Teachers Union Lawsuit Claims DeVos 'Capriciously' Repealed Borrower Protections

One of the nation's largest teachers unions is expected to sue U.S. Education Secretary Betsy DeVos on Wednesday. The complaint: She repealed a rule meant to protect student loan borrowers from for-profit and career-focused schools that graduate them with too much debt and limited job prospects.

Randi Weingarten, president of the 1.7 million-member American Federation of Teachers (AFT), says the lawsuit's message is clear: "Protect the students of the United States of America — not the for-profit [schools] that are making a buck off of them."

The 2014 rule that DeVos repealed, known as "gainful employment," served as a warning to for-profit colleges and any school that offers career certificate programs: If graduates don't earn enough income to repay their student debts, schools could lose access to federal aid.

Because many of these programs derive the bulk of their revenue from federal student loans and grants, it was a potentially devastating threat. So devastating that, Weingarten says, "the rule worked. What started happening is that these places — not just the for-profits, but anyone who was covered by this — they started cleaning up their act."

"Declare victory and go home"

When the Obama administration began working on a gainful employment rule back in 2010, some for-profit institutions started to make changes, trying to head off a potential reckoning. For example, Kaplan Higher Education unveiled an introductory, tuition-free period for prospective students to take classes. In a press release, Kaplan said the move would "lower the risk that the federal government lends money unnecessarily to students with a low chance of success."

And in its 2011 annual report to the U.S. Securities and Exchange Commission, another for-profit heavyweight, ITT Educational Services Inc., captured the fear in the for-profit sector: "Changes resulting from the [gainful employment] Requirements could reduce our enrollment and/or increase our cost of doing business, perhaps materially."

In other words: Schools were so threatened by the possibility of losing access to federal aid, they started making changes years before gainful employment even became a rule.

"I have said quite often in the last few years that the opponents of the [for-profit] sector should just declare victory and go home," says Steve Gunderson, president and CEO of Career Education Colleges and Universities (CECU), a membership organization that serves as the national voice for career education schools. "Their message was heard and the sector responded."

"They just undefined the term"

The first round of official data on gainful employment was released in January 2017; it showed that more than 700 programs had failed to meet the new standard — what the department considered a reasonable ratio of a student's debt to income.

That same month, Donald Trump was sworn in as president. The following month, DeVos was sworn in as his education secretary. From the beginning, DeVos ignored the gainful employment rule — even after 18 state attorneys general sued her, demanding that she enforce it. In 2019, the department officially repealed the rule.

Dan Zibel, chief counsel at the nonprofit Student Defense, is representing AFT in the new lawsuit.

"When an agency changes its mind and wants to repeal a policy, it has to explain it," he says. "It has to acknowledge what it's doing, and it has to explain the new rule."

But Zibel says DeVos didn't really rewrite the rule. "This is them simply deleting the entire regulatory structure, not replacing it with anything."

"They just undefined the term," says James Kvaal, who helped design the original rule as deputy undersecretary in the Obama Education Department. "Gainful employment had meaning, and [DeVos] took it out. And I just — I've never seen that before. I've never seen an agency take a term that was in the regulations and just undefine it without replacing it with some new meaning."

NPR obtained a draft of the complaint, expected to be filed in U.S. District Court. It says, "The Department has acted arbitrarily, capriciously, and not in accordance with law."

In a statement to NPR, department spokesperson Angela Morabito says, while the department generally doesn't comment on pending litigation, "[it] will vigorously defend its final regulation rescinding this deeply flawed rule."

Accountability versus transparency

The term "gainful employment" stems from the landmark Higher Education Act, which divided postsecondary programs into two categories: those that offer a degree, and those that provide "training to prepare students for gainful employment in a recognized occupation." The law says that in order for these latter, career programs to receive federal student aid, they should be setting students up for success in the workplace.

The problem is, Congress did not define "gainful employment," or explain how to measure it. It wasn't until the Obama administration that the U.S. Department of Education created a clear standard.

Though the rule also applied to some nonprofit and public institutions, DeVos has argued that her predecessors specifically used it to target for-profit schools.

In justifying its repeal of the rule, the Education Department argues that students at for-profit colleges are more likely to be vulnerable (i.e. low-income, without a high school diploma, single parents, students of color, etc.) even compared to community college students. As such, the department reasons, "differences in borrowing levels and student outcomes may well be attributable to student characteristics and may not accurately indicate institutional quality."

In short, the department argues, a student's failure may not be a school's failure.

DeVos' approach replaces accountability with transparency. Using the Education Department's College Scorecard, a massive trove of school-based data, prospective students will be able to see median debt and earnings for graduates of all higher education programs. It is essentially a policy of caveat emptor — buyer beware. The threat schools now face for saddling graduates with low-paying jobs and impossible debts depends on prospective students doing their own police work, using the College Scorecard, and foregoing schools with ugly numbers.

"Instead of targeting schools simply by their tax status, this administration is working to ensure students have transparent, meaningful information about all colleges and all programs," DeVos said in a 2018 statement announcing the move to rescind the gainful employment rule.

The department acknowledged that there would be a cost to allowing low-quality programs to continue to receive federal student aid, "especially if doing so burdens students with debt they cannot repay or an educational credential that does not improve their employability." But ultimately, the announcement said, "the Department believes that the benefits outweigh the costs since all students will benefit from choice and transparency."

Gunderson agrees: "I really think that what the department has done will turn out to be the most significant public policy to protect prospective students across the board."

This isn't the first time DeVos' Education Department has scrapped or rewritten policies meant to protect student borrowers. The department also dramatically rewrote another Obama-era rule known as "borrower defense." That rule allows borrowers who believe they were defrauded by their school to petition to have their federal student loans forgiven. When the re-written borrower defense rule goes into effect in July, it will be much harder for students to prove they were misled, and those who do may still have only a portion of their debts forgiven. [Copyright 2020 NPR]