(CN) - For-profit colleges cannot deceive prospective students or pay bonuses to their best recruiters if they want to receive government funding, a federal judge ruled. The Education Department cannot require online schools, however, to get authorization from every state in which they have students.
The Career College Association, now known as the Association of Private Sector Colleges and Universities, sued the Education Department in January 2011 over new and more stringent regulations related to how the association's members recruit students, advertise and run their businesses.
The rules were intended to address complaints that for-profit college misrepresent the value of their courses and wrongly urge prospective students to apply for federal financial aid they cannot pay back.
The regulations went into effect on July 1. The association's lawsuit challenged three provisions of the new regulations: a prohibition on compensation based on recruitment and securing financial aid; penalties for schools that make a "substantial misrepresentation" of the quality of programs and the employability of graduates; and a requirement that schools receive authorization from every state in which their students live.
U.S. District Judge Rosemary Collyer in Washington upheld the first two provisions, but rejected the third, finding that the government did not give the colleges adequate time to review the rule and comment on it.
On the issue of compensating recruiters, the association had claimed it is especially hard to determine merit-based pay for staff without taking recruitment numbers into consideration.
But Collyer said the schools could instead rely on seniority, job knowledge, student evaluations and other criteria.
When it came to the misrepresentation issue, Collyer found that the Education Department put enough notification procedures in place to give schools due process before penalizing them.
"As the government disclaims any intention to terminate or suspend a school's eligibility or to impose a fine without notice and opportunity to be heard, the court has no reason to suspect, at this pre-enforcement junction, that the department would act otherwise," Collyer wrote.
Department of Education spokesman Justin Hamilton lauded the decision in a statement. Hamilton said the department will review its options as to the authorization rule tossed in favor of online schools.
Attorneys for the college association - Douglas Cox of Gibson, Dunn & Crutcher and Randolph Moss of Wilmer Cutler Pickering Hale and Dorr - could not be reached for comment.