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California Association of Private Postsecondary Schools

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APSCU on Appellate Court Ruling


Association of Private Sector Colleges and Universities - June 8, 2012

As you know, earlier this week we won an important victory in the Court of Appeals for the District of Columbia.  This ruling makes clear that the Department of Education must operate within the limits and contraints of the Higher Education Act in promulgating regulations.  We have asked our outside counsel, who managed the legal work for us to provide a complete summary for you of the court's decision.  Please find it below:

On June 5, 2012, the Court of Appeals for the District of Columbia Circuit issued an opinion that ruled on the legality of three Department of Education regulations, known as the Misrepresentation, Compensation and State Authorization regulations. The Court of Appeals granted APSCU at least partial relief under all three regulations. View the Court’s opinion, and a high-level summary is provided below.

Misrepresentation Regulations

The Court first agreed with APSCU that the regulations allow the Secretary to take enforcement actions against schools without procedural protections, in violation of the HEA.

The Court next agreed with APSCU that the regulations unlawfully proscribe misrepresentations with respect to subjects that are not covered by the HEA. The Court found that the regulations exceed the HEA’s grant of authority by permitting the Department to sanction institutions for engaging in substantial misrepresentations “regarding the eligible institution” and “about an institutions relationship with the Department.”

The Court vacated the portion of the Misrepresentation regulations that purported to punish schools for making true and nondeceitful statements that have only the tendency or likelihood to confuse. According to the Court, the Department’s position that it could proscribe such statements could “hold no water in the context of the HEA, which prohibits institutions from engaging in substantial misrepresentation.” Further, the Court held that permitting the Department to punish “statements that are merely confusing would raise serious First Amendment concerns—even with respect to commercial speech.”

The Court rejected APSCU’s other statutory and constitutional arguments against the regulations, though it did narrow the scope of the regulations to cover only “advertisements, direct solicitations, and other promotional and marketing materials and statements” to avoid legal problems the regulations might otherwise create.

Compensation Regulations

Administrative Procedure Act Arguments

The Court reversed the district court’s conclusion that the Compensation regulations satisfy the Administrative Procedure Act for two separate reasons and remanded the regulations to the Department with instructions to address both of those shortcomings.

First the Court determined that the elimination of "the safe harbor for compensation 'based upon students successfully completing their educational programs, or one academic year of their educational programs'" to be arbitrary and capricious. The Court agreed with APSCU that the safe harbor was "perfectly in keeping with" Congress’s goal of enabling more students to attend and graduate from postsecondary institutions and that forbidding such payments "could even discourage recruiters from focusing on the most qualified students."

Second, the Court determined that the Department failed to address the concern identified by at least two commenters regarding the potentially adverse effect of the Compensation regulations on minority enrollment. Because the Department failed to answer the commenters’ questions and address their concerns, the Court remanded with instructions to the Department to address them.

Higher Education Act Arguments
The Court upheld the district court’s conclusion that the Compensation regulations do not exceed the HEA’s limits. The Court determined that the phrase “other incentive payment” was broad enough to encompass a “salary adjustment.” Citing to materials in the administrative record, the Court also held that the Department had a sufficient evidentiary basis for the Compensation regulations. Finally, the Court said that the Department had not foreclosed schools’ ability to make merit-based adjustments to recruiters, reasoning that recruiters should offer students a “form of counseling” and that schools could make salary adjustments based on recruiters’ “ability to effectively match students” to the school for which they are employed.

The Court also sustained the regulations as applied to senior management, based on the notion that such employees “may drive the organizational and operational culture at an institution, creating pressures for top, and even middle, management to secure increasing numbers of enrollments from their recruiters.”

State Authorization Regulations
The Court first reversed the district court’s conclusion that APSCU lacked standing to challenge the State Authorization regulations as applied to brick-and-mortar programs, but proceeded to uphold the regulations against APSCU’s challenges. The Court held that the State Authorization regulations did not intrude upon states’ sovereignty because they are a spending condition and not a direct prohibition.

The Court affirmed the district court’s decision to vacate the regulations with regard to the distance education requirements because that aspect of the final regulations was not a logical outgrowth of the proposed regulations. The Court specifically relied on arguments advanced in APSCU’s brief and faulted the Department for “not point[ing] to anything in its Notice of Proposed Rulemaking that specifically addressed distance education” and for not “solicit[ing] comments about the adoption of such a rule.”

We hope you share our appreciation for the Court's ruling.  As always we stand ready to be of help to you on this and other important issues.  We look forward to seeing many of you at the Annual Convention.


Steve Gunderson
President & CEO

Brian Moran
EVP for Government Relations & General Counsel