Federal district courts in New York and the District of Columbia have rejected challenges to the Department of Education’s “gainful employment rule”. A recent story in The American Lawyer, “New Rule Spells Trouble for For-Profit Law Schools”, explains how the DOE gainful employment rule will likely affect for-profit law schools. The gainful employment rule, which is based on graduates’ annual incomes and their discretionary incomes, requires a for-profit school’s graduates to have debt payments that are 8% or less of their annual incomes, or 20% or less of their discretionary incomes. A school fails the test if student debt payments exceed 12% of annual incomes or 30% of discretionary incomes. A school is considered “in the zone” if loan payments of graduates are greater than or equal to 12% of their annual incomes, or payments are greater than 10% but less than or equal to 30% of discretionary incomes. A for-profit school becomes ineligible for federal loans if it fails both the annual income and discretionary income tests in any two of three years, or if it fails both tests or is in the zone for four years. The story also explains that graduates’ enrollment in income-based repayment programs is not considered in the government’s application of the new rule. The American Lawyer story contains tables that project how the rule could be applied based on available debt, income, and employment information for graduates at the six for-profit law schools. The DOE gainful employment rule goes into effect July 1, 2015.
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