[Updated] Betsy DeVos Sued Again Over For-Profit College Rule

Betsy DeVos sued

A coalition of attorneys general filed a new lawsuit against Education Secretary Betsy DeVos on Tuesday, the second such suit over rules meant to crack down on unscrupulous for-profit colleges, according to multiple reports.

The new legal action claims DeVos violated the law by delaying and declining to enforce implementation of the Obama-era gainful employment rule. Under the 2014 rule, schools that get the bulk of their revenue from federal aid have to show that their graduates are finding employment and can pay back their student loans.

The attorneys general — representing 17 states and the District of Columbia — also took part in a lawsuit against DeVos in July over the indefinite delay of another 2014 federal rule meant to protect defrauded student borrowers.

What is the gainful employment rule?

Tuesday’s suit over the gainful employment rule comes after a Department of Education (DOE) report in January — before DeVos took over as secretary — claimed that more than 800 schools failed to meet the new standards.

The gainful employment rule was issued in 2014 and became effective in July 2015. It was intended to help students avoid unmanageable student loan debt as a result of attending expensive for-profit schools and non-degree-granting programs that didn’t lead to quality work.

In order to determine whether a school is in accordance with the rule, the DOE is supposed to evaluate program graduates’ debt-to-income in terms of student loan payments as a percentage of their income.

In order to “pass,” a program’s graduates must have annual student loan payments of less than 8 percent of their total earnings or less than 20 percent of their discretionary earnings.

A “fail” occurs when graduates of a program have annual payments of more than 12 percent of their total earnings, or if the graduates end up with more than 30 percent of discretionary earnings devoted to student loan payments. Schools that fail in two out of any three consecutive years are no longer eligible for federal student aid for a minimum of three years.

There is also a “warning zone” provision. If a program’s graduates have student loan payments that take up between 8 and 12 percent of their total earnings, or between 20 and 30 percent of their discretionary earnings, they could be at risk.

The DOE requires programs in this zone to warn their students of increased risk to their ability to repay student loans. If a school ends up in the warning zone for four years in a row, their federal student aid is yanked for a minimum of three years.

In March 2016, a federal appeals court upheld the rule, which was challenged by for-profit colleges. One of the biggest casualties of the gainful employment rule was ITT Technical Institute, which was forced to shut down toward the end of 2016 after being cut off from federal student aid.

Challenges to the gainful employment rule

In June 2017, a different court held that the way the DOE deals with under-reported income needs to be overhauled.

The case involved the American Association of Cosmetology Schools (AACS), which asserted that many of their graduates under-report their incomes. Because graduates receive cash payments for some services, and sometimes avoid reporting the income on their taxes, the AACS said it wasn’t fair to apply the gainful employment rule in this way.

Earlier this summer, the DOE announced that it would delay enforcing the rule about schools in the warning zone. The move wouldn’t require schools to inform their students of the possibility that they wouldn’t find jobs that would allow them to comfortably repay their student loans.

Additionally, DeVos indicated that the DOE would try to get rid of the gainful employment rule altogether. The Washington Post reported that the DOE seemed to take the ruling as a reason to get rid of the rule entirely, even though the judge made it clear the court was trying to avoid “upending” the entire regulation.

“It was a very narrow exception and the court made very clear that it didn’t relate to the larger rule,” said Maryland Attorney General Brian Frosh, according to the Washington Post. “You’ve got three court decisions upholding the rule and the department is still saying we don’t think it’s right, so we’re not going to implement it.”

How is this lawsuit different?

DeVos is already being sued over another rollback of Obama-era protections for students of for-profit colleges. That lawsuit is about borrower defense, in which borrowers can follow a process to get student loan forgiveness after graduating from for-profit colleges.

Students have been able to ask for student debt relief for decades in the case of deceptive or illegal practices. However, the Obama administration rule simplified the process of receiving forgiveness.

This earlier lawsuit over the borrower defense rule seeks the reinstatement of the process. Under DeVos, the DOE has yet to approve of any student loan forgiveness as the result of loans obtained under deceptive practices.

The current suit claims that DeVos’ rollback of the gainful employment rule is illegal.

Frosh and his fellow attorneys general want to force the DOE to implement the gainful employment rule immediately, forcing for-profit schools to warn students when they might not be able to afford the student debt accrued while attending.

Liz Hill, the DOE press secretary, issued a statement dismissing the lawsuit as “frivolous” and accusing the attorneys general (all Democrats) of trying to “score quick political points,” reported ABC News.

“[T]his administration, and Secretary DeVos in particular, continue work to replace this broken rule with one that actually protects students,” Hill continued in the statement.

What can you do as a student borrower?

We don’t know what will happen next. Many of the protections put in place during the previous administration are being rolled back. Unless a court ruling forces the DOE to enforce this protection, it’s unclear what will replace it.

If you are impacted by high student loan debt, here are some of the steps you can take to improve your situation:

If you haven’t already started going to college, now is the time to reconsider attending a for-profit institution. Research carefully to make sure you understand the risks and get a realistic idea of how you will repay your student loans.

Student Loan Hero will continue to update this story as new developments occur.

Michael Kitchen contributed to the reporting for this article.

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