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Court Ruling Puts New Gainful-Employment Regulation on Hold

Enforcement of the new gainful-employment rules to reign in unscrupulous career-training programs has been put on hold, after a federal judge declared a provision arbitrary.

Judge Rudolf Contreras of the U.S. District Court for the District of Columbia, newly appointed by the Obama administration, this weekend ruled the criteria that at least 35 percent of graduates must be repaying their loans lacked a reasoned basis.

The U.S. Department of Education had set the rate because it would weed out the bottom quarter of the worst-performing programs, but the opinion dismissed that explanation as one not based on an expert study or industry standard.

While a blow to immediate implementation, the judge affirmed the department's right to craft new regulations to make sure vocational programs prepare students for gainful employment.

The lawsuit had been filed by the Association of Private Sector Colleges and Universities, challenging whether the department exceeded its authority in making the gainful-employment rules.

Under the new rules, which were to go into effect July 1, for-profit and nonprofit colleges with career-training programs would have to meet one of three benchmarks or be in jeopardy of losing federal student-aid dollars. The other criteria include: a graduate's estimated annual loan payments must not exceed 12 percent of earning or they must not exceed 30 percent of discretionary income.

The opinion did uphold the portion of the regulations that requires schools to disclose to potential students information about a program's costs, graduation rate for students who have completed the program, and the placement rate and median loan debt for those students.

The Department of Education is reviewing possible next steps in the wake of the APSCU v. Duncan opinion.

"The court clearly upheld the authority to regulate college career programs, but found that the department had not provided enough explanation of its debt-repayment measure, so it has given the department an opportunity to address that concern," said a statement from Peter Cunningham, assistant secretary for communications and outreach for the department. "We are reviewing our legal and policy options to move forward in a way that best protects students and taxpayers while advancing our national goal of helping more Americans get the skills they need to compete in the global economy."

Last week, the department released data showing about 5 percent of nondegree, career-training programs were on track to fail the new gainful-employment benchmarks. All those out of compliance were at for-profit institutions.

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