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For-profit schools sue to stop new rules

Posted by Nate

WASHINGTON (Reuters) – A group of for-profit schools on Friday filed a lawsuit against the federal government on Friday to stop implementation of three costly new rules.

The rules were part of a larger package of new regulations being imposed on the for-profit sector, which has been accused of churning out poorly educated students with large debts.

The Association of Private Sector Colleges and Universities (APSCU), which represents more than 1,500 for-profit schools, filed the lawsuit in the U.S. District Court for the District of Columbia asking the court to toss out the rules, which are due to go into effect on July 1.

The rules are to stop deceptive advertising by schools, to bar recruiters from being paid based on how many students they enroll and to require states to authorize post-secondary schools for their students to be eligible for federal loans.

The lawsuit did not challenge the yet-to-be-finalized and most controversial of the reforms, known as the "gainful employment" rule.

That rule would require schools to show that students are paying back federal loans or can do so. Students at schools that fall short would be barred from receiving federal loans, which would cripple many schools.

The pending reforms have rocked shares in the sector over the past few months. The shares of sector leader Apollo Group were trading down 1.69 percent at $42.50 on the Nasdaq on Friday afternoon.

Harris Miller, head of the APSCU, said the rule barring misrepresentation by the schools was poorly done so that inadvertent misstatements by a single employee would be treated the same as intentional misstatements.

I personally have no opinion because I am not familiar with this issue.

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