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ASSOCIATION OF ACCREDITED COSMETOLOGY SCHS. v. ALE

October 1, 1991

ASSOCIATION OF ACCREDITED COSMETOLOGY SCHOOLS, Plaintiff,
v.
LAMAR ALEXANDER, Defendant. DELTA JUNIOR COLLEGE, INC., et al., Plaintiffs, v. LAMAR ALEXANDER, Defendant


Harold H. Greene, United States District Judge.


The opinion of the court was delivered by: GREENE

HAROLD H. GREENE, UNITED STATES DISTRICT JUDGE

 The Association of Accredited Cosmetology Schools (Association) seeks to enjoin the Secretary of Education from enforcing certain regulations affecting the schools' eligibility to participate in federal student aid programs, on the grounds that the regulations violate the controlling statute, are unconstitutional, and were promulgated in violation of the Administrative Procedure Act (APA). Delta Junior College (Delta College) and eight other schools in a separate action seek an injunction on similar grounds. The Department of Education (Department) has moved to dismiss all plaintiffs' motions, or in the alternative, for summary judgment, and a hearing was held on all the motions. Upon consideration of the papers and the hearing, the Court finds for the defendant on the merits and accordingly denies the plaintiffs' motions for a preliminary injunction and grants the defendant's motion for summary judgment.

 I

 Factual Background

 Title IV of the Higher Education Act authorizes a number of grant and loan programs for students attending postsecondary schools. However, a student may obtain Title IV financial aid *fn1" only if he or she is attending a school determined by the Department to be eligible to participate in the Title IV programs. Regulations promulgated in 1989 conditioned a school's eligibility on its "cohort default rate," which is based on the rate at which that school's students default on their federal student loan obligations.

 As part of the Omnibus Budget Reconciliation Act of 1990, Pub.L. No. 101-508, Congress tightened the school eligibility conditions by enactment of the "Student Loan Default Prevention Act of 1990." Prior to the enactment of this statute, the Senate Permanent Subcommittee on Investigations conducted a series of hearings which indicated, inter alia, that a number of proprietary school operators were unscrupulous, victimizing both the students and the loan program. High loan default rates were found to be a common threat of abuse in the problem schools; indeed, according to the Subcommittee, about half of the 2,200 proprietary schools had default rates of over twenty percent. Report of Permanent Subcommittee on Investigations of the Senate Committee on Governmental Affairs, S. Rept. 102-58 (May 17, 1991) at 2-11. Significantly, student loan defaults increased by 338 percent between 1983 and 1989, and the cost of defaults as a percentage of total Guaranteed Student Loan (GSL) programs rose from about ten percent in 1980 to over fifty percent in 1990. Id. at 1.

 It was to deal with these problems in the context of a general effort to reduce the government deficit that an amendment to section 435(a) of the Higher Education Act (codified at 20 U.S.C. ยง 1085(a)) was enacted. That amendment rendered schools ineligible for participation in the student aid programs if their cohort default rates exceeded levels of thirty-five percent and thirty percent for certain years. On May 13, 1991, the Secretary of Education published a Notice of Proposed Rulemaking (NPRM) in the Federal Register, 56 Fed. Reg. 22056, to implement this statutory provision. Following the receipt of comments, the final regulations were published on July 19, 1991, at 56 Fed. Reg. 33332, and they became effective on September 2, 1991.

 On August 30, 1991, notices were sent to a number of schools, including many of the schools affiliated with plaintiffs, advising them that their default rates were excessive, and that, unless this determination was reversed on appeal, they would be terminated from the student aid program. The schools have a right to appeal on very limited grounds, and the completed appeals are due on October 2, 1991. A participating institution may continue to participate in the program pending determination of its appeal, but if the appeal rests on grounds not provided for in the regulations -- which is not unlikely in view of the restrictive appeal rights -- its termination from the program will be effective on October 2, 1991. It was in light of these deadlines that the plaintiffs sought injunctive relief when they filed their complaints in this Court on August 30, 1991, and September 16, 1991, respectively. Briefing was ordered to proceed on an expedited basis, and the Court heard oral argument on September 19, 1991. This Opinion disposes of all aspects of the controversy.

 II

 Meaning of the Statute

 The parties differ profoundly on the meaning of section 435(a) under which the regulations at issue were promulgated. The key portion of the statute reads:

 
(A) An institution whose cohort default rate is equal to or greater than the threshold percentage specified in subparagraph (B) for each of the three most recent fiscal years for which data are available shall not be eligible to participate in a program under this part for the fiscal year for which the determination is made and for the two succeeding fiscal years . . . .
 
(B) For purposes of determinations under subparagraph (A), the threshold percentage is --
 
(i) 35 percent for fiscal year 1991 and 1992; and
 
 
(ii) 30 percent for any succeeding ...

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