Am. Fed'n of Teachers v. DeVos

• Decision Date: 03 September 2020
• Docket Number: Case No. 5:20-cv-01889-EJD,Case No. 5:20-cv-00455-EJD
• Citation: 484 F.Supp.3d 731
• Parties: AMERICAN FEDERATION OF TEACHERS, et al., Plaintiffs, v. Elisabeth DEVOS, et al., Defendants. People of the State of California, Plaintiff, v. Elisabeth DeVos, et al., Defendants.
• Court: U.S. District Court — Northern District of California

484 F.Supp.3d 731

AMERICAN FEDERATION OF TEACHERS, et al., Plaintiffs,

v.Elisabeth DEVOS, et al., Defendants.

People of the State of California, Plaintiff,

v.Elisabeth DeVos, et al., Defendants.

Case No. 5:20-cv-00455-EJD

Case No. 5:20-cv-01889-EJD

United States District Court, N.D. California, San Jose Division.

Signed September 3, 2020

Daniel Allen Osborn, California Attorney General's Office Consumer Law Section, Oakland, CA, Amos Erik Hartston, California Department of Justice Office of the Attorney General, Christopher Myron Lapinig, Bernard Ardavan Eskandari, Los Angeles, CA, Nicklas A. Akers, California Department of Justice, San Francisco, CA, for Plaintiffs.

Kathryn L. Wyer, Washington, DC, for Defendants.

Re: Dkt. No. 26

Re: Dkt. No. 18

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTIONS TO DISMISS

EDWARD J. DAVILA, United States District Judge

Under Title IV of the Higher Education Act of 1965 ("HEA"), see 20 U.S.C. § 1070 et seq. (1988), students may receive "Guaranteed Student Loans" ("GSLs") to pay for their postsecondary tuition and expenses. However, in order for the postsecondary institutions to be eligible to accept these GSLs, the institutions must "prepare students for gainful employment in a recognized occupation." 20 U.S.C. §§ 1001(b)(1), 1002(b)(1)(A)(i), (c)(1)(A) (emphasis added). The Secretary of the Department of Education ("the Secretary") has broad authority to prescribe any rules and regulations that she deems necessary or appropriate to administer the HEA. See 20 U.S.C. § 1221e-3 ; see also id. § 3474.

For nearly 45 years after the HEA's enactment, the regulations promulgated pursuant to this broad authority did not specifically address the meaning of "gainful employment" or impose any obligations on postsecondary institutions in connection with this language. This changed in 2010 when the DOE issued a series of new Title IV disclosure and eligibility requirements aimed at ensuring certain educational programs actually "prepared students for gainful employment." See Program Integrity Issues , 75 Fed. Reg. 34,806 (June 18, 2020) ; Program Integrity Issues , 75 Fed. Reg. 66,832 (Oct. 29, 2010). Most of these regulations were struck down in 2012. See Ass'n of Private Sector Colls. & Univs. v. Duncan ("APSCU III") , 110 F. Supp. 3d 176, 182 (D.D.C. 2015) (finding that the DOE could interpret the term "gainful employment," but striking down the regulations because the DOE failed to provide adequate explanations).

In 2014, the DOE promulgated a series of revised regulations, which were designed to counteract the deceptive marketing practices that certain for-profit postsecondary institutions used to entice students to take on large amounts of debt to pursue worthless degrees or credentials. See Program Integrity: Gainful Employment , 79 Fed. Reg. 64,890 (Oct. 31, 2014). These regulations became effective on July 1, 2015, but were not immediately implemented. Following the 2016 presidential election, the DOE further delayed implementing the regulations. Then, on June 16, 2017, the DOE announced its intent to initiate a new negotiated rulemaking committee to reconsider the Gainful Employment regulations. Intent to Establish Negotiated Rulemaking Committees , 82 Fed. Reg. 27,640 (June 16, 2017). After the committee failed to reach a consensus, the DOE issued a notice of proposed rulemaking. Program Integrity: Gainful Employment , 83 Fed. Reg. 40,167 (August 14, 2018). Thereafter, the DOE issued a final rule that rescinded the 2014 rule. Program Integrity: Gainful Employment , 84 Fed. Reg. 31,392 (July 1, 2019) (hereinafter "the 2019 Rescission Rule").

The 2019 Rescission Rule forms the basis of the two above-captioned actions. Plaintiffs in each action challenge the lawfulness of the repeal, both substantively and procedurally. The DOE and its Secretary, Elisabeth DeVos (collectively "Defendants") argue that Plaintiffs in each action lack standing. Having considered the Parties’ briefs and having had the benefit of oral argument on August 27, 2020, the Court agrees and GRANTS in part and DENIES in part Defendants’ motions to dismiss the respective complaints.

I. BACKGROUND

A. Factual Background

1. The Gainful Employment Rule

The HEA authorizes the federal government to provide financial aid to students at postsecondary institutions. Under this program, more than $150 billion in federal aid is provided annually to students at postsecondary schools. See Ass'n of Private Sector Colls. & Univs. v. Duncan ("APSCU I") , 681 F.3d 427 (D.C. Cir. 2012). That money supports students who attend a wide array of institutions, including "private for-profit institutions, public institutions, and private nonprofit institutions." Id. Loan recipients must eventually repay their debt to the federal government, otherwise taxpayers bear the burden of student tuition. Id. Of course, the institutions receive their tuition dollars regardless of whether a loan recipient repays their debt—the money is "fronted" by the federal government. To "guard against abuse by schools[,]" various statutory requirements exist to discourage postsecondary institutions from taking federal monies without providing students with quality education. Id. The basic idea is simple: if students receive quality education, they will be better able to repay their loans in the future as they will have a higher likelihood of increased earning potential.

One of these statutory protections is the Gainful Employment ("GE") provision, which limits institutions that can receive federal loans to those that provide "an eligible program of training to prepare students for gainful employment in a recognized occupation[.]" 20 U.S.C. § 1002(b)(1)(A)(i), (c)(1)(A) (emphasis added). The statute does not define "gainful employment." Instead, it vests the Secretary with the authority to "make, promulgate, issue, rescind, and amend rules and regulations governing" Title IV programs. See id. § 1221e-3. This includes the authority to define "gainful employment" by regulation. Ass'n of Private Sector Colls. & Univs. v. Duncan ("APSCU IV") , 110 F. Supp. 3d 176, 182 (D.D.C. 2015).

2. The 2014 Gainful Employment Rule

In 2014, the DOE announced its intention to define "gainful employment." Program Integrity: Gainful Employment , 79 Fed. Reg. 16,426, 16,433 (Mar. 25, 2014). The proposed regulations were intended to address growing concerns about postsecondary programs that leave "students with unaffordable levels of loan debt in relation to their earnings, or leading to default." Id. (discussing how a number of programs do not adequately train students, provide expensive training in low-wage occupations such that the costs of training are unjustified, and produce only a few number of graduates, despite high enrollment numbers). The DOE found that underperforming GE Programs charged "excessive costs;" possessed "low completion rates;" "fail[ed] to satisfy requirements that are necessary for students to obtain higher paying jobs in a field;" exhibited a "lack of transparency regarding program outcomes;" and engaged in "aggressive or deceptive marketing practices." Id.

In its March 2014 notice of proposed rulemaking, the DOE included statistics that showed that students who complete certain GE programs often had low incomes, despite their significant investment into postsecondary education. Id. at 16,433 –34. Of particular concern to the DOE was the lack of information available about these poor-performing GE programs. Thus, in the March 2014 notice of proposed rulemaking, the DOE noticed its intent to make rules about access to information.

Id. at 16,435 ("[S]tudents seeking to enroll in these programs do not have access to reliable information that will enable them to compare programs in order to make informed decisions about where to invest their time and limited educational funding."); see also id. at 16,436 ("[W]ithout accurate and comparable information, the public, taxpayers, and the Government are in the dark as to the performance of these programs and the return on the Federal investment in these programs."). The DOE was particularly concerned by the mounting evidence of "high-pressure and deceptive recruiting practices at some for-profit institutions." Id. at 16,435.

To address the lack of transparency and inadequacy of certain GE Programs, the DOE proposed the Gainful Employment Rule ("the GE Rule").¹ The final version of the GE Rule was published in October 2014. 79 Fed. Reg. 64,890. The final GE Rule subjects all GE Programs to (1) an affirmative disclosure duty ("the Disclosure Requirements") and (2) punishes those GE Programs that regularly leave low-income graduates with overwhelming debt loads ("the Eligibility Framework"). See APSCU IV , 110 F. Supp. 3d at 182–83.

The affirmative disclosure duty requires the DOE to design a "disclosure template" that GE Programs must complete. 34 C.F.R. § 668.412(a)–(b) (2014). The Rule also tasks the Secretary with "identif[ying] the information that must be included in the template in a notice published in the Federal Register[,]" and specifies that, among other things, the Secretary can require: "[t]he primary occupations ... that the program prepares students to enter"; "the program's completion rates"; and/or "[t]he length of the program in calendar time." Id. Each institution that offers GE Programs must: post the completed disclosure template on the GE Program's web page, include the template in any promotional materials for the program, and require students to sign an enrollment agreement or make a financial commitment that includes the GE Program's disclosures. Id. § 668.412(c), (d), (e) (2014).

The debt-load punishment rule is more complex. To prevent GE Programs from selling students a low-return education at a high price, the DOE enacted a series of punitive measures to weed out poor-performing programs. The rule relies on a "debt-to-earnings rate," which determines whether a GE program remains eligible for ...