Higher Ed: D.C. Circuit rules on for-profit association's challenge to DOE regs

United States Court of Appeals,District of Columbia Circuit.

ASSOCIATION OF PRIVATE SECTOR COLLEGES AND UNIVERSITIES, Appellant
v.
Arne DUNCAN, in his Official Capacity as Secretary of the Department of Education and the United States Department of Education, Appellees.

Nos. 11–5174, 11–5230.Argued Feb. 21, 2012.
Decided June 5, 2012.
Appeals from the United States District Court for the District of Columbia (No. 1:11–cv–00138).
Douglas R. Cox argued the cause for appellant/cross-appellee. With him on the briefs were Timothy J. Hatch, Nikesh Jindal, and Derek S. Lyons.

Joshua Waldman, Attorney, U.S. Department of Justice, argued the cause for appellees/cross-appellants. With him on the briefs were Tony West, Assistant Attorney General, Ronald C. Machen, Jr., U.S. Attorney, and Michael S. Raab, Attorney.

Before ROGERS, Circuit Judge, and EDWARDS and GINSBURG, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge EDWARDS.

EDWARDS, Senior Circuit Judge:

*1 Every year, Congress provides billions of dollars through loan and grant programs to help students pay tuition for their postsecondary education. The Department of Education (“the Department” or “the agency”) administers these programs, which were established under Title IV of the Higher Education Act of 1965 (“the HEA” or “the Act”), Pub.L. No. 89–329, 79 Stat. 1219, 1232–54. Students must repay their federal loans; the costs of unpaid loans are borne by taxpayers.

To participate in Title IV programs— i.e., to be able to accept federal funds—a postsecondary institution (“a school” or “an institution”) must satisfy several statutory requirements. These requirements are intended to ensure that participating schools actually prepare their students for employment, such that those students can repay their loans. Three requirements are at issue here. First, a school must qualify as an “institution of higher education,” 20 U.S.C. § 1094(a) (2006)—meaning, inter alia, that the school is “legally authorized” to provide education in the state in which it is located, id. § 1001(a)(2). Second, a school must “enter into a program participation agreement with the Secretary” of Education (“the Secretary”), pursuant to which the school agrees, inter alia, not to “provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any” recruiters or admissions employees. Id. § 1094(a)(20). Third, a school must not engage in “substantial misrepresentation of the nature of its educational program, its financial charges, or the employability of its graduates.” Id. § 1094(c)(3)(A).

In 2009, based on experiences that it had faced in administering the Title IV programs, the Department concluded that the existing regulations covering the state authorization, compensation, misrepresentation, and other statutory requirements created opportunities for abuse by schools, because the regulations were too lax. The Department thus initiated a rulemaking process to strengthen the regulations so as to protect the integrity of these programs. On October 29, 2010, following notice and comment, the agency issued final regulations.

The new regulations included several new provisions that are the focus of the dispute in this case. First, the Department adopted for the first time substantive regulations addressing the HEA's state authorization requirement. See 34 C.F.R. § 600.9 (2011) (“the State Authorization Regulations”). Under the applicable regulations, a school is now legally authorized by a state, only if the state has a process to review and act on complaints concerning institutions, and if the state has authorized that specific school by name. See id. § 600.9(a)(1)(i)(A) (“the school authorization regulation”). In addition, in order to be “legally authorized,” a school offering distance or correspondence education, including online courses, must obtain authorization from all states in which its students reside that require such authorization. See id. § 600.9(c) (“the distance education regulation”). Second, the regulations covering compensation practices were amended to eliminate regulatory “safe harbors” pursuant to which schools had adopted compensation practices that effectively circumvented the HEA's proscription against certain incentive payments. See id. § 668.14(b)(22) (“the Compensation Regulations”). Finally, the Department amended the regulations covering the HEA's misrepresentation requirement, see id. §§ 668 .71–.75 (“the Misrepresentation Regulations”), by, inter alia, specifying that a “misleading statement includes any statement that has the likelihood or tendency to deceive or confuse,” id. § 668.71(c), and restyling the Secretary's menu of enforcement options, see id. § 668.71(a).

*2 The Association of Private Sector Colleges and Universities (“Appellant” or “the Association”) filed suit in the District Court challenging the State Authorization, Compensation, and Misrepresentation Regulations (collectively, “the challenged regulations”) under the Administrative Procedure Act (“the APA”), see 5 U.S.C. § 706 (2006), and the Constitution. Both parties moved for summary judgment. The District Court granted summary judgment to the Department on Appellant's challenges to the Compensation and Misrepresentation Regulations; found that Appellant lacked standing to challenge the school authorization regulation; and granted summary judgment to Appellant on its challenge to the distance education regulation. See Career Coll. Ass'n v. Duncan, 796 F.Supp.2d 108 (D.D.C.2011).

We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion. First, we affirm the judgment of the District Court holding that the Compensation Regulations do not exceed the HEA's limits. And we mostly reject Appellant's claim that these regulations are not based on reasoned decisionmaking. We remand two aspects of the Compensation Regulations, however, that are lacking for want of adequate explanations. Second, we hold that the Misrepresentation Regulations exceed the HEA's limits in three respects: by allowing the Secretary to take enforcement actions against schools sans procedural protections; by proscribing misrepresentations with respect to subjects that are not covered by the HEA; and by proscribing statements that are merely confusing. We reject Appellant's other challenges to the Misrepresentation Regulations. Finally, with respect to the State Authorization Regulations, we conclude that Appellant has standing to challenge the school authorization regulation, but hold that the regulation is valid. However, we uphold Appellant's challenge to the distance education regulation, because that regulation is not a logical outgrowth of the Department's proposed rules.