institutions than the original standards that have recently been invalidated by a federal judge.

The Gainful Employment Act was created last year, and measures the loan repayment rates and debt loads of graduates from vocational programs, primarily at for-profit institutions. In late June, the first “trial” results came in, and less than 5% of academic programs met the Act’s three minimum requirements. While these were trial results, the findings do point to the fact that many for-profit institutions may face the removal of federal financial aid benefits for their students.

A federal judge at the US District Court in D.C. overturned the rules on the basis that he felt the department failed to adequately justify the 35% loan repayment that the Act required, and did not operate on facts- but rather selected an arbitrary number.

While this could be viewed as a win for the for-profit sector, it also has left a lot of uncertainty. The judge acknowledged that there was a serious policy problem of under-performing vocational programs that leave its’ graduates with no jobs and a high amount of debt. The ruling supported much of the department’s decision to regulate, but it did not agree with the percentages that resulted. This leads a clear cut door open for an appeal. Ultimately, if the decision is made to discard the loan repayment rate requirement, approximately 10.6% of programs at for-profit colleges would fail the gainful employment rule. This would occur because colleges would face penalties if a program failed all three tests, meaning that without the loan repayment rate, they would have one fewer chance to pass.

We will be keeping our eyes on this situation, and will keep you posted as to any important decisions.

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