In what many will deem a surprising turn of events (to say the least), the Trump Administration’s U.S. Department of Education (“ED”) revealed late last week that it intends to defend the Biden Administration’s Financial Value Transparency and Gainful Employment Rule (“GE Rule”), notwithstanding the fact that the first Trump administration stripped a very similar rule from the books in 2019, observing at the time that:
“the GE regulations rely on a debt-to-earnings (D/E) rates formula that is fundamentally flawed and inconsistent with the requirements of currently available student loan repayment programs, fails to properly account for factors other than institutional or program quality that directly influence student earnings and other outcomes, fails to provide transparency regarding program-level debt and earnings outcomes for all academic programs, and wrongfully targets some academic programs and institutions while ignoring other programs that may result in lesser outcomes and higher student debt.” 84 Fed. Reg. 31392 (July 1, 2019).
We begin below with the status of the litigation and the Department’s surprising announcement, followed by some thoughts regarding the agency’s motivations and plans.
Biden’s GE Rule
In October 2023, the Biden Administration published its GE Rule, which represents the agency’s third effort at installing a “gainful employment” or “GE” framework in the law. Significantly, this latest version of the GE Rule covers all Title IV-participating programs at all Title IV-participating institutions of higher education. Pursuant to the regulation, the Department will calculate and disclose Debt-to-Earnings Rates and a new Earnings Premium metric for every Title IV program at every Title IV institution.
These metrics, along with other data, will be made available to prospective and current students through a new Department website, and according to the agency, it will label failing programs as “low-earning” or “high-debt-burden,” per the agency’s determination. Certain programs also will lose Title IV eligibility if their metrics repeatedly fail to meet stated thresholds. In order to facilitate the calculation of the metrics, and to achieve other agency objectives, the rule also requires institutions of higher education to comply with extensive reporting and disclosure requirements.
Those desiring to better understand (or refresh on) the rule may wish to reference our Desk Guide for the 2023 Final Financial Value Transparency & Gainful Employment Rule. This 26-page Desk Guide provides an overview of the new regulatory framework, including a discussion of reporting obligations, metrics, processes, and consequences. Institutions may also wish to refer to our free higher education webinar series, which includes several webinars and videos from recent months discussing the status of the GE Rule, the regulatory framework, key metrics, reporting and disclosure requirements, and related topics.
Pending Litigation and the Department’s Surprise Position
Prior to its July 1, 2024, effective date, the cosmetology school community challenged the GE Rule in two, separate lawsuits. American Association of Cosmetology Schools v. U.S. Dep’t of Ed., No. 23-cv-01267 (N.D. Tex.); Ogle School Management v. U.S. Dep’t of Ed., No. 24-cv-00259 (N.D. Tex.). These two lawsuits were consolidated in July 2024. Among other arguments, plaintiffs argued the GE Rule was unlawful because Congress’s definition of “gainful employment” in the Higher Education Act does not contemplate ED using debt and earnings metrics.
In September 2024, the parties filed cross motions for summary judgment, and the Department filed its opening brief in support of summary judgment robustly defending the rule. But in February 2025, after President Trump assumed office, the Department asked the court for, and the court granted, a 90-day stay of the litigation “to allow the new Administration to become familiar with and evaluate [its] position regarding the issues in this case.” The court extended the remaining summary-judgment briefing deadlines through May 16, 2025. The Department also postponed GE reporting requirements until September 30, 2025.
Late last Friday, the Department filed its reply brief in support of Defendants’ cross-motion for summary judgment, and shocked many by urging the federal district court in Texas to uphold the GE Rule. It defended both the financial value transparency framework, which applies to all Title IV-participating programs at all Title IV-participating institutions of higher education, and the gainful employment framework, which applies solely to “gainful employment” programs (non-degree programs at private, non-profit and public institutions and all programs at proprietary institutions).
The federal deficit and soaring student loan debt seem to be at the heart of the position, with the brief beginning: “It is the Federal Government’s responsibility to be a good steward of taxpayer dollars . . . .” Key points from the Department’s brief are set out below:
- The Department clearly has authority under the HEA to promulgate the rule, given the HEA’s requirement that the “gainful employment” programs must “prepare students for gainful employment in a recognized profession” as a condition of eligibility.
- The HEA provision means that Congress wants a return on its investment; this is the best meaning of the statutory language.
- The term “gainful” means “profitable. . . . and that is the term’s best meaning when the investment of federal taxpayer dollars is at stake.”
- “Congress could not possibly have intended to waste taxpayer money on programs that leave students in unaffordable debt or no better off than when they started.”
- The administrative record demonstrates that “cosmetology programs are perfectly able to train students for rewarding cosmetology careers outside the Title IV framework, at a lower overall cost and no cost at all to federal taxpayers.”
- It essentially admits that the HEA does not identify a particular methodology for determining whether a program prepares a student for gainful employment, but that does not matter because the Department is indisputably authorized to determine whether a program is eligible for Title IV funding.
- “[T]he student loan repayment situation was more dire than we originally thought. . . .”
- The HEA’s legislative history confirms that Congress meant “gainfulness” “to be assessed with respect to the overall return on investment.”
- The “metrics are simply tools to assess a program’s value vis-à-vis the investment of Title IV taxpayer funds.”
- Schools provisionally certified may be terminated for failure to comply with the GE Rule.
- Taxpayers’ reported earnings data is the best data available for the GE Rule’s metrics calculations, and Plaintiffs offer no better alternative.
- Unreported tip income “has little impact on program outcomes.”
- The Department “estimates that the regulations will save nearly $14 billion in taxpayer funds.”
- AACS’s First Amendment claim has no merit because it represents the schools, not the students (and thus has no standing), and because the Supreme Court has rejected the notion that the First Amendment is implicated when the federal government establishes conditions on federal funding that have nothing to do with speech.
- The Department defended the GE Rule provisions requiring a school to given current and prospective students a warning that its GE program is at risk of losing Title IV eligibility the next year, as such warning simply conveys an “undisputed fact” — a program’s status as to Title IV eligibility based on metric results.
As to Plaintiff’s requested relief, the Department argued for no relief, but in the alternative, that any relief should be limited to the cosmetology sector and the accountability framework. The Department argued that the financial value transparency framework is informational only and not challenged by Plaintiffs. Further, all of the regulations are severable, and so further briefing would be needed if Plaintiffs prevail on any claims.
It should be noted that the Department’s brief was a reply brief, and it is settled law in the Fifth Circuit and elsewhere that new arguments raised in a reply brief for the first time are waived. Thus, any “flip-flopping” by the Department runs the risk of being waived.
Politics and Speculations
When characterizing the regulatory efforts of the Department under the first Trump administration, a common refrain is that the agency simply rescinded or revoked all of the rules put into place by its predecessor, the Obama-era Department. As we’ve noted here before, this narrative, while attractive, is not supportable. For example, while the first Trump administration meaningfully revised the financial responsibility framework and the borrower defense rule, both regulations very much remained in the law. Professional licensure disclosures, introduced by the Obama administration, not only remained, but were moved to the general consumer protection section of the regulations and expanded to all programs, not just those offered via distance education. And while the first Trump administration would rescind much of the Obama-era Title IX guidance, it would replace that guidance with its own complex and lengthy regulation focused on the management of sexual misconduct on campus.
In fact, one of the few regulatory frameworks that the Department did rescind entirely under the first Trump administration was the gainful employment rule. Following an entire negotiated rulemaking dedicated solely to the gainful employment regulation, the administration moved the rule to the proverbial trash bin, citing the many concerns quoted at the outset of this post.
The Department suggests in its filing of last Friday that the federal deficit and student loan debt are at the heart of its new position. And both are indeed significant policy points for the current administration, and part of the reconciliation discussion presently taking place on the Hill.
The agency also points to the need for accountability, repeatedly referencing its obligation to ensure a reasonable return on investment for the taxpayer. This focus on accountability is present on the Hill, as well, where the House is currently considering its own “skin-in-the-game accountability” proposal as part of the pending budget reconciliation bill, now known as the One Big Beautiful Bill Act. This said, that same bill also would eliminate the statutory language that undergirds gainful employment, which would seem to put House Republicans at tension with the Trump Administration on the question of whether the GE Rule should survive.
We speculate here, however, that this administration may simply be too interested in the opportunities the financial value transparency framework presents to let it go. When the Obama administration first advanced its gainful employment rule, and when the Biden administration resurrected it, the clear focus of the rule was on “gainful employment” programs, the vast majority of which were (and still are) offered by proprietary institutions. As such, the rule, while not exclusive to proprietary schools, disproportionally impacted them.
The current GE Rule still features a gainful employment accountability framework, which primarily impacts proprietary schools like the cosmetology schools that brought suit. But the rule crafted by the Biden administration also includes the new financial value transparency component, which requires every Title IV-participating institution of higher education to collect and report vast volumes of data about every Title IV program they offer to the Department, as well as about the students who attended, withdrew, and graduated from those programs. This financial value transparency framework also calls for the creation of a new federal website, where the Department will publish the data for each institution, and ultimately pass judgment on the value of each and every program offered by the institution.
This administration has openly signaled its dissatisfaction with certain sectors of higher education, and certain practices among institutions. To date, this dissatisfaction has largely manifested as concern over compliance with civil rights laws. And enforcement of these civil rights laws has been its primary focus. We hazard here that the current administration may view the financial value transparency component of the Biden administration’s GE Rule, and in particular its data reporting requirements and public-facing disclosure website, as a new vehicle through which it can explore, refine, and express its dissatisfaction.
This is yet another chapter in the long story of the GE Rule, and what will happen next is presently unknown. Lawsuits, rulemakings, and statutory changes could all once again upend the GE Rule, and its future looks as murky has it ever has been.
