Last week, the U.S. Court of Appeals for the District of Columbia issued its long-awaited decision in the case brought by the Association of Private Sector Colleges and Universities (APSCU) challenging, among other Program Integrity provisions, the U.S. Department of Education’s 2010 misrepresentation regulations. The Court held that key portions of the 2010 misrepresentation regulations exceed the statutory limits of the Higher Education Act, thereby reversing the lower court’s decision, and remanding the provisions back to the Department for revision. We believe the decision is a modest victory for schools and eliminates some of the most objectionable aspects of the new rules, but in practice will likely have limited impact on school communications. The main principles and general framework of the misrepresentation regulations remain in place.  

Background

The Higher Education Act (HEA) prohibits a school from engaging in “substantial misrepresentation” regarding “the nature of its educational programs, its financial charges, or the employability of its graduates.” If a school has engaged in substantial misrepresentation, the HEA grants the Department power to suspend or terminate the institution’s Title IV eligibility following “reasonable notice and opportunity for a hearing.”  

In 2010, the Department of Education issued new regulations to implement and enforce the HEA’s misrepresentation requirement. The 2010 regulations expanded the reach of the prior misrepresentation rules in several ways. First, the regulations broadened the Secretary’s enforcement options, giving the Department the power to terminate an institution’s program participation agreement and limit program eligibility without first affording the school a hearing. Secondly, the regulations expanded the subject matter of statements covered by the rules to include virtually any misrepresentation “regarding the eligible institution,” not just statements concerning a program, fees, or employability of graduates. Finally, the regulations effectively broadened the meaning of the term “substantial misrepresentation” to encompass any statement that has the likelihood or tendency to deceive or even confuse.

APSCU filed suit in U.S. District Court for the District of Columbia in January 2011, claiming that the new misrepresentation provisions exceeded the Department’s statutory authority under the HEA. In addition, APSCU claimed that the rules were unconstitutional under the First Amendment because they impermissibly prohibit political and commercial speech. The District Court rejected each of APSCU’s claims and granted summary judgment to the Department. APSCU appealed the District Court’s decision to the U.S. Court of Appeals.

Case Holding

The Court of Appeals reversed the District Court’s decision and held that the 2010 misrepresentation regulations exceed the HEA’s limits in three key respects:  

  1. by allowing the Secretary to take enforcement actions against an institution without affording it required due process procedural protections;
  2. by allowing the Secretary to sanction any misrepresentation regarding the eligible institution rather than misrepresentations specified in the HEA (the nature of a program, fees, or employability of graduates); and
  3. by proscribing statements that are not substantial misrepresentations but are merely confusing.  

The Court remanded the misrepresentation regulations back to the District Court and the Department for revision as to the first two of those points, and vacated the portion of the rules related to the third point. The Court did not specify a timeframe for the Department to issue the revised rules. We expect this may take some time and may be accompanied by a Dear Colleague Letter.

The Court of Appeals also rejected APSCU’s First Amendment free speech challenge to the regulations.  

What Does the Court’s Ruling Mean for Institutions?

The decision is a welcome victory that limits the Department’s efforts to broaden the misrepresentation rules, and helps protect against over-zealous enforcement and nuisance litigation, but largely maintains the status quo regarding regulation of school advertising and marketing activities.

The most substantive change resulting from the Court’s decision concerns the preservation of the procedural rights of schools. While the Secretary’s menu of new enforcement options will survive, the Department is required to revise the 2010 misrepresentation regulations to ensure that schools are entitled to procedural protections prior to any sanctions.

The decision also effectively upholds the HEA’s subject matter limitations. The court instructed the Department to clarify which types of information are subject to the misrepresentation penalties, and suggested the revised rules should be limited to those areas specified in the HEA – statements regarding educational programs, institutional fees, or employability of graduates.

Finally, the Court’s holding that the term “substantial misrepresentation” does not include true, nondeceitful statements that are merely confusing, while helpful, does little to alter the current standard for what constitutes actionable misrepresentation. False statements that “have the likelihood or tendency to deceive” are still impermissible, and a statement need not be intentionally deceitful to qualify as a misrepresentation.  

Note that while some of the more expansive aspects of the misrepresentation rules have been overruled, and the holding discourages the Department from seeking sanctions for minor misrepresentations, the scope of the rule remains very broad. For example, the rule may be invoked to sanction misrepresentations made to any third party, not just a prospective student. Schools should therefore remain vigilant in preventing any misrepresentation, especially where it involves such areas as the nature of a program, school placement rates, or financial charges. In addition to using care when drafting marketing materials, schools should also closely supervise employees and contractors in a position to make potentially misleading statements to students or the public.