Dive Brief:
- The U.S. Department of Education is being sued over its new gainful employment rule by a trade organization representing postsecondary beauty schools.
- The American Association of Cosmetology Schools, along with one of its members, filed the lawsuit in federal court late last month seeking to stop the rule's forthcoming implementation on July 1. Chief among their complaints is that the rule's debt-to-earnings ratio is a flawed metric and fails to properly track income for tipped workers like beauticians.
- AACS argues the regulation is arbitrary and that the department overstepped its authority in adopting it. The organization also says the rule violates its institutions' and students' First Amendment right to free speech, since it will selectively restrict colleges' ability to operate.
Dive Insight:
In September, the Education Department unveiled its long-awaited gainful employment regulation. The agency predicted the rule would prevent about 700,000 students nationwide from enrolling in low-performing career programs.
Under the regulation, career programs must prove their students make more money than they owe after graduation, and that at least half outearn other state residents with no postsecondary degree. Programs that don't meet these standards could lose access to federal aid, something very few colleges can operate without.
DuVall's School of Cosmetology, an AACS member and co-plaintiff in the case, said almost 68% of its revenue in 2022 came from federal student aid. If the Education Department cut off either of the Texas-based institution's two programs, it would be forced to close, said the lawsuit, filed Dec. 22 in U.S. District Court in Texas.
The Education Department did not immediately respond to a request for comment Thursday.
The for-profit higher ed sector has long argued that gainful employment unfairly singles out its institutions. AACS's lawsuit further argues that cosmetology programs will be disproportionately hurt by the methodology used by the Education Department to root out poorly performing programs.
"DuVall and the AACS’s other member schools are not the sources of these 'ongoing concerns,' if they exist at all," the lawsuit said.
Graduates of AACS member schools carry a median debt of about $8,900, the lawsuit said. But graduates' earnings are regularly undercounted, it said, due to the tip-centric nature of the beauty service industry.
Unless data reporting agencies adjust for this shortfall, the Education Department will unfairly penalize cosmetology schools, AACS argued. In doing so, it would hurt the colleges' diverse student bodies, it said.
At DuVall, the lawsuit said, 69% of students identify as a person of color and more than half receive Pell Grants, which are a proxy for middle- and low-income status. The program offers opportunities to "students who have no realistic opportunity of attending a traditional four-year institution of higher education," it said.
The lawsuit also argues gainful employment leaves DuVall and other cosmetology programs with no way to appeal the earnings data or submit evidence on their own.
While programs can appeal if they believe their debt-to-earnings ratio has been miscalculated, the rule does not allow the ratio's formula to be disputed.
AACS, which represents more than 290 school owners operating over 500 colleges, estimates at least half of its member institutions would close under the gainful employment rule.
"The upshot of this regulatory overreach is to penalize the underprivileged," the lawsuit said.
Cosmetology students will be hurt most by gainful employment despite not causing the issues the Education Department says it wishes to address, it continued.
"That harm, in turn, will disproportionately affect persons in historically disadvantaged groups who simply want to learn the skills necessary to practice their desired profession," the lawsuit said.
