Texas Judge Declines to Block Gainful Employment Rule, For Now

A Fort Worth-based federal judge on Thursday denied a motion by two for-profit cosmetology schools that sought to block implementation of the Biden Department of Education’s gainful employment rule, a regulation that would, over time, cut off federal aid to for-profit and career college programs that consistently leave graduates with debt they cannot afford to repay.

Judge Reed O’Connor, a George W. Bush appointee, decided that Texas-based Ogle School and Tricoci University of Beauty Culture, which have sued U.S. Secretary of Education Miguel Cardona to block the gainful employment rule, failed to demonstrate the need for a preliminary injunction pending final resolution of the case.

The court held that the beauty schools had failed to show a substantial likelihood that they would succeed in demonstrating that the regulation was inconsistent with the Department of Education’s duty under a federal statute to ensure that career training programs provide students with “gainful employment in a recognized occupation.” The court found the same failure as to the plaintiff schools’ argument that the gainful employment rule’s tests for cutting off aid were unlawfully arbitrary and capricious.

Judge O’Connor took pains to say that his decision was based on the high burden a party faces in seeking a preliminary injunction, and the final decision on the merits could be different. But the outcome may nevertheless have surprised people in the for-profit college industry who have, with much justification, seen the Federalist Society-heavy and MAGA-heavy Northern District of Texas federal court, including Judge O’Connor’s own courtroom, as an inviting place to file lawsuits against regulations issued by Democratic administrations.

The Justice Department, backed by the expertise of the Department of Education, submitted a skillful brief stressing the federal government’s well-established authority to regulate in this area and the need for the government to protect students and taxpayers from unscrupulous, overpriced, low-quality schools that remorselessly feast on federal dollars.

The AACS, a trade association for cosmetology schools that includes the two schools that sued, posted a statement: “The AACS legal team is reviewing the full ruling and will be updating the membership as soon as possible.”

The for-profit cosmetology schools could try to get the starkly anti-regulation Fifth Circuit Court of Appeals in New Orleans to review Judge O’Connor’s ruling, without waiting for a final resolution of the case.  If the schools do that, I do hope the Fifth Circuit judges will show the kind of common sense that Judge O’Connor has demonstrated in this matter.

As we have argued here before, a central difference between the attacks on the gainful employment rule and other business attacks on federal regulations is that here the government is not aiming to tell businesses what they may do with their own resources; rather, the Department of Education is setting conditions for receipt of taxpayer dollars. One still hopes that traditional conservative impulses to guard against waste, fraud, and abuse in government programs might ultimately push a few Republican-appointed judges and Supreme Court justices to accept that the Department is not powerless to halt the flow of federal funds to predatory schools offering low quality programs that wreck the finances of students — veterans, single parents, and others — who seek a better future through education.

The gainful employment rule, originally devised under the Obama administration, has been repeatedly attacked by the for-profit college industry and its lobbyists. Corporate lawyers paid by the industry managed to get the initial version of the rule struck down by a judge, before the Obama team crafted a second, slightly stronger, version that the courts upheld. Some Members of Congress, Republicans and Democrats, who take campaign contributions from the for-profit college industry, have tried to overturn the rule. During the Trump administration, Secretary of Education Betsy DeVos, who staffed her office with former for-profit college executives, cancelled the rule entirely. To its credit, the Biden administration, undeterred, did the heavy lifting — weeks of intensive stakeholder meetings, thousands of pages of material — to issue a new version of the rule, one that is somewhat stronger and improved from the Obama version.

For-profit schools have now filed at least three lawsuits in the Northern District of Texas, Fort Worth Division, attacking the gainful employment rule, or parts of it.

A separate overall attack on the rule by cosmetology schools is proceeding without a temporary injunction motion.

Another case — seeking to attack a specific provision of the overall regulation that includes the gainful employment rule, a section that limits the overall amount of federal aid eligibility to the amount of class time required by state license boards — was filed May 31 and includes its own motion for a temporary injunction.  UPDATE 6-21-24 6:20 pm: Judge Mark Pittman today issued a preliminary injunction in that case, enjoining the specific so-called “bare minimum” rule that is the focus of the lawsuit, but, importantly, declining to enjoin the entire gainful employment regulation.

A fourth case, also seeking an injunction on the class time issue, was filed on June 7 by the American Massage Therapy Association in federal court in the District of Columbia.