Ass'n of Proprietary Colls. v. Duncan

• Decision Date: 27 May 2015
• Docket Number: No. 14–cv–8838 (LAK).,14–cv–8838 (LAK).
• Citation: 107 F.Supp.3d 332
• Parties: ASSOCIATION OF PROPRIETARY COLLEGES, Plaintiff, v. Arnte DUNCAN, in his official capacity as Secretary of the Department of Education, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

107 F.Supp.3d 332

ASSOCIATION OF PROPRIETARY COLLEGES, Plaintiff,

v.Arnte DUNCAN, in his official capacity as Secretary of the Department of Education, et al., Defendants.

No. 14–cv–8838 (LAK).

United States District Court, S.D. New York.

Signed May 27, 2015.

Michael D. Hays, Jonathon Glass, Alyssa T. Saunders, William J. Schwartz, Michael A. Blasie, Cooley LLP, for Plaintiff.

John D. Clopper, Assistant United States Attorney, Preet Bharara, United States Attorney, Marcia Berman, Michelle Bennett, Greg Dworkowitz, United States Department of Justice, for Defendants.

OPINION

LEWIS A. KAPLAN, District Judge.

Colleges and universities operated for profit play "an important role in serving traditionally underrepresented populations of students" such as those who are older, poorer, or less well educated, in addition to those who are women, Black, Hispanic, or single parents.¹ Many of these institutions offer classes online, as well as in-person classes at convenient times and locations.² For these reasons, among others, the for-profit educational sector "has experienced tremendous growth in recent years,"³ and there is no dispute that for-profit colleges and universities make education more accessible to millions of students across the country.

And yet, despite these not insignificant benefits, the surging popularity of proprietary institutions during the recent recession exposed, in the view of the U.S. Department of Education ("DOE" or the "Department"), some "troubling outcomes and practices" in the industry.⁴ For-profit schools often charge higher tuition than comparable public institutions—in some cases up to four times higher—and students enrolled at proprietary colleges take on correspondingly more educational debt than their peers at public schools.⁵ Attendees of for-profit colleges generally are less likely than attendees of traditional schools to graduate or otherwise complete their programs and more likely to be unemployed.⁶ They make less money than students who attend not-for-profit schools, and their career earning potential is lower.⁷ It is no surprise, then, that those who attend for-profit schools have substantially higher short-and long-term default rates on their student loan debt than their peers at comparable not-for-profit schools.⁸

These prospects notwithstanding, prospective students continue to enroll at for-profit colleges and universities in droves, lured in many cases by what DOE views as "deceptive or otherwise questionable information about graduation rates, job placement, or expected earnings."⁹ Proprietary schools are businesses; unlike public and non-profit schools, they are operated by private companies whose continued profitability depends in large part on enrollment growth. Accordingly, for-profit colleges, having incentives as they do to enroll as many students as possible, often devote substantial resources to recruiting and marketing, spending more money on those pursuits than they do on academic instruction or on student support services.¹⁰ Those recruiting and marketing practices sometimes are suspect; there is evidence that proprietary institutions often engage in "aggressive sales practices" that provide "misleading information" to prospective students.¹¹ And as enrollment at for-profit colleges and universities has increased, some such schools have increased their profit margins by setting tuition using "sophisticated market strategies designed to maximize revenue without regard to the poor academic and employment outcomes faced by students."¹²

To finance their educations, students enrolled at for-profit trade and vocational schools are eligible, by virtue of the Higher Education Act of 1965¹³ ("HEA") and the National Vocational Student Loan Insurance Act of 1965,¹⁴ for federal financial aid if, among other things, the institutions they attend "prepare students for gainful employment in a recognized occupation."¹⁵ Concerned about the "growing evidence that many for-profit programs may not be preparing students for careers as well as comparable programs at public institutions" and about the ability of students who attend proprietary institutions to repay their considerable educational debt,¹⁶ DOE has promulgated regulations (the "GE Rules") designed to curtail federal financial aid to those students who choose programs whose graduates regularly are un—or under—prepared for "gainful employment in a recognized occupation" and have "unaffordable levels of loan debt in relation to their earnings."¹⁷

These regulations, scheduled to go into effect July 1, 2015, establish a framework by which DOE will evaluate programs subject to the "gainful employment" provisions of the HEA—that is, "nearly all educational programs at for-profit institutions ..., as well as non-degree programs at public and private non-profit institutions such as community colleges"—with the ultimate goal of confining eligibility for federal financial aid to students attending programs that satisfy criteria intended to measure the ability of those programs to prepare their students for gainful employment.¹⁸

The Association of Proprietary Colleges ("APC"), a collection of 23 degree—granting for-profit institutions with 34 campuses in New York State, here challenges the GE Rules. APC contends principally that the GE Rules (1) deprive its members of procedural due process; (2) exceed DOE's statutory authority under the HEA; and (3) are arbitrary and capricious in violation of the Administrative Procedure Act ("APA"). The matter is before the Court on cross-motions for summary judgment.

I. The Statutory and Regulatory Scheme

Every year, Congress provides hundreds of billions of dollars through loan and grant programs to help students finance their post-secondary education.¹⁹ These programs, which were established under the HEA, are administered by DOE which, in fiscal year 2014, paid almost $134 billion in federal aid to nearly 13 million students enrolled at more than 6,100 schools across the country.²⁰ For proprietary colleges and universities—unlike for most public and private non-profit institutions of higher education, which draw their funding primarily from taxes and/or endowments—this federal student aid is a significant source of revenue.²¹ In the 2009–2010 academic year, for example, students attending for-profit institutions received $32 billion in federal loans and grants authorized under the HEA—money students used to pay their educational expenses and which represented, by some estimates, nearly 80 percent of proprietary colleges' revenue that year.²² In fact, for-profit programs rely so heavily on federal financial aid that the HEA prohibits them from deriving more than 90 percent of their revenue from DOE sources.²³

Students, of course, must repay their loans, but when they are unable to do so—which happens with alarming frequency among attendees of proprietary institutions²⁴ —the costs of their unpaid loans are borne not by the schools they attended but by U.S. taxpayers. In the absence of regulation, then, schools could "receive the benefit of accepting tuition payments from students receiving federal financial aid, regardless of whether those students are ultimately able to repay their loans."²⁵ Congress therefore included in the HEA various requirements that schools must satisfy to remain eligible for ongoing participation in federal student aid programs. The statutory provision at issue here—which affects only for-profit institutions and public or non-profit post-secondary vocational institutions—is one such requirement. It limits eligibility for federal financial aid to students attending programs that "prepare students for gainful employment in a recognized occupation."²⁶

A. Statutory Background²⁷

As originally enacted, the HEA rendered only those students attending "public or other non—profit" institutions eligible for federal financial aid.²⁸ The National Vocational Loan Insurance Act of 1965 worked in tandem with the HEA and extended eligibility to students at for-profit schools but limited it to those attending programs of "postsecondary vocational or technical education designed to fit individuals for useful employment in recognized occupations."²⁹ When Congress merged the two statutes in 1968, it retained their separate definitions of eligibility-schools previously subject to the HEA became "institution[s] of higher education," while those previously subject to the National Vocational Loan Insurance Act of 1965 became "vocational schools"—and made all programs—public, non-profit, and for-profit—eligible to participate in federal financial aid programs under Title IV of the HEA, subject, in the case of for-profit institutions, to the "useful employment" language noted above.³⁰

In 1992, Congress revised the eligibility rules, splitting "vocational schools" into (1) " 'proprietary institution[s] of higher education,' " i.e., for-profit schools, and (2) " 'post-secondary vocational institution[s],' " i.e., non-degree training and vocational programs at public and non-profit schools, and requiring that all such institutions " 'prepare students for gainful employment in a recognized occupation.' "³¹ It is DOE's interpretation of this language, which remains unchanged in the current version of the HEA,³² that APC now challenges.

B. The 2011 GE Rules

The GE Rules at issue here are not the first trip around this track. Consistent with its broad authority to issue regulations implementing HEA programs, DOE promulgated gainful employment rules in 2011 similar in some ways to those at issue here (the "2011 Rules").³³ Among other things, the 2011 Rules would have assessed whether various post-secondary programs provide training that leads to gainful employment by applying three tests—two based on debt-to-income ratios measuring graduates' ability to repay their loans and one based on repayment rates designed to measure whether all attendees (i.e., not just graduates) actually were repaying their student loan...