Ass'n of Private Sector Colls. & Univs. v. Duncan

• Citation: 110 F.Supp.3d 176
• Decision Date: 23 June 2015
• Docket Number: Civil Action No. 14–1870 (JDB)
• Parties: Association of Private Sector Colleges & Universities, Plaintiff, v. Arne Duncan, Secretary of the Department of Education, et al., Defendants.
• Court: U.S. District Court — District of Columbia

110 F.Supp.3d 176

Association of Private Sector Colleges & Universities, Plaintiff,

v.Arne Duncan, Secretary of the Department of Education, et al., Defendants.

Civil Action No. 14–1870 (JDB)

United States District Court, District of Columbia.

Signed June 23, 2015

Douglas R. Cox, Jonathan C. Bond, Robert Gonzalez, Gibson, Dunn & Crutcher, LLP, Washington, DC, Timothy John Hatch, Gibson, Dunn & Crutcher LLP, Los Angeles, CA, for Plaintiff.

Gregory Peter Dworkowitz, Marcia Berman, Michelle Renee Bennett, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION

JOHN D. BATES, United States District Judge

This case asks how the government should determine whether certain for-profit and vocational schools "prepare [their] students for gainful employment in a recognized occupation." 20 U.S.C. §§ 1002(b)(1)(A)(i), 1002(c)(1)(A). The Department of Education proposes one answer: it plans to measure the average debt load of a program's former students against their earnings. Only graduates who make enough money to service their educational debt, the thinking goes, are "gainful[ly] employ[ed]." But the Association of Private Sector Colleges and Universities approaches the question from a different angle. It believes that the only permissible measure for "gainful employment" is whether students get a job—any job—that pays. The Association thus argues that the Department's debt-to-earnings test is both outside the scope of the Higher Education Act and arbitrary or capricious under the Administrative Procedure Act. But sustaining these (and other) claims under the deferential Chevron and APA standards presents too great a hurdle for the Association, and the Court will accordingly deny the Association's motion for summary judgment and grant the Department's cross-motion.¹

BACKGROUND

Title IV of the Higher Education Act of 1965 "provides billions of dollars [every year] through loan and grant programs to help students pay ... for their postsecondary education." Ass'n of Private Sector Colls. & Univs. v. Duncan, 681 F.3d 427, 433 (D.C.Cir.2012). But there are boundaries to this billion-dollar industry—including limits on the kinds of schools whose students qualify for federal loans and grants. As this Circuit has explained, "[t]hese [statutory] requirements are intended to ensure that participating schools actually prepare their students for employment, such that those students can repay their loans." Id. at 434. One such requirement sits at the center of this case. Students enrolled at "[p]roprietary institution[s] of higher education" (that is to say, for-profit schools) or "[p]ostsecondary vocational institution[s]" are only eligible for Title IV funding if the institutions' programs "prepare [those] students for gainful employment in a recognized occupation."

20 U.S.C. §§ 1002(b), 1002(c) ; see also id. § 1088(b)(1)(A)(i).

Although Congress did not explain what it meant by "prepare" or "gainful employment" or "recognized occupation," the Department has grappled with this language once before. After a notice-and-comment period ending in 2011, the Department promulgated a final rule designed "to improve disclosure of relevant information and to establish minimal measures for determining whether certain postsecondary educational programs lead to gainful employment in recognized occupations." 76 Fed.Reg. 34,386, 34,386 (June 13, 2011). The rule established several tests to measure the adequacy of schools' preparation efforts, including two different metrics for weighing the average student's debt load against her income, as well as a separate metric to calculate whether a sufficient percentage of a school's students were actually repaying their loans.See id. at 34,389. The 2011 rule also required schools "to report the information necessary for the Department to calculate [its new metrics] ... and to disclose to prospective students various facts about [its] program [s]." Ass'n of Private Sector Colls. & Univs. v. Duncan, 870 F.Supp.2d 133, 143 (D.D.C.2012) (hereinafter " APSCU I ") (internal citation omitted).

This rule never took effect, however. In 2012, the Association of Private Sector Colleges and Universities—a trade group representing 1,400 for-profit colleges which is also the plaintiff here, see Compl. [ECF No. 1] ¶ 2—brought suit against the Department, arguing that the proposed "gainful employment" regulations exceeded statutory authority and violated the APA, see APSCU I , 870 F.Supp.2d at 144–45. And the district court agreed–at least in part. While the court held that the "gainful employment" provision was ambiguous, that the Department's interpretation of the provision was reasonable, and that many aspects of the proposed regulations withstood arbitrary-and-capricious review, see id. at 149–53, it nonetheless vacated the bulk of the regulations because one of the Department's debt metrics did not reflect reasoned decisionmaking, see id. at 154 ("Because the Department has not provided a reasonable explanation of [its debt-repayment] figure, the court must conclude that it was chosen arbitrarily."). The court likewise rejected some aspects of the Department's proposed reporting requirements, while retaining the rule's disclosure requirements. See id. at 155–57 ; see also Ass'n of Private Sector Colls. & Univs. v. Duncan, 930 F.Supp.2d 210, 218–21 (D.D.C.2013) (hereinafter " APSCU II ") (denying a motion to amend APSCU I 's holdings concerning the reporting and disclosure requirements).

The Department went back to the drawing board in 2014. It announced a proposed rulemaking in March of that year, see 79 Fed.Reg. 16,426, 16,426 (Mar. 25, 2014), and seven months later published its final rule, see 79 Fed.Reg. 64,890, 64,890 (Oct. 31, 2014). As in the previous go-round with these regulations, the Department concluded that the statute's "gainful employment" clause was ambiguous. Id. at 64,893. Again, the Department interpreted this language to mean "provid[ing] ... training that lead[s] to earnings that will allow students to pay back their student loan debts." Id. at 64,890. And again, the Department issued several regulations designed to give this interpretation some teeth, including (1) a modified regime for measuring the acceptable debt-to-earnings ratios for a program's students,² and (2) revised disclosure, reporting, and certification requirements for programs subject to the regulations. See id.

Beginning with the debt-to-earnings test: the 2014 regulations prescribe two metrics for measuring a program's compliance with the "gainful employment" eligibility restrictions. The first is a debt-to-discretionary-income metric, which the Department calculates by dividing the median annual loan payment for a program's students by those same students' discretionary income (which is equal to "the higher of the mean or median annual earnings" of the students minus 150% of the poverty-guidelines figure). 34 C.F.R. § 668.404(a)(1). The second is a debt-to-annual-income metric, which the Department calculates using a simpler equation–just dividing the median annual loan payment for a program's students by the mean or median annual earnings of those students, whichever is greater. See id. § 668.404(a)(2).

Two percentage scores thus result from the Department's debt-to-earnings test, and those two scores determine whether a program is passing or failing—or neither. Specifically, the Department will pass a program if its median annual loan payment is less than or equal to either 20% of discretionary income or 8% of annual earnings. See id. § 668.403(c)(1). In other words, a program need not satisfy both metrics to receive a passing grade—just one will do. Failure, by contrast, requires a failing score under both metrics. A program fails only if its median annual loan payment is both more than 30% of discretionary income and more than 12% of annual earnings. See id. § 668.403(c)(2). Careful readers will notice a gap separating programs that pass from those that fail. But this is by design. A program that does not receive a passing score under either metric, and that has at least one metric that falls in the gap between passing and failing (e.g., median annual loan payments equal to 25% of discretionary income) is considered to be "in the zone"—a label akin to a warning shot. See id. § 668.403(c)(3).

Where a program falls on this spectrum—passing, failing, or in the zone–comes with consequences. A program loses eligibility for all Title IV financial aid if it fails the debt-to-earnings test for two out of three consecutive years, or if it has debt-to-earnings scores that are in the zone or failing for four consecutive years. See id. § 668.403(c)(4). And once a program is deemed "ineligible" for such federal funding, the program remains in that status for three years. See id. § 668.410(b)(2). Moreover, schools with programs on the verge of an ineligibility determination must affirmatively warn their students (and prospective students) of this fact. See id. § 668.410(a). Among other things, the warning must tell students that they are in danger of losing their federal grants and loans, that they "may have to find other ways ... to pay for the[ir] program," and that there might be other similar (and presumably less risky) programs available to them—even at different schools altogether. Id. § 668.410(a)(2).

The regulations also include other disclosure, reporting, and certification requirements. For example, programs may be required to disclose to students information like "[t]he length of the program in calendar time," "[t]he total cost of tuition and fees," and "[t]he [job] placement rate for" students in the program. Id. § 668.412(a). Programs must also report to the Department various data points concerning each student, including—as relevant to this litigation—"[t]he total amount the student received from private education loans ... for enrollment in the program," "[t]he total amount of institutional debt ......