A federal district judge in Fort Worth, TX, today rejected a challenge from the for-profit cosmetology school industry to the Department of Education’s latest version of the gainful employment rule.  This iteration of the rule, issued in 2023 under the Biden administration, will cut off federal student grants and loans to for-profit and career education programs that in multiple years either leave graduates with unaffordable debt or with earnings less than non-college high school graduates.

The gainful employment rule was first proposed in 2010 under the Obama administration, amid growing evidence that numerous bad actors in the for-profit college industry were deceiving, overcharging, and under-educating students across the country.

The rule, fiercely opposed by the for-profit college industry, has been on a rollercoaster for 15 years. The for-profit college industry hired expensive lawyers who managed to convince a federal district judge in Washington to strike down the first version of the rule in 2011, but the Obama administration responded with a somewhat tougher version of the rule that the federal district and appeals courts upheld.

Then, the first Trump administration, under for-profit friendly Secretary of Education Betsy DeVos, cancelled the rule. But the Biden administration brought forth and implemented a new, stronger version.

After the for-profit cosmetology schools brought its challenge to the Biden version of the rule in the generally anti-regulation federal court in Fort Worth, and after the new Trump Department of Education took numerous steps away from accountability for predatory colleges, the administration surprised some observers in May by defending the gainful employment rule as a lawful and appropriate exercise of power under the education department’s authority.

U.S. District Judge Reed O’Connor, a George W. Bush appointee and the chief judge in his district, issued an opinion today agreeing with the Trump administration that the rule is valid, despite arguments by the cosmetology schools that the Supreme Court’s decision last year in the Loper Bright case demanded more intense skepticism of agency regulations.

The Justice Department’s brief urging rejection of the challenge made clear at the outset why this case was different than many corporate challenges to regulations: the corporations complaining here are almost entirely creatures of federal policy, with many of them receiving close to 90 percent of their revenue from taxpayer-funded student aid.

“It is the Federal Government’s responsibility to be a good steward of taxpayer dollars,” began the Trump administration’s filing.

The cosmetology schools, many of which have a troubling record of burying students in debt, will likely file an appeal with the right-tilted Fifth Circuit Court of Appeals.

But Republicans in Congress, long under the spell of the for-profit college and cosmetology school industries that provide modest campaign contributions and lobby aggressively, have signaled they are open to a new approach. In July, Trump signed his allegedly beautiful budget bill, whose few positive provisions included a new accountability framework for colleges and universities that bears a resemblance to the gainful employment rule.  The key differences are that Congress (1) provided a somewhat less demanding standard for keeping financial aid eligibility; (2) extended the requirements to all types of programs, not just for-profit and career programs, but, (3) under pressure from industry lobbyists, somehow excluded shorter-term undergraduate certificate programs, such as those typically offered by cosmetology schools. The Obama and Biden gainful employment rule included certificate programs in its accountability measures. But note that a fact sheet released by Senate HELP committee chair Bill Cassidy (R-LA) stated that while the bill provisions didn’t extend to certificate programs, those “are covered by a similar earnings test in the Gainful Employment regulation”; Cassidy pointedly did not say that the gainful employment rule, or its coverage of certificate programs was, or should be, dead.

The Department of Education can consolidate the new court ruling’s common sense victory for students and taxpayers in the next round of rulemaking it has already announced, by using its authority to reaffirm the gainful employment rule and its reach.