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Association of Private Sector Colleges and Universities v. Duncan

United States District Court, D. Columbia.

October 2, 2014

ARNE DUNCAN, Secretary, U.S. Department of Education, et al., Defendants

Page 447

For ASSOCIATION OF PRIVATE SECTOR COLLEGES AND UNIVERSITIES, Plaintiff: Nikesh Jindal, Douglas R. Cox, GIBSON, DUNN & CRUTCHER, L.L.P., Washington, DC; Timothy John Hatch, GIBSON, DUNN & CRUTCHER, Los Angeles, CA.

For ARNE DUNCAN, in his official capacity as Secretary of the Department of Education, DEPARTMENT OF EDUCATION, Defendants: Marcia Berman, LEAD ATTORNEY, UNITED STATES DEPARTMENT OF JUSTICE, Civil Division, Federal Programs Branch, Washington, DC; Gregory Peter Dworkowitz, Michelle Renee Bennett, U.S. DEPARTMENT OF JUSTICE, Civil Division, Washington, DC.


ROSEMARY M. COLLYER, United States District Judge.

Page 448

The D.C. Circuit remanded this matter to allow the Department of Education to provide a reasoned explanation for two aspects of new rules that affect for-profit colleges and universities. On remand, the Department supplemented the preamble to its regulations to comply with the D.C. Circuit's directives. The Association of Private Sector Colleges and Universities now complains that the Department has once again failed to support its regulations with record evidence and substantiated assertions. The Department of Education responds that its supplemented preamble satisfies the Circuit's limited remand. Both parties move for summary judgment. For the reasons set forth below, the Court will grant Plaintiff's motion.


A. The Compensation Regulations

Every year, Congress provides more than $150 billion in federal grants and loans to institutions that enroll students in qualified educational programs. The Department of Education (Department) administers these programs, which were established under Title IV of the Higher Education Act (HEA), Pub. L. No. 89-329, 79 Stat. 1219, 1232-54 (1965). The HEA seeks to ensure that postsecondary institutions prepare students for graduation and employment, and thereby increase the likelihood of student loan repayment. Thus, to participate in Title IV programs, a postsecondary institution must satisfy several requirements to ensure that it meets minimum quality standards before receiving federal funds. See 20 U.S.C. § 1094(a) (establishing eligibility requirements for the receipt of Title IV funding).

However, the Department believes that some institutions have evaded these statutory requirements to secure funding irrespective of program quality. In particular, private-sector colleges and universities have come under fire for questionable recruiting tactics that have led to the enrollment of underqualified students who fail to secure adequate employment and are therefore at heightened risk for student loan default. The Department seeks to curb these practices by, among other things, eliminating certain forms of incentive-based compensation for recruiting personnel.[1]

In 2009, the Department concluded that its existing compensation regulations were susceptible to manipulation. Of relevance here, the Department amended its regulations covering incentive-based compensation (Compensation Regulations) to eliminate safe harbors which had allowed postsecondary institutions to circumvent the statutory ban on certain incentive payments. See Ass'n of Private Sector Colls. & Univs. v. Duncan (APSCU), 681 F.3d 427, 434, 401 U.S.App.D.C. 96 (D.C. Cir. 2012) (citing 34 C.F.R. § 668.14(b)(22)).

Specifically, the Department amended its Compensation Regulations to prohibit institutions receiving federal monies from offering " any sum of money or something

Page 449

of value, other than a fixed salary or wages," 34 C.F.R. § 668.14(b)(22)(iii)(A) (2011), " based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid," id. § 668.14(b)(22)(i). Under the new rule, a postsecondary institution could award merit-based salary adjustments to its recruiting personnel, but only if the adjustments were not based " in any part, directly or indirectly," on a recruiter's success in securing enrollments. See id. In addition, the Compensation Regulations eliminated a safe harbor that had allowed schools to provide incentive compensation " based upon students successfully completing their educational programs or one academic year of their educational programs, whichever is shorter." Id. § 668.14(b)(22)(ii)(E). The new rule therefore proscribed all forms of graduation-based compensation for recruiting personnel. Finally, the Department eliminated a safe harbor that had allowed schools to provide incentive-based compensation to " managerial or supervisory employees who do not directly manage or supervise employees who are directly involved in recruiting or admission activities, or the awarding of [T]itle IV, HEA program funds." Id. § 668.14(b)(22)(ii)(G).

B. Prior Litigation

The Association of Private Sector Colleges and Universities (APSCU) is an association that represents over 1,500 private-sector schools. On January 21, 2011, APSCU filed suit to challenge the Compensation Regulations, among others,[2] under the Administrative Procedure Act (APA), 5 U.S.C. § 706, and the U.S. Constitution. This Court granted summary judgment to the Department on APSCU's claims concerning the Compensation Regulations. See Career Coll. Ass'n v. Duncan, 796 F.Supp.2d 108 (D.D.C. 2011).

On appeal, the D.C. Circuit affirmed in part and reversed in part. With respect to the Compensation Regulations, the D.C. Circuit held that the Department's regulations provided a permissible interpretation of the HEA's prohibition on certain forms of incentive-based compensation. However, the Circuit found two aspects of the Compensation Regulations arbitrary and capricious for want of reasoned decision-making. First, the Circuit held that the prohibition on graduation-based compensation was arbitrary and capricious " without some better explanation from the Department." APSCU, 681 F.3d at 448. The Circuit explained:

Congress created the Title IV programs to enable more students to attend and graduate from postsecondary institutions. This specific safe harbor seems perfectly in keeping with that goal. Indeed, the elimination of this safe harbor could even discourage recruiters from focusing on the most qualified students.
The Department offered a brief explanation for its elimination of this safe harbor . . . . [T]he Department points to nothing in the record supporting these assertions. It may well be that the Department actually eliminated this safe harbor based on the agency's belief that institutions have used graduation rates as a proxy for recruitment numbers.

Page 450

But the Department never offered that explanation.


Further, the D.C. Circuit held that the Department had failed to respond to commenters' concerns that the Compensation Regulations could have an adverse effect on minority enrollment. In particular, two commenters asked the Department to address whether the Compensation Regulations would apply to employees who were involved in recruiting minority students and, specifically, whether the Department intended to foreclose an institution's ability to compensate staff for recruiting students from disadvantaged backgrounds. The D.C. Circuit noted:

[T]he Department stated that the Compensation Regulations apply to all employees at an institution who are engaged in any student recruitment or admission activity or in making decisions regarding the award of [T]itle IV, HEA program funds. However, the Department never really answered the questions posed by [the commenters] because it failed to address the commenters' concerns . . . . [T]he agency's failure to ...

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