UPDATE ON BORROWER DEFENSE AND GAINFUL EMPLOYMENT

On June 15th the Department of Education published a series of Federal Register Notices and announcements related to several key regulations passed under the Obama Administration.

The notices announced the postponement of certain provisions of the Borrower Defense Regulations (BDR) following a lawsuit by the California Association of Postsecondary Schools which challenged a number of the Borrower Defense regulations. The administration determined that in light of the pending litigation, it was necessary to postpone the regulations until the matter is decided in court. And CAPPS V. DeVos has some teeth.

In other recent litigation, the American Association of Cosmetology Schools gained some minor relief for cosmetology programs. Last week, Federal District Judge Rudolph Contreras blocked the U.S. Department of Education from enforcing part of the Gainful Employment rule against AACS member schools. Mr. Contreras said that the GE rule arbitrarily restricts the appeals process for cosmetology schools whose graduate’s earnings are often paid in cash that isn’t reported to the Internal Revenue Service. The judge ordered the Department to give affected cosmetology programs more flexibility to file earnings appeals and to extend the appeals deadline. The judge says the ruling is “narrowly tailored” and “avoids upending the entire regulation while giving affected AACS schools more options for appeal”.

For context it’s important to understand how many AACS schools are affected; according to the association’s preliminary injunction filings, just three. In a court filing last week, the U.S. Department of Justice had argued that continued implementation of the current regulation serves the public interest, and that allowing the alternative earnings appeal process to go forward may help inform the upcoming rulemaking process.

The Federal Register Notice on Borrower Defense also announced the Department’s intent to establish two new Negotiated Rulemaking Committees and a timeline for public comments and public hearings for, BDR and Gainful Employment (GE), but the popular headline in the news suggested incorrectly that GE was somehow also paused. That’s simply not the case and all of the current rules and requirements related to GE remain in effect.

Schools have until July 1st, 2017 to submit alternative earnings appeals to GE Debt-to-Earnings Rates and to provide the required GE program disclosures. Furthermore, schools are still expected to report data on all Title IV students enrolled during the 2016-2017 award year to NSLDS by October 1, 2017 (unless something else changes).