NJ Sues U.S. Department of Education to Block Repeal Of “Gainful Employment” Rule’s Protections for Student Borrowers

June 24, 2020

TRENTON, NJ (MERCER)–Acting to protect New Jersey students from ending up with unmanageable student loan debt and little earning potential, Attorney Gurbir S. Grewal today announced that New Jersey is joining a coalition of States suing the U.S. Department of Education (DOE) over its repeal of its Gainful Employment Rule.

Adopted during the Obama Administration, the Gainful Employment Rule sought to promote accountability and transparency among for-profit colleges and other career-focused, non-degree programs. The rule denied federal funding to programs that leave students with poor earnings prospects and high amounts of debt, while requiring schools to provide consumers with key information about programs’ costs and their graduates’ earnings and debt.

Filed today in U.S. District Court in Washington, D.C., the lawsuit challenges DOE’s July 2019 decision to repeal the Gainful Employment Rule. The repeal will take effect on July 1, 2020.

The two-count complaint alleges that DOE did not adequately explain its decision and has abdicated its responsibility under federal law to ensure that only programs that prepare students for “gainful employment in a recognized occupation” receive federal funds. The complaint also alleges DOE’s repeal will harm state economies while exposing student borrowers to greater risk of being defrauded and/or plunged into crippling student loan debt.

“With the economic downturn causing many of our residents to reevaluate their careers and consider returning to school, it’s hard to imagine a worse time to eliminate protections for students who are seeking to improve their job prospects. Yet the U.S. Department of Education is doing just that, so that it can send more taxpayer money to for-profit schools that push high-cost, low-value educational programs and saddle students with unaffordable debt,” Attorney General Grewal said.

“Now more than ever, given the economic and social impacts of COVID-19, it is of the utmost importance to guarantee that New Jersey’s postsecondary students are investing their time and money wisely,” said Dr. Zakiya Smith Ellis, New Jersey Secretary of Higher Education. “The Gainful Employment Rule is an important tool that must be restored in order to hold postsecondary career schools responsible for outcomes and to ensure that students and families have the critical information that they need when making these potentially life-changing decisions.”

“As a department, our goal is to help all New Jersey residents have access to high-quality jobs with family sustaining wages. This action makes it much harder for students to determine which schools will help them achieve that goal,” said Labor Commissioner Robert Asaro-Angelo. “This goes against the very spirit of quality assurance and consumer protection we are trying to provide for our workers.”

“The federal Higher Education Act requires postsecondary career schools to prepare students for good jobs that increase their earnings. New Jersey students deserve to know before they go to a career training program whether it will place them in a job that pays well enough to offer a return on their investment,” said David Socolow, Executive Director of the New Jersey Higher Education Student Assistance Authority (HESAA). “The U.S. Department of Education should respond to today’s action by our Attorney General by restoring the Gainful Employment rule, so New Jersey students and families will have the crucial consumer protections they need to pursue effective career education and achieve economic success.”

According to a report from The Institute for College Access and Success, more than 350,000 students nationally graduated in 2010-11 or 2011-12 from career education programs that performed poorly enough to risk losing their federal funding under the Gainful Employment Rule. Those students carried nearly $7.5 billion in student loan debt. In New Jersey, the data showed, 3,177 students graduated from such programs and carried approximately $44.8 million in student loan debt.

In a comment letter sent to U.S. Education Secretary Betsy DeVos in September 2018, Attorney General Grewal joined other Attorneys General from across the nation in calling on DOE walk back its plan to rescind the Gainful Employment Rule.

The letter noted that, in adopting the Gainful Employment Rule in the first place, the Education Department “recognized that students at for-profit programs were more likely than those at other institutions to rely on loans, including federal student aid, to finance their education.” The letter also noted that, on average, students at for-profit schools have more debt than those who attend public or non-profit institutions.

In addition, the letter observed, “students of color, low-income students, veterans and women” were particularly affected by “the high costs and commensurate high debt load” they incurred to attend for-profit institutions.

Today’s lawsuit is the latest action by Attorney General Grewal to protect student borrowers in New Jersey and hold failing or predatory for-profit colleges and career-focused non-degree programs accountable. Previous actions since 2019 have included:

  • Participation in a multi-state settlement announced in January 2019 under which Illinois-based Career Education Corp. agreed to reform its recruiting and enrollment practices and forego collecting more than $493.7 million in debt owed by more than 179,000 students nationwide. Career Education Corp. has run brick-and-mortar schools across the country, including Sanford-Brown Colleges and Institutes, which operated a now-closed New Jersey campus in Iselin. Under the settlement, more than 6,400 former Career Education Corp. students in New Jersey were deemed eligible for debt forgiveness totaling $19.6 million.
  • Participation in a multi-state settlement in June 2019 that resulted in a total of more than $625,000 in debt relief for 48 New Jersey borrowers who obtained loans from education lender Student CU Connect in order to attend ITT Tech.  In New Jersey and across the nation, ITT Tech students were pressured into obtaining education loans – and in some cases multiple loans — that most could not hope to repay.
  • A directive from the Attorney General’s Division of Consumer Affairs in April 2019 ordering the Harris School of Business to stop advertising that its students are eligible to receive state supplemental loans under the New Jersey College Loans to Assist State Students (NJCLASS) Program. The Division asserted that students enrolled at the Harris School of Business are in fact ineligible for NJCLASS loans due to the high rate of default among Harris graduates.

Deputy Attorneys General John Passante and Elspeth Faiman Hans and Assistant Attorney General Mayur P. Saxena, of the Division of Law, are handling the Gainful Employment Rule matter on behalf of the State.