The DOE had developed a kind of three-pronged test that would determine whether for-profit colleges and universities could receive federal aid for their students. The judge had no problem with the rules that link the size of graduates' debt payments to their discretionary and total income levels -- because those were supposedly based on "expert studies."
But he rejected the debt-repayment standard, by which at least 35 percent of an institution's former students' must have repaid their federal loans. Judge Rudolph Contreras wrote:
"The debt-to-income standards were based upon expert studies and industry practice -- objective criteria upon which the department could reasonably rely." But, he continued, "The debt repayment standard, by contrast, was not based upon any facts at all. No expert study or industry standard suggested that the rate selected by the department would appropriately measure whether a particular program adequately prepared its students. Instead, the department simply explained that the chosen rate would identify the worst-performing quarter of programs."
Why the bottom quarter? Because failing fewer programs would suggest that the test was not "meaningful" while failing more would make for too large a "subset of programs that could potentially lose eligibility." That this explanation could be used to justify any rate at all demonstrates its arbitrariness. If the department had chosen to disqualify the bottom ten percent of programs, or the bottom half, it would have offered the same rationale: the rate chosen disqualified the percentage of programs that it was intended to disqualify, and to have disqualified fewer would have made the test too lenient while disqualifying more would have made the requirement too stringent. This is not reasoned decisionmaking.
He also determined that the three prongs were "intertwined" and thus he could not reject one without rejecting all of them. He ruled that the "gainful employment" standard, which is based on debt-to-income ratios and loan repayment standards, could not stand either.
Contreras is correct that the debt-repayment standard is completely arbitrary. But then so are the rest of the rules -- whatever you think of the expert studies upon which they're based. They're arbitrary because they are being applied to only one sector of higher education. Why shouldn't they be applied to private not-for-profit schools or to public schools? As the Wall Street Journal editorialized recently:
Were the White House to apply its rules to all schools, many historically black colleges and community colleges in the inner cities where wages are lower would also be barred from taking federal student aid. Traditional four-year colleges whose grads are employed occupying Wall Street could be affected as well.
No doubt the DOE will come back on appeal with some contrived studies to show how the debt-repayment standards are justified. But whoever hears this case next should consider the arbitrariness of this entire enterprise. What difference should it make whether the university is for profit or not. If we are going to tie federal dollars to employment and student debt -- if those are the standards by which we want to judge education -- shouldn't they be applied across the board?