For-profit and nonprofit schools increasingly find themselves in courtrooms opposing federal regulations that they say the Biden administration is imposing on them due to ideological differences.
Career Education Colleges and Universities, an advocacy group for for-profit schools, has backed litigation challenging the Biden administration’s borrower defense provisions and changes to the Bare Minimum Rule, which critics say could force for-profit and nonprofit schools to shutter.
Nonprofit schools such as Keiser University also find themselves fighting back against the feds in court, saying the Biden administration’s policies seem to be based on a desire for free schooling.
“It appears to be ideological and it also appears to be kind of a belief that higher education should be free as they have advocated,” said Arthur Keiser, chancellor of Keiser University. “Obviously, that creates a problem for private institutions.”
“There is a mix of schools that provide training for the workforce that doesn’t involve degree programs,” said Jed Brinton, senior vice president and general counsel for Career Education Colleges and Universities, which represents for-profit trade schools that train aircraft mechanics, cosmetology professionals and health care workers.
“There are some folks on the Democrat side of things who think it would be a better world in higher education if you got rid of all for-profit schools,” Mr. Brinton added. “From my perspective, that would be very harmful.”
Borrower defense to repayment
One of the provisions at issue is the borrower defense to repayment rule that the administration moved to implement in 2022. It would allow certain student borrowers to apply for forgiveness of their student loans if they met various criteria.
But instead of having a borrower challenge repayment based on a claim, such as fraud by an institution the student borrower believed deceived them during their studies in court, the new rule would allow the Department of Education to adjudicate the borrower’s complaint against the institution.
If the department determines that a borrower had demonstrated that a school acted via an omission or in a fraudulent manner, the borrower could have their loans discharged.
The feds then could recoup the funds from the institutions.
Mr. Brinton’s organization supported a lawsuit by a group of Texas trade schools in enjoining the Education Department from enforcing the rule, arguing the department’s regulation was unlawful and would impose costs on the schools in recouping discharged loans.
The 5th U.S. Circuit Court of Appeals agreed in April and remanded the challenge to the district court with instructions to enjoin the department from enforcing the rule.
“The Rule presumes damages,” the 5th Circuit reasoned in its order.
“Schools are not provided with any discovery or cross-examination rights in either the borrower-defense or recoupment stage of the adjudication proceedings established by the Rule despite the fact that a successful borrower discharge claim would give rise to a presumption of liability against the schools in subsequent recoupment proceedings. Nor is there any requirement in the Rule that the Department official(s) in charge of the borrower defense or recoupment adjudication proceedings have any legal training.”
Another lawsuit involving the borrower defense rule is pending before the 9th U.S. Circuit Court of Appeals, where a group of for-profit and nonprofit schools moved to intervene in a settlement between borrowers and the Department of Education, which had moved to fully discharge their loans at roughly 150 for-profit and nonprofit institutions.
Bare Minimum Rule
Another group of Texas trade schools also halted the implementation of the Biden administration’s Bare Minimum Rule, which would require for-profit schools to issue a license to a student within the minimum of state-required hours in order to obtain financial aid.
For example, Texas requires a minimum of 500 hours of training for a massage therapist to obtain a license. A school that provides 600 hours for the licensed training would not qualify for federal student aid.
The Texas trade schools said the new rule ran afoul of federal law. The schools had been operating for several administrations under the 150% Rule, which allows federal aid funding as long as a program doesn’t exceed 150% of the state’s minimum requirement.
The U.S. District Court for the Northern District of Texas enjoined the Bare Minimum Rule rule from taking effect this month as the litigation plays out.
Gainful Employment rule
A group of cosmetology schools also challenged in the Northern District of Texas another regulation, the Gainful Employment rule, which aims to curtail students from applying to career programs that have yielded little employment success. Programs must pass a debt-to-earnings test to demonstrate that graduates are able to pay back their student loans.
That lawsuit is ongoing.
The complaint says the regulation is part of the federal government’s “contempt for the proprietary education industry, promulgated without regard for what the agency’s openly flawed data say or how many socially beneficial small businesses will close, under the guise of addressing a problem that those most harmed by the regulation do not cause.”
Grand Canyon University
Another major legal dispute that education advocates are monitoring is between the Department of Education and Grand Canyon University.
Grand Canyon University operated as a nonprofit, converted to a for-profit school and then back to nonprofit status recognized by the Internal Revenue Service and the state of Arizona.
But the Department of Education has continued to classify Grand Canyon University as a proprietary school.
Bob Romantic, a spokesperson from Grand Canyon University, said the classification requires the school to operate under stricter guidelines. It sued the administration over the classification issue.
The Biden administration also alleged the Christian school was deceptive about the course and the cost of its doctoral program, and fined it more than $37 million. The school is appealing.
Meanwhile, former students have launched a class-action lawsuit against Grand Canyon University, arguing that their programs cost more than the institution advertised.
Mr. Romantic called the class-action “ridiculous” in an email to The Washington Times.
“We believe these targeted actions are retaliation over GCU filing a lawsuit in 2021 against the Department of Education over its refusal to acknowledge our lawful nonprofit status,” he said.
Andrew Gillen, a research fellow at the Cato Institute’s Center for Educational Freedom, said there is always litigation with any new regulation. But the fine imposed on Grand Canyon University seemed out of the norm for the Department of Education.
“Whenever there is a new regulation, there does tend to be litigation around it,” Mr. Gillen said, adding that with Grand Canyon University, it does appear the feds’ actions have appeared “punitive.”
A spokesperson for the Department of Education and the Department of Justice Department did not immediately respond to a request for comment.