A federal appeals court asked the U.S. Education Department to provide more information on a rule that prevents for-profit colleges from compensating recruiters based on the number of students they enroll.
The department had not adequately explained eliminating a safe harbor based on graduation rates and the impact on enrolling minority students from the compensation rule, the U.S. Court of Appeals for the District of Columbia Circuit said.
The rules on compensation were consistent with the Higher Education Act of 1965, but those on deceptive advertising exceeded the act's limits, the court said.
It remanded some aspects of the deceptive advertising and compensation rules back to the trial court.
The education department was evaluating its next steps, a spokesman told Reuters.
The department introduced a set of new rules in 2011 to prevent fraud and lower student debt rates after a scrutiny found fraudulent practices and high student debt rates at for-profit colleges.
Enrollments at colleges run by Apollo Group Inc, Strayer Education Inc and ITT Educational Services Inc have since fallen sharply.
The Association of Private Sector Colleges and Universities, which represents more than 1,500 schools, had sued the department on the rules dealing with deceptive advertising, compensation and state authorization.
In a ruling on Tuesday, the court also upheld APSCU's challenge to the distance education regulation, saying it is not a logical outgrowth of the department's proposed rules.
The rule requires colleges offering distance education programs to get authorization from every state in which they offer these programs.
The decision by the appeals court grants significant relief to APSCU's members, Chief Executive Steve Gunderson said in a statement.
The case is In re: Association Of Private Sector Colleges and Universities v. U.S. Department Of Education, et al, U.S. Court of Appeals, District of Columbia Circuit, No. 11-5174.