July 24, 2017

Cosmetology Schools get a little win in Gainful Employment

cometology and the GE rule

A small victory for Cosmetology schools.

A Federal Judge Partially Blocks Enforcement of Gainful-Employment Rule as it pertains to cosmetology schools

6/28/17 A federal district court judge issued an order Wednesday partially blocking enforcement of the gainful-employment rule for cosmetology schools that sued in February to halt the regulation.  Case 1:17-cv-00263-RC Document 30 Filed 06/28/17

The Department of Education  had defended gainful employment in court in March but earlier this month it announced that it would pursue a rewrite of the regulation.

The Federal judge ordered that the cosmetology schools be given additional flexibility with filing appeals of earnings data and that the department must now give those schools more time to file appeals. The order applies only to American Association of Cosmetology Schools programs.

In this case, the Court considers whether the Department of Education (“DOE”) acted
arbitrarily and capriciously with respect to cosmetology schools when it decided to
presumptively use earnings data that does not account for unreported income. Although the
DOE was justified in using reported income as the presumptive measure of overall income, it
arbitrarily and capriciously made rebutting that presumption overly difficult.
In setting standards that determine which proprietary schools’ graduates are entitled to
federally backed student loans, the DOE looks to the rates at which the schools’ graduates are
“gainfully employed.” To determine whether graduates are gainfully employed, the DOE has
adopted a test that compares the graduates’ income levels to their levels of debt. To determine
the graduates’ income, the DOE presumptively uses the Social Security Administration’s
(“SSA”) income data. This data does not account for income that is not reported to the Internal
Case 1:17-cv-00263-RC Document 30 Filed 06/28/17 Page 1 of 40
Revenue Service. Schools may appeal the DOE’s use of SSA data through “alternate earnings
appeals,” which, if successful, allow them to use alternate measures of income before the debt
to-earnings rates become final. To submit such an appeal, a school is required to use either state
sponsored data pertaining to over half of its graduates during the relevant timeframe or gather
income data on almost all of its graduates through a survey. Schools that fail the debt-to
earnings test for a long enough time lose eligibility for federal loans. Schools at immediate risk
of losing federal-loan eligibility are required to warn their students and prospective students that
they may be ineligible for student loans in the near future.

Link to the official order

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