American Association of Cosmetology Schools v. Devos
258 F. Supp. 3d 50
| D.D.C. | 2017Background
- The Department of Education (DOE) adopted gainful-employment (GE) regulations that determine whether proprietary programs remain eligible for federal student loans by comparing graduates’ debt to their earnings, using Social Security Administration (SSA) income data as the presumptive source.
- SSA data includes only income reported to the IRS and therefore may undercount cash, tip, or self-employment income—categories that commenters (including AACS) argued are common among cosmetology graduates.
- The regulations permit an "alternate earnings appeal" allowing institutions to use state-sponsored data or institution-conducted surveys to rebut the SSA-based presumption; the rules require high response thresholds (state data covering >50% of grads; institutional surveys effectively requiring near-total responses).
- AACS (association of cosmetology schools) sued under the APA, asserting DOE acted arbitrarily and capriciously by (1) relying on SSA data despite known underreporting, and (2) imposing unworkable appeal requirements that make rebuttal infeasible for many cosmetology programs.
- At least three AACS member schools were required to post DOE-mandated warnings because they failed the GE tests and did not or could not pursue appeals; DOE conceded warnings are final agency action.
- The District Court concluded DOE’s use of SSA data as the default was permissible, but DOE acted arbitrarily and capriciously by making the alternate-earnings appeal process unreasonably difficult; remedy narrowed the survey/threshold requirements for AACS members and reopened appeal opportunities.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Final agency action / standing | AACS: warnings triggered by GE designations are final; AACS has associational standing to sue for affected members | DOE: no final action because no program lost Title IV yet; AACS failed to name affected members in complaint | Held: warnings are final agency action; AACS has associational standing (named members later identified) |
| Reliance on SSA data | AACS: SSA data systematically undercounts cosmetology grads’ income; DOE ignored commenters and adopted flawed default measure | DOE: SSA is best-available, accurate for reported income; penalties deter underreporting; appeals exist to correct errors | Held: DOE permissibly adopted SSA as default but failed to adequately address the underreporting problem as to feasibility of appeals |
| Adequacy of DOE’s response to alternatives (BLS survey data) | AACS: BLS/survey data would better capture unreported income and was a viable alternative | DOE: BLS data cannot be tied to individual programs and would mask poor-performing programs | Held: DOE reasonably rejected BLS-based approach because it cannot be individualized to specific programs |
| APA remedy for arbitrary rulemaking | AACS: the flawed appeal thresholds must be vacated or the rule enjoined | DOE: defend the rule as a coherent whole and argue no broad remedy needed | Held: Court narrowed enforcement—removed rigid numerical survey/state-data thresholds for AACS members and reopened appeal window so DOE decides sufficiency case-by-case |
Key Cases Cited
- Bennett v. Spear, 520 U.S. 154 (1997) (defines "final agency action" for APA review)
- Dole v. United Steelworkers of America, 494 U.S. 26 (1990) (disclosure/warning requirements can constitute final agency action)
- Williamson County Regional Planning Comm’n v. Hamilton Bank, 473 U.S. 172 (1985) (finality tied to consummation of decisionmaking and concrete injury)
- Darby v. Cisneros, 509 U.S. 137 (1993) (APA review not displaced by agency appeals unless statute requires exhaustion)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary and capricious standard requires reasoned decisionmaking)
- Leather Indus. of Am., Inc. v. EPA, 40 F.3d 392 (D.C. Cir. 1994) (agencies may sacrifice fit for administrability but must justify different treatment)
- Am. Iron & Steel Inst. v. EPA, 115 F.3d 979 (D.C. Cir. 1997) (upholding tiered methodologies based on data-availability differences)