For-profit colleges sue US Dept of Education over new rule

July 21 Thu Jul 21, 2011 7:41am EDT

July 21 (Reuters) - An association of for-profit colleges in the United States has sued the Department of Education to block the implementation of a controversial rule, saying the rulemaking process was flawed and the agency was overreaching in its capacity to frame such rules.

The Association of Private Sector Colleges and Universities (APSCU), representing more than 1,650 colleges, filed a lawsuit in the federal District Court in Washington DC seeking to block the department's final 'gainful employment' regulations.

In June, the department finalized the rule which threatens to cut off federal aid -- a key source of revenue -- to colleges if they do not meet certain student debt criteria.

The final version of the rule is a much softer one than the draft published earlier as the industry fought back the strict rules through lobbying.

The rule is part of a larger package of regulations framed by the Obama administration to reduce student debt at for-profit colleges and make them more accountable for the taxpayers money they get to fund student loans.

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"By issuing the gainful employment regulations, the Department of Education has clearly exceeded its statutory authority," APSCU's interim CEO Brian Moran said in a statement on Wednesday.

The department could not be immediately reached for a comment.

The group had sued the department in January over a different set of rules, and had won one claim while losing two.

APSCU members include Career Education Corp , Corinthian Colleges , DeVry Inc , Education Management Corp , ITT Educational Services and Lincoln Educational Services .

Sector leader Apollo Group is not a part of APSCU.

The colleges, accused of having high student default rates, had made changes to their admissions policies as they braced for a more stringent set of rules, leading to sharp declines in enrollment numbers. They had also cut jobs and scaled back on expansion plans.

The case is Career College Association vs Arne Duncan, secretary of Department of Education, and the department, U.S. District Court, District of Columbia, No. 11-cv-01314. (Reporting by A. Ananthalakshmi in Bangalore; Editing by Gopakumar Warrier)

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