A Pyrrhic Victory for Career College Lobbyists

Last week’s federal appeals court decision in a case challenging several of the Department of Education’s new program integrity rules was not as favorable to the for-profit higher education industry as some have reported. While the three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ordered the Education Department to make changes to the rules, it upheld the regulations overall and rejected the central argument for-profit college lobbyists made in their lawsuit: that the Education Department acted “arbitrarily and capriciously” in forging new rules aimed at preventing unscrupulous schools from taking advantage of financially needy students.

The ruling came in a lawsuit that the Association for Private Sector Colleges and Universities (APSCU) filed early last year to get the court to strike down several regulations that the Obama administration enacted in July to rein in the industry. The rules in question eliminated the “safe harbors” that Bush administration officials put in place in 2002 to help for-profit schools skirt a long-standing federal law that prohibits colleges from compensating recruiters based on their success in enrolling students; bolstered the role that states play in preventing fraud, waste, and abuse in the federal student aid programs; and strengthened Department rules barring colleges from providing misleading information to prospective students and others about their programs.

In its suit, APSCU (which was formerly and more appropriately known as the Career College Association) portrayed its members as being innocent victims of an administration on a crusade against their institutions for no apparent reason. In this alternate reality, the abuses that the Department’s leaders sought to address were nothing more than figments of their imagination. “The final regulations are not the product of a reasoned decision-making process,” the career college group wrote in its initial complaint. “Their adoption dramatically affects private sector schools and their students, yet they are unsupported by factual evidence or logical reasoning.” The Department’s decision to overturn “the safe harbors,” for example, was not “a real solution to a real problem,” the group stated in a later filing.

In its decision, the court recognized these arguments for what they are – “specious and unworthy of serious discussion.” According to the appellate panel, the Education Department properly exercised its authority to regulate “based on experiences that it had faced in administering Title IV,” the section of the Higher Education Act (HEA) that authorizes the federal student aid programs. “The reason for the Department’s new regulations is clear,” Senior Circuit Judge Harry Edwards wrote for the court. “The agency had determined that the existing regulations were too lax, allowing schools to circumvent the HEA and threaten the integrity of Title IV programs.”

The judges particularly defended the Department’s decision to eliminate the safe harbors, saying that the agency acted appropriately in the face of “known abuses.” Judge Edwards wrote:

As the Department explained, ‘unscrupulous’ institutions used the safe harbor for salary adjustments to ‘circumvent the intent’ of the HEA and to avoid detection and sanction for engaging in unlawful compensation practices. The safe harbor enabled a school to tell the Department that it was basing compensation on both recruitment numbers and other qualitative factors, when in fact, ‘these other qualitative factors [were] not really considered when compensation decisions [were made].’ As we have already discussed, the agency’s assessment of the safe harbor finds support in the record – specifically, in the Department’s investigation into the practices of one school, several qui tam actions against other schools, and media reports, as well as from comments the agency received during the rulemaking.

Edwards specifically cited the Education Department’s 2004 investigation of incentive compensation violations at the University of Phoenix, which led to a $9.8 million settlement with the agency, and a later $78.5 million settlement with former recruiters who brought a False Claims lawsuit against the for-profit college giant based in part on the agency’s findings. He also referred to a $7 million settlement that Alta Colleges, the parent company of Westwood Colleges, reached with the U.S Justice Department over allegations that its Texas campuses had engaged in practices “designed to mislead prospective students and to misrepresent material facts to them.” In addition, he cited a False Claims lawsuit that a former employee brought against Devry Inc accusing the company of violating the ban.

Understandably, reporters covering the case primarily focused on problems that the appellate court found with the regulations. These were mostly in areas where Education Department officials pushed the limits of the Higher Education Act to try to stop any and all types of abuses that have been uncovered. For example, the court rejected the Department’s efforts to extend the definition of misrepresentation to include “any statement that has the likelihood to deceive or confuse,” arguing that such a standard “would raise serious First Amendment concerns.”

The appellate panel also agreed with a federal judge’s earlier decision to strike down a part of the state authorization regulation that required colleges with distance education programs to be registered in each state in which students enroll. The court said that the Department had violated the Administrative Procedure Act by introducing the requirement in the final regulatory package without giving the public ample opportunity to respond to the mandate.

The judges’ objections in these areas are entirely reasonable, and the Department should be able to revise the rules to reflect these changes without weakening its efforts. But to focus entirely on these areas of disagreement misses out on the larger picture. The for-profit college group has failed to convince the courts that the Education Department’s regulations were unwarranted. To the contrary, the appellate panel found the Department’s actions were completely justified, given “the known abuses” that were occurring.

That certainly seems like a story worth telling, doesn’t it?