Attorney General of California Files Lawsuit Against the U.S. Department of Education for Alleged Rollback of Federal Oversight of For-Profit Schools

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By Madison Beck

On January 15, 2021, in People of the State of California v. United States Department of Education, et al., Case No. 21-cv-00384 (N.D. Cal), Xavier Becerra, the Attorney General of California, filed a complaint on behalf of the people of California in federal district court for the Northern District of California against the U.S. Department of Education, and then-Acting Secretary of Education, Mitchell Zais, alleging that defendants have enacted new “Distance Education and Innovation” regulations that are arbitrary and capricious in violation of the Administrative Procedure Act. On September 2, 2020, the U.S. Department of Education enacted the final rules regarding “Distance Education and Innovation” to enhance online and proficiency-based education and remove “barriers” to educational innovation. (85 Fed. Reg. 54,742–43) However, according to the complaint, the barriers of federal oversight have historically allowed for the protection of postsecondary students from predatory institutions responsible for scams and fraud. Title IV of the Higher Education Act of 1965, 20 U.S.C. § 1070 et seq., authorizes federal student-assistance programs that provide financial aid to students that enroll in eligible education programs at eligible postsecondary institutions of higher education. According to the complaint, for-profit schools receive the vast majority of their revenues from federal sources, including Title IV funding, but spend relatively little on education and instruction compared to marketing, advertising, and recruiting. Students are also increasingly unable to pay off the student loan debt they take on to attend these institutions.

Specifically, plaintiffs challenge a provision under the new regulations that automatically certifies a school to receive federal Title IV funds if the Department of Education has failed to act on its certification application after twelve months. Plaintiffs allege that this regulation is directly contrary to the Higher Education Act, which mandates that the Secretary affirmatively certify that a school has the administrative capability and financial responsibility to receive federal funds, among other critical statutory requirements. For example, the Department may be delayed in certifying the application of an institution that is under extended investigation by a state attorney general. Accordingly, plaintiffs allege, this new provision is a potential regulatory windfall to predatory institutions, allowing them to evade important oversight

Additionally, plaintiffs challenge the rollback of a 50% cap on the outsourcing of instruction by for-profit schools to schools with “common ownership,” now allowing institutions to outsource 100% of its instruction. Plaintiffs allege that the Department of Education relied on generalizations and assumptions not supported by data or other types of evidence and failed to provide “a reasoned explanation for the Challenged Provisions,” therefore violating 5 U.S.C. §706(2)(A).

Due to the new rules, students at institutions that are licensees of the Bureau of Private Postsecondary Education (BPPE) are at risk of victimization by institutions that have not been adequately investigated or regulated by the U.S. Department of Education. Additionally, because of institutional outsourcing, students are at risk of being forced to attend schools in which they never enrolled. The rules officially become effective on July 1, 2021 but institutions have been allowed to utilize them since their enactment.

Plaintiffs request that the district court vacate the provisions, declare the provisions unlawful and violative of the APA, and grant other relief as determined by the court.  Defendants’ responsive pleading is due March 16, 2021.

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