The odyssey continues, but at least one federal court has dismissed challenges against the Department of Education’s (ED’s) “gainful employment” rule, which is set to go into effect on July 1, 2015. ED promulgated the rule to prevent for-profit colleges from abusing their students’ access to federal student loan dollars. In particular, it believed that for-profit colleges were aggressively marketing or misrepresenting themselves, overcharging their students, loading them down with unpayable debts, and preparing them for jobs that didn’t exist—if they prepared them at all. Unsurprisingly, ED thought it would help many would-be students if for-profit universities were held to some kind of standards.
The for-profits and their allies disagreed, hence the lawsuit.
Going by the opinion in Assoc. of Proprietary Colleges v. Arne Duncan et al., the current rule is a little less complicated than the one proposed in 2011, which was thrown out by a different federal judge. A proprietary college can “pass” the rule if the most-recent two-year graduate cohort’s average annual loan payments aren’t greater than 20 percent of their discretionary incomes. Alternatively, the cohort’s average annual loan payments can’t be greater than 8 percent of its average annual income. A proprietary college “fails” if the cohort’s average loan payments exceed 30 percent of discretionary income or 12 percent of annual income. It will then lose its eligibility to participate in the federal loan program if it fails two out of three years.
Logically, some schools can neither pass nor fail, placing them in a situation that the opinion refers to as—and you can’t make this up—”the zone.” For-profits that either fail or are “in the zone” for four consecutive years lose their eligibility.
The plaintiff colleges mainly asserted constitutional and administrative procedural claims against ED, which usually indicates desperation on their part rather than a serious claim against ED’s rule. Indeed, before discussing the arguments, the court editorialized, “As we shall see, if either side is guilty of any ‘fit of . . . zealotry’ or ‘bias’ it’s not [ED].” Yikes.
You can find the opinion here.
It’s unclear, but it appears that the pass criterion of 20 percent of discretionary income is much less than the pay-as-you-earn (PAYE) repayment calculation, which is 10 percent of discretionary income. If that’s right, then for-profit colleges that successfully sign their students onto PAYE will maintain their eligibility to participate in the federal loan program. As with the original rule, it’s unlikely that many for-profits will lose their eligibility while many students struggle repaying their loans.
If you are encountering problems repaying your student loans and have other substantial debts or if you are ineligible for PAYE, then it’s in your interest to consult with an experienced New York bankruptcy lawyer. For example, filing bankruptcy might free up income that would normally go to other creditors to repay your student loans.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.