Association of Private Sector Colleges & Universities v. Duncan

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 21, 2012 Decided June 5, 2012

No. 11-5174

ASSOCIATION OF PRIVATE SECTOR COLLEGES AND

UNIVERSITIES,

APPELLANT

v.

ARNE DUNCAN, IN HIS OFFICIAL CAPACITY AS SECRETARY OF

THE DEPARTMENT OF EDUCATION AND THE UNITED STATES

DEPARTMENT OF EDUCATION,

APPELLEES

Consolidated with 11-5230

Appeals from the United States District Court

for the District of Columbia

(No. 1:11-cv-00138)

Douglas R. Cox argued the cause for appellant/cross-

appellee. With him on the briefs were Timothy J. Hatch, Nikesh

Jindal, and Derek S. Lyons.

Joshua Waldman, Attorney, U.S. Department of Justice,

argued the cause for appellees/cross-appellants. With him on

the briefs were Tony West, Assistant Attorney General, Ronald

C. Machen, Jr., U.S. Attorney, and Michael S. Raab, Attorney.

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Before: ROGERS, Circuit Judge, and EDWARDS and

GINSBURG, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge

EDWARDS.

EDWARDS, Senior Circuit Judge: Every year, Congress

provides billions of dollars through loan and grant programs to

help students pay tuition for their postsecondary education. The

Department of Education (“the Department” or “the agency”)

administers these programs, which were established under Title

IV of the Higher Education Act of 1965 (“the HEA” or “the

Act”), Pub. L. No. 89-329, 79 Stat. 1219, 1232–54. Students

must repay their federal loans; the costs of unpaid loans are

borne by taxpayers.

To participate in Title IV programs – i.e., to be able to

accept federal funds – a postsecondary institution (“a school” or

“an institution”) must satisfy several statutory requirements.

These requirements are intended to ensure that participating

schools actually prepare their students for employment, such

that those students can repay their loans. Three requirements are

at issue here. First, a school must qualify as an “institution of

higher education,” 20 U.S.C. § 1094(a) (2006) – meaning, inter

alia, that the school is “legally authorized” to provide education

in the state in which it is located, id. § 1001(a)(2). Second, a

school must “enter into a program participation agreement with

the Secretary” of Education (“the Secretary”), pursuant to which

the school agrees, inter alia, not to “provide any commission,

bonus, or other incentive payment based directly or indirectly on

success in securing enrollments or financial aid to any”

recruiters or admissions employees. Id. § 1094(a)(20). Third,

a school must not engage in “substantial misrepresentation of

the nature of its educational program, its financial charges, or

the employability of its graduates.” Id. § 1094(c)(3)(A).

In 2009, based on experiences that it had faced in

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administering the Title IV programs, the Department concluded

that the existing regulations covering the state authorization,

compensation, misrepresentation, and other statutory

requirements created opportunities for abuse by schools, because

the regulations were too lax. The Department thus initiated a

rulemaking process to strengthen the regulations so as to protect

the integrity of these programs. On October 29, 2010, following

notice and comment, the agency issued final regulations.

The new regulations included several new provisions that

are the focus of the dispute in this case. First, the Department

adopted for the first time substantive regulations addressing the

HEA’s state authorization requirement. See 34 C.F.R. § 600.9

(2011) (“the State Authorization Regulations”). Under the

applicable regulations, a school is now legally authorized by a

state, only if the state has a process to review and act on

complaints concerning institutions, and if the state has

authorized that specific school by name. See id. §

600.9(a)(1)(i)(A) (“the school authorization regulation”). In

addition, in order to be “legally authorized,” a school offering

distance or correspondence education, including online courses,

must obtain authorization from all states in which its students

reside that require such authorization. See id. § 600.9(c) (“the

distance education regulation”). Second, the regulations

covering compensation practices were amended to eliminate

regulatory “safe harbors” pursuant to which schools had adopted

compensation practices that effectively circumvented the HEA’s

proscription against certain incentive payments. See id. §

668.14(b)(22) (“the Compensation Regulations”). Finally, the

Department amended the regulations covering the HEA’s

misrepresentation requirement, see id. §§ 668.71–.75 (“the

Misrepresentation Regulations”), by, inter alia, specifying that

a “misleading statement includes any statement that has the

likelihood or tendency to deceive or confuse,” id. § 668.71(c),

and restyling the Secretary’s menu of enforcement options, see

id. § 668.71(a).

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The Association of Private Sector Colleges and Universities

(“Appellant” or “the Association”) filed suit in the District Court

challenging the State Authorization, Compensation, and

Misrepresentation Regulations (collectively, “the challenged

regulations”) under the Administrative Procedure Act (“the

APA”), see 5 U.S.C. § 706 (2006), and the Constitution. Both

parties moved for summary judgment. The District Court

granted summary judgment to the Department on Appellant’s

challenges to the Compensation and Misrepresentation

Regulations; found that Appellant lacked standing to challenge

the school authorization regulation; and granted summary

judgment to Appellant on its challenge to the distance education

regulation. See Career Coll. Ass’n v. Duncan, 796 F. Supp. 2d

108 (D.D.C. 2011).

We affirm in part, reverse in part, and remand for further

proceedings consistent with this opinion. First, we affirm the

judgment of the District Court holding that the Compensation

Regulations do not exceed the HEA’s limits. And we mostly

reject Appellant’s claim that these regulations are not based on

reasoned decisionmaking. We remand two aspects of the

Compensation Regulations, however, that are lacking for want

of adequate explanations. Second, we hold that the

Misrepresentation Regulations exceed the HEA’s limits in three

respects: by allowing the Secretary to take enforcement actions

against schools sans procedural protections; by proscribing

misrepresentations with respect to subjects that are not covered

by the HEA; and by proscribing statements that are merely

confusing. We reject Appellant’s other challenges to the

Misrepresentation Regulations. Finally, with respect to the State

Authorization Regulations, we conclude that Appellant has

standing to challenge the school authorization regulation, but

hold that the regulation is valid. However, we uphold

Appellant’s challenge to the distance education regulation,

because that regulation is not a logical outgrowth of the

Department’s proposed rules.

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I. Background

A. The Higher Education Act

Congress created the Title IV programs to foster access to

higher education. “Every year [these] programs provide more

than $150 billion in new federal aid to approximately fourteen

million post-secondary students and their families.” Career

Coll. Ass’n, 796 F. Supp. 2d at 113–14. Students receiving this

aid attend private for-profit institutions, public institutions, and

private nonprofit institutions. See id. at 114. These students are

expected to repay their federal loans; their failure to do so shifts

their tuition costs onto taxpayers. But schools receive the

benefit of accepting tuition payments from students receiving

federal financial aid, regardless of whether those students are

ultimately able to repay their loans. Therefore, Congress

codified statutory requirements in the HEA to ensure against

abuse by schools. Three are at issue in this dispute.

First, the HEA stipulates that “[i]n order to be an eligible

institution for the purposes of any [Title IV] program[,] . . . an

institution must be an institution of higher education.” 20

U.S.C. § 1094(a). Federal law defines an “institution of higher

education” as an institution in any state that inter alia “is legally

authorized within such State to provide a program of education

beyond secondary education.” Id. § 1001(a)(2); see also id.

§ 1002(a)(1), (b)–(c). The HEA does not define “legally

authorized.” This lack of a statutory definition has meant that,

for virtually all of the HEA’s history, each state has determined

for itself the method of authorizing schools within its borders.

Second, as noted above, each school must enter into a

program participation agreement with the Secretary. Pursuant

to this statutory requirement, a school must agree not to

“provide any commission, bonus, or other incentive payment

based directly or indirectly on success in securing enrollments

or financial aid to any persons or entities engaged in any student

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recruiting or admission activities or in making decisions

regarding the award of student financial assistance.” Id. §

1094(a)(20). Congress adopted this provision in 1992 based on

its concern that schools were creating incentives for recruiters to

enroll students who could not graduate or could not find

employment after graduating. See H.R. REP. NO. 102-447, at 10

(1992), reprinted in 1992 U.S.C.C.A.N. at 343; see also United

States ex rel. Lee v. Corinthian Colls., 655 F.3d 984, 989 (9th

Cir. 2011) (“This requirement is meant to curb the risk that

recruiters will sign up poorly qualified students who will derive

little benefit from the subsidy and may be unable or unwilling to

repay federally guaranteed loans.” (citations omitted) (internal

quotation marks omitted)). The Department may initiate an

enforcement action against a school that violates this prohibition

to seek the imposition of a civil fine or the limitation,

suspension, or termination of the institution’s eligibility to

participate in Title IV programs. See 20 U.S.C. § 1094(c)(1)(F),

(c)(3)(B)(i)(I).

Third, the HEA prohibits schools from engaging in

“substantial misrepresentation” regarding “the nature of its

educational program, its financial charges, or the employability

of its graduates.” Id. § 1094(c)(3)(A). Congress adopted this

provision to protect students from “false advertising” and other

forms of manipulative “sharp practice.” H.R. REP. NO. 94-1086,

at 13 (1976). If the agency determines “after reasonable notice

and opportunity for a hearing” that an institution has engaged in

proscribed substantial misrepresentation, it may “suspend or

terminate” the institution’s eligibility to participate in Title IV

programs. 20 U.S.C. § 1094(c)(3)(A). The agency may

alternatively seek the imposition of a civil fine. See id. §

1094(c)(3)(B)(i)(II).

B. Regulatory History

Congress has delegated to the Secretary the authority to

promulgate regulations governing the Department’s

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administration of Title IV and other federal programs. The grant

of authority provides that “[t]he Secretary, in order to carry out

functions otherwise vested in the Secretary by law or by

delegation of authority pursuant to law, . . . is authorized to

make, promulgate, issue, rescind, and amend rules and

regulations governing the manner of operation of, and governing

the applicable programs administered by, the Department.” Id.

§ 1221e-3; see also id. § 1098a(a)(1) (directing the Secretary to

obtain public involvement in the development of regulations

through negotiated rulemaking). In 2009, the Secretary

established a negotiated rulemaking committee to develop new

rules related to its administration of Title IV programs. See

Department of Education, Negotiated Rulemaking Committees;

Establishment, 74 Fed. Reg. 24,728 (May 26, 2009).

The reason for the Department’s new regulations is clear.

The agency had determined that the existing regulations were

too lax, allowing schools to circumvent the proscriptions of the

HEA and threaten the integrity of Title IV programs. For

example, following an investigation, agency officials found that

the University of Phoenix had “systematically engage[d] in

actions designed to mislead the [Department] and to evade

detection of its improper incentive compensation system for

those involved in recruiting activities.” Letter from Donna M.

Wittman, Institutional Review Specialist, to Todd S. Nelson,

President, Apollo Grp., Inc. (Feb. 5, 2004) (“Phoenix Report”),

reprinted in J.A. 145. The Department ultimately chose to settle

with the university’s parent company rather than to pursue a

formal sanction, but allegations of impropriety continued. See

Stephen Burd, More Scrutiny Needed of the University of

Phoenix’s Recruiting Practices, HIGHER ED WATCH (Feb. 19,

2009), http://www.newamerica.net/blog/higher-ed-watch/2009/

more-scrutiny-needed-university-phoenix-10193, J.A. 258.

Nor did the Department have any reason to believe that the

University of Phoenix’s alleged misconduct was aberrational.

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In 2007, admissions and financial aid employees filed a qui tam

false claims action against Alta Colleges, alleging that the

organization had, in contravention of the HEA, both

misrepresented the nature of its degrees to prospective students

and provided salary increases and bonuses to recruiters based

solely on the number of students they recruited. See Third

Amended False Claims Compl. ¶¶ 2–12, 21–25, 28–43, 44–53,

Dec. 20, 2007, J.A. 200–201, 203–04, 205–07, 208–09. A

former recruiter filed a similar action against DeVry in 2009.

See First Amended Compl. Dec. 31, 2008, J.A. 232. There were

also media reports during this period indicating that other

schools had engaged in compensation and marketing practices

proscribed by the HEA. See, e.g., Rebecca Leung, For-Profit

College: Costly Lesson, CBSNEWS (Jan. 30 2005),

http://www.cbsnews.com/stories/2005/01/31/60minutes/main

670479.shtml, J.A. 192.

The Secretary’s negotiated rulemaking committee failed to

reach consensus. See Department of Education, Program

Integrity Issues, Notice of Proposed Rulemaking (“NPRM”), 75

Fed. Reg. 34,806, 34,807–08 (June 18, 2010). The Department

moved forward, however, and submitted proposed regulations

for public comment. See id. at 34,806. “Approximately 1,180

parties submitted comments” during the comment period.

Department of Education, Program Integrity Issues, Final

Regulations (“Final Regulations”), 75 Fed. Reg. 66,832, 66,833

(Oct. 29, 2010). The Department issued its final regulations on

October 29, 2010. See id.

C. The Challenged Regulations

1. The State Authorization Regulations

The Department’s 2002 regulations did not impose any

substantive rules covering state authorization. Before the

promulgation of the new regulations, states determined for

themselves the methods of authorizing schools. But the new

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regulations eliminate the old regime and require states to follow

specified standards in order to satisfy the HEA’s state

authorization requirement. Two are at issue here.

First, the school authorization regulation applies to all

institutions participating in Title IV programs. It establishes that

[a]n institution . . . is legally authorized by a State if the

State has a process to review and appropriately act on

complaints concerning the institution including enforcing

applicable State laws, and the institution . . . is established

by name as an educational institution by a State through a

charter, statute, constitutional provision, or other action

issued by an appropriate State agency or State entity and is

authorized to operate educational programs beyond

secondary education.

34 C.F.R. § 600.9(a)(1)(i)(A) (2011).

Second, the new regulations include a provision covering

providers of distance education. It sets forth that

[i]f an institution is offering postsecondary education

through distance or correspondence education to students in

a State in which it is not physically located or in which it is

otherwise subject to State jurisdiction as determined by the

State, the institution must meet any State requirements for

it to be legally offering postsecondary distance or

correspondence education in that State.

Id. § 600.9(c).

2. The Compensation Regulations

The Department’s 2002 regulations allowed schools to

engage in specific compensation practices under a series of safe

harbors. As the Department explained in its 2002 rulemaking,

the safe harbors were created to “clarify the current law for most

institutions by setting forth specific payment arrangements that

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an institution may carry out that have been determined not to

violate the incentive compensation prohibition in” the HEA.

Department of Education, Federal Student Aid Programs, Final

Regulations, 67 Fed. Reg. 67,048, 67,053 (Nov. 1, 2002). In

2010, the Department eliminated the codified safe harbors and

expressly interpreted the HEA to prohibit some of the practices

that had previously been deemed safe. Of the compensation

arrangements that were previously permitted and are now

prohibited, three are at issue.

First, the 2002 regulations allowed schools to provide salary

adjustments – e.g., raises – to persons engaged in recruiting and

admission activities, so long as those adjustments were not made

“more than twice during any twelve month period” and were not

“based solely on the number of students recruited, admitted,

enrolled, or awarded financial aid.” 34 C.F.R. §

668.14(b)(22)(ii)(A) (2010) (emphasis added). In contrast, the

current Compensation Regulations prohibit institutions from

offering any “sum of money or something of value, other than

a fixed salary or wages,” 34 C.F.R. § 668.14(b)(22)(iii)(A)

(2011), “based in any part, directly or indirectly, upon success

in securing enrollments or the award of financial aid,” id. §

668.14(b)(22)(i) (emphasis added). In other words, under the

Compensation Regulations, an institution may a make merit-

based salary adjustment to a recruiter’s salary, but only if the

adjustment is not based in any part, directly or indirectly, on the

recruiter’s success in securing either enrollments or the award of

financial aid. See id. § 668.14(b)(22)(ii)(A).

Second, the 2002 regulations allowed schools to provide

incentive based compensation to employees “based upon

students successfully completing their educational programs, or

one academic year of their educational programs, whichever is

shorter.” 34 C.F.R. § 668.14(b)(22)(ii)(E) (2010). The

Department eliminated this safe harbor.

Third, the 2002 regulations allowed schools to provide

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incentive based compensation “to managerial or supervisory

employees who do not directly manage or supervise employees

who are directly involved in recruiting or admission activities,

or the awarding of title IV, HEA program funds.” Id. §

668.14(b)(22)(ii)(G). The Department eliminated this safe

harbor. Moreover, it interpreted the HEA’s prohibition – which

applies to “persons . . . engaged in any student recruiting or

admission activities or in making decisions regarding the award

of student financial assistance,” 20 U.S.C. § 1094(a)(20) – to

reach “any higher level employee with responsibility for

recruitment or admission of students, or making decisions about

awarding title IV, HEA program funds,” 34 C.F.R. §

668.14(b)(22)(iii)(C)(2) (2011).

3. The Misrepresentation Regulations

The current Misrepresentation Regulations differ in several

respects from the 2002 regulations. First, the 2002 regulations

defined “misrepresentation” to mean “[a]ny false, erroneous or

misleading statement an eligible institution makes to a student

enrolled at the institution, to any prospective student, to the

family of an enrolled or prospective student, or to the

Secretary.” 34 C.F.R. § 668.71(b) (2010). The 2002 regulations

further defined “substantial misrepresentation” as “[a]ny

misrepresentation on which the person to whom it was made

could reasonably be expected to rely, or has reasonably relied,

to that person’s detriment.” Id.

Under the new regulations, “misrepresentation” is defined

as:

[a]ny false, erroneous or misleading statement an eligible

institution, . . . organization, or person with whom the

eligible institution has an agreement to provide educational

programs, or to provide marketing, advertising, recruiting

or admissions services makes directly or indirectly to a

student, prospective student or any member of the public, or

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to an accrediting agency, to a State agency, or to the

Secretary. A misleading statement includes any statement

that has the likelihood or tendency to deceive or confuse.

A statement is any communication made in writing,

visually, orally, or through other means.

34 C.F.R. § 668.71(c) (2011) (emphases added). The

Misrepresentation Regulations do not, however, establish a new

definition of “substantial misrepresentation.” Id.

Second, the 2002 regulations set forth that the Secretary

could initiate a proceeding against a participating institution for

making any substantial misrepresentation “regarding the nature

of its educational program, its financial charges or the

employability of its graduates.” 34 C.F.R. § 668.71(a) (2010).

The 2002 regulations then clarified what kinds of statements

would fall within those three subject areas. See id. §§

668.72–.74. In contrast, the current Misrepresentation

Regulations describe that the agency may initiate a proceeding

against an institution for engaging in misrepresentation

“regarding the eligible institution, including about the nature of

its educational program, its financial charges, or the

employability of its graduates.” 34 C.F.R. § 668.71(b) (2011)

(emphasis added). The regulations then clarify what statements

fall within those subject areas and identify an additional covered

subject area – an institution’s relationship with the Department.

See id. §§ 668.72–.75.

Third, the 2002 regulations and the current

Misrepresentation Regulations differ in their respective

descriptions of the steps that the Secretary must or may follow

after receiving notice of an alleged misrepresentation. The 2002

regulations established that “[i]f the misrepresentation is minor

and can be readily corrected, the designated department official

informs the institution and endeavors to obtain an informal,

voluntary correction.” 34 C.F.R. § 668.75(b) (2010). The

regulations provided in the alternative that “[i]f the designated

13

department official finds that the complaint or allegation is a

substantial misrepresentation,” then he or she initiates a formal

action against the institution, id. § 668.75(c)(1), pursuant to the

procedural requirements set forth in subpart G of the

Department’s regulations, see id. §§ 668.81–.98.

In promulgating the current Misrepresentation Regulations,

the Department restyled the agency’s menu of enforcement

options. The relevant provision reads:

If the Secretary determines that an eligible institution has

engaged in substantial misrepresentation, the Secretary

may –

(1) Revoke the eligible institution’s program

participation agreement;

(2) Impose limitations on the institution’s participation

in the title IV, HEA programs;

(3) Deny participation applications made on behalf of

the institution; or

(4) Initiate a proceeding against the eligible institution

under subpart G of this part.

34 C.F.R. § 668.71(a) (2011). There is no provision in the

regulations specifically addressing how the Secretary should

proceed in the event of a minor misrepresentation. See id. §

668.71.

Like the 2002 regulations, the Department’s final

regulations lay out in subpart G the procedures that the Secretary

must follow to initiate a formal proceeding against an institution

for violating any of the HEA’s requirements. See id. §§

668.81–.98.

D. Procedural History

Appellant is “an association of for-profit schools in the

14

private sector education industry, representing more than 1,500

such schools. Every year, [its] members educate more than one

and a half million students.” Career Coll. Ass’n, 796 F. Supp.

2d at 114. Shortly after the Department issued its final

regulations, Appellant filed this suit in the District Court,

challenging the regulations under both the Constitution and the

APA. Appellant claimed that the Compensation Regulations

include provisions that exceed the authority of the Secretary

under the HEA and are otherwise arbitrary and capricious.

Appellant claimed that the Misrepresentation Regulations:

(1) exceed the HEA’s scope in several respects; (2) are

otherwise arbitrary and capricious; and (3) violate the First

Amendment by imposing content-based and speaker-based

prohibitions on both core noncommercial and protected

commercial speech. Appellant additionally claimed that the

school authorization regulation exceeds the Department’s

statutory authority, because it impermissibly alters the allocation

of power between the federal government and the states in a

traditional area of state concern. Appellant also claimed that the

school authorization regulation is otherwise arbitrary and

capricious. Finally, Appellant claimed that the distance

education regulation is arbitrary and capricious. Both parties

moved for summary judgment.

During the proceedings in the District Court, the

Department issued a Dear Colleague Letter to address questions

that regulated parties had raised regarding the challenged

regulations. See Letter from Eduardo M. Ochoa, Dep’t of Educ.,

to Colleague (Mar. 17, 2011) (“Dear Colleague Letter”), J.A.

130; see also NPRM, 75 Fed. Reg. at 34,820 (reserving the right

to respond to ongoing questions by publishing “a Dear

Colleague Letter”). The letter purported to “provide[] additional

guidance” without “mak[ing] any changes to the regulations.”

Dear Colleague Letter at 1, J.A. 130. The letter specifically

addressed the arguments that Appellant had raised in its

complaint.

15

The District Court granted the Department’s motion for

summary judgment in almost all respects. The court upheld the

Compensation and Misrepresentation regulations entirely, and

it held that Appellant lacked standing to challenge the school

authorization regulation. However, the court granted

Appellant’s motion for summary judgment with respect to the

distance education regulation. It found that the regulation

violated the APA, because the Department had failed to provide

adequate notice that it was contemplating the new rule. Both

parties appealed.

II. Analysis

A. Standard of Review

We review the District Court’s grant of summary judgment

de novo. See Jicarilla Apache Nation v. U.S. Dep’t of Interior,

613 F.3d 1112, 1118 (D.C. Cir. 2010). Furthermore, “[i]n a case

like the instant one, in which the District Court reviewed an

agency action under the APA, we review the administrative

action directly, according no particular deference to the

judgment of the District Court.” Holland v. Nat’l Mining Ass’n,

309 F.3d 808, 814 (D.C. Cir. 2002) (citations omitted).

Appellant’s claims that various provisions of the challenged

regulations are “in excess of statutory jurisdiction, authority, or

limitations, or short of statutory right,” 5 U.S.C. § 706(2)(C), are

reviewed under the well-known Chevron framework. See

Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S.

837 (1984).

Pursuant to Chevron Step One, if the intent of Congress is

clear, the reviewing court must give effect to that

unambiguously expressed intent. If Congress has not

directly addressed the precise question at issue, the

reviewing court proceeds to Chevron Step Two. Under

Step Two, “[i]f Congress has explicitly left a gap for the

agency to fill, there is an express delegation of authority to

16

the agency to elucidate a specific provision of the statute by

regulation. Such legislative regulations are given

controlling weight unless they are . . . manifestly contrary

to the statute.” Chevron, 467 U.S. at 843–44.

HARRY T. EDWARDS & LINDA A. ELLIOTT, FEDERAL

STANDARDS OF REVIEW – REVIEW OF DISTRICT COURT

DECISIONS AND AGENCY ACTIONS 141 (2007) (alterations in

original).

The fact that some of the challenged regulations are

inconsistent with the Department’s past practice “is not a basis

for declining to analyze the agency’s interpretation[s] under the

Chevron framework.” Nat’l Cable & Telecomms. Ass’n v.

Brand X Internet Servs., 545 U.S. 967, 981 (2005). As the

Supreme Court has stated, “if the agency adequately explains the

reasons for a reversal of policy, ‘change is not invalidating,

since the whole point of Chevron is to leave the discretion

provided by the ambiguities of a statute with the implementing

agency.’” Id. (citations omitted). An agency’s departure from

past practice can, however, if unexplained, render regulations

arbitrary and capricious. See id.; Rust v. Sullivan, 500 U.S. 173,

186–87 (1991).

Appellant’s claims that the challenged regulations are

“arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law,” 5 U.S.C. § 706(2)(A), require us to

determine whether the regulations are the product of reasoned

decisionmaking. As the Supreme Court has explained:

Normally, an agency rule would be arbitrary and capricious

if the agency has relied on factors which Congress has not

intended it to consider, entirely failed to consider an

important aspect of the problem, offered an explanation for

its decision that runs counter to the evidence before the

agency, or is so implausible that it could not be ascribed to

a difference in view or the product of agency expertise.

17

Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State Farm Mut.

Auto. Ins. Co., 463 U.S. 29, 43 (1983). In evaluating an

agency’s decisionmaking, our review is “fundamentally

deferential.” EDWARDS & ELLIOTT 172. But we are limited to

assessing the record that was actually before the agency. See,

e.g., Camp v. Pitts, 411 U.S. 138, 142 (1973) (per curiam).

A regulation will be deemed arbitrary and capricious, if the

issuing agency failed to address significant comments raised

during the rulemaking. See PPL Wallingford Energy LLC v.

FERC, 419 F.3d 1194, 1198 (D.C. Cir. 2005). An agency’s

obligation to respond, however, is not “particularly demanding.”

Pub. Citizen, Inc. v. Fed. Aviation Admin., 988 F.2d 186, 197

(D.C. Cir. 1993). A regulation also violates the APA, if it is not

a “logical outgrowth” of the agency’s proposed regulations. See

e.g., Int’l Union, United Mine Workers v. Mine Safety & Health

Admin., 626 F.3d 84, 94–95 (D.C. Cir. 2010). This rule ensures

that regulated parties have an opportunity to comment on new

regulations. See id.

Two additional points merit mention before turning to

Appellant’s claims. First, Appellant is pursuing a facial

challenge to the regulations. “To prevail in such a facial

challenge, [Appellant] ‘must establish that no set of

circumstances exists under which the [regulations] would be

valid.’ That is true as to both the constitutional challenges and

the statutory challenge[s].” Reno v. Flores, 507 U.S. 292, 301

(1993) (citations omitted); see also Sherley v. Sebelius, 644 F.3d

388, 397 (D.C. Cir. 2011). “[I]t is not enough for [Appellant] to

show the [challenged regulations] could be applied unlawfully.”

Sherley, 644 F.3d at 397 (citations omitted); see also Rust, 500

U.S. at 183. As we explain below, this limited exception to the

rule for an overbreadth challenge to a regulation of speech has

no application in this case. Where we conclude that a

challenged regulatory provision does not exceed the HEA’s

limits and otherwise satisfies the requirements of the APA, we

18

will uphold the provision and preserve the right of complainants

to bring as-applied challenges against any alleged unlawful

applications.

Second, the Department offered interpretations of the

challenged regulations in its Dear Colleague Letter and also in

its briefs to the District Court and this court. An agency’s

permissible interpretation of its own regulation normally “must

be given controlling weight unless it is plainly erroneous or

inconsistent with the regulation,” Thomas Jefferson Univ. v.

Shalala, 512 U.S. 504, 512 (1994) (citations omitted) (internal

quotation marks omitted), even when the interpretation is first

articulated in the course of litigation, see Auer v. Robbins, 519

U.S. 452 (1997). The Supreme Court has specified additional

constraints on the deference owed to an agency’s interpretation

of its own regulation in Thomas Jefferson, Auer, and other

decisions. See, e.g., Chase Bank USA, N.A. v. McCoy, 131 S.

Ct. 871 (2011); Christensen v. Harris Cnty., 529 U.S. 576

(2000). Pursuant to this line of authority, Appellant argues that

the Department’s interpretations are not entitled to any

deference. As we make clear, however, it is unnecessary to

resolve this contention.

B. The Compensation Regulations

1. The Regulations Do Not Exceed the HEA’s Limits

Appellant offers two arguments in support of its claim that

the Compensation Regulations exceed the HEA’s prohibition on

incentive based compensation. Neither is persuasive.

• Salary Adjustments

The HEA prohibits institutions from providing “any

commission, bonus, or other incentive payment based directly

or indirectly on success in securing enrollments or financial

aid.” 20 U.S.C. § 1094(a)(20). In the Compensation

Regulations, the Department interpreted the phrase

19

“commission, bonus, or other incentive payment” to mean “a

sum of money or something of value, other than a fixed salary

or wages.” 34 C.F.R. § 668.14(b)(22)(iii)(A) (2011). The

Compensation Regulations thus allow a school to provide a

salary adjustment to a recruiter, only if the adjustment is not

“based in any part, directly or indirectly, upon success in

securing enrollments or the award of financial aid.” Id. §

668.14(b)(22)(ii)(A). At Chevron step one, Appellant must

demonstrate that the HEA “unambiguously forecloses” that

interpretation. Vill. of Barrington, Ill. v. Surface Transp. Bd.,

636 F.3d 650, 661 (D.C. Cir. 2011) (citation omitted).

Appellant has not satisfied that “heavy burden.” Id.

Starting with the HEA’s text, we have no trouble

concluding that the phrase “any commission, bonus, or other

incentive payment” is broad enough to encompass salary

adjustments. We need look no further than to the phrase “other

incentive payment.” Since that term is not defined, we must

give it its ordinary meaning. See FCC v. AT & T Inc., 131 S. Ct.

1177, 1182 (2011) (citation omitted). When used as an

adjective, incentive means “[i]nciting” or “motivating,”

AMERICAN HERITAGE DICTIONARY 650 (2d Coll. ed. 1982), and

a payment is “[t]hat which is paid,” WEBSTER’S INTERNATIONAL

DICTIONARY 1797 (2d ed. 1957). A salary adjustment fits within

the plain meaning of the statutory term, because it is something

paid by a school to recruiters to motivate improved performance.

Appellant’s theory that a standard salary adjustment is not

a prohibited form of compensation is perplexing. After all,

Appellant defends the 2002 regulations, see Appellant’s Br. at

3–4, 14, which established that at least some salary adjustments

– i.e., those made more than twice a year as well as those based

solely on recruitment numbers, see 34 C.F.R. §

668.14(b)(22)(ii)(A) (2010) – are prohibited commissions,

bonuses, or other incentive payments. Appellant has not

meaningfully explained how the HEA could authorize the

20

agency to prohibit some salary adjustments but not others. But

quite apart from this incongruity, we find Appellant’s arguments

to be unpersuasive.

Appellant argues that the Department’s interpretation is

foreclosed by basic rules of statutory interpretation. Invoking

the related canons expressio unius est exclusio alterius and

ejusdem generis, Appellant claims that the phrase “other

incentive payment” cannot be a “catch-all that dramatically

changes the scope of the statute.” Appellant’s Br. at 17; see also

Hall St. Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1404

(2008) (“[W]hen a statute sets out a series of specific items

ending with a general term, that general term is confined to

covering subjects comparable to the specifics it follows.”). And

invoking the canon against surplusage, Appellant argues that to

construe “other incentive payment” broadly would

impermissibly render the prohibition on bonuses and

commissions superfluous. Appellant thus urges that we limit

“other incentive payment” to mean payments such as “rewards

or prizes.” Appellant’s Br. at 17.

This court’s decisions discussing the application of these

canons at Chevron step one are not entirely consistent.

Compare Indep. Ins. Agents of Am., Inc. v. Hawke, 211 F.3d

638, 644–45 (D.C. Cir. 2000) (rejecting agency’s interpretation

at step one based on the tandem canons “of avoiding surplusage

and expressio unius”), with Mobile Commc’ns Corp. of Am. v.

FCC, 77 F.3d 1399, 1405 (D.C. Cir. 1996) (“Expressio unius ‘is

simply too thin a reed to support the conclusion that Congress

has clearly resolved [an] issue.’” (alteration in original)

(citations omitted)), and Tex. Rural Legal Aid, Inc. v. Legal

Servs. Corp., 940 F.2d 685, 694 (D.C. Cir. 1991) (“[A]

congressional prohibition of particular conduct may actually

support the view that the administrative entity can exercise its

authority to eliminate a similar danger.” (citation omitted)). But

it is clear that a court need not follow these canons, when they

21

do “not hold up in the statutory context.” Hawke, 211 F.3d at

644 (citations omitted). Here, Congress phrased the relevant

provision broadly – employing words and phrases like “any”

and “directly or indirectly.” 20 U.S.C. § 1094(a)(20); see also

United States v. Gonzales, 520 U.S. 1, 5 (1997) (noting that

“‘any’ has an expansive meaning”); Roma v. United States, 344

F.3d 352, 360 (3d Cir. 2003) (describing “‘directly or

indirectly’” as “extremely broad language”). Thus, Congress

intended the phrase “other incentive payment” to broadly cover

abuses that Congress had not enumerated. Appellant’s objection

that “[s]alary adjustments are not an obscure form of payment

beyond Congress’s foresight,”Appellant’s Reply Br. at 10,

misses the point. While Congress was undoubtedly aware that

many schools provide salary-based compensation to recruiters,

it may not have anticipated that schools would circumvent the

HEA’s prohibition on incentive based compensation through the

strategic use of salary adjustments.

Nor do we find any other indication that Congress

unambiguously intended to exclude salary adjustments from the

prohibition on incentive based compensation. See, e.g., Bell Atl.

Tel. Cos. v. FCC, 131 F.3d 1044, 1047 (D.C. Cir. 1997)

(describing that courts must “exhaust the traditional tools of

statutory construction” at Chevron step one (citations omitted)

(internal quotation marks omitted)). Appellant directs us to the

Conference Report for the 1992 amendments to the HEA. But

that report demonstrates merely that Congress was concerned

with schools’ “use of commissioned sales representatives.”

H.R. REP. NO. 102-630, at 499 (1992) (Conf. Rep.), reprinted in

1992 U.S.C.C.A.N. at 614. It certainly does not show or even

suggest that Congress was affirmatively unconcerned with the

use of “salaried recruiters.” Appellant’s Br. at 19.

Finally, the fact that courts have interpreted the HEA not to

prohibit certain compensation practices does not compel a

different outcome here. In Corinthian Colleges, the Ninth

22

Circuit stated that “the HEA does not prohibit any and all

employment-related decisions on the basis of recruitment

numbers; it prohibits only a particular type of incentive

compensation.” 655 F.3d at 992. But the court held only that

“adverse employment actions, including termination, on the

basis of recruitment numbers remain permissible” under the

HEA. Id. at 992–93 (citations omitted). It did not address

salary adjustments at all. More importantly, neither that

decision nor the Ninth Circuit’s unpublished decision in United

States ex rel. Bott v. Silicon Valley Colleges, No. 06-15423,

2008 WL 59364 (9th Cir. Jan. 4, 2008) is binding law in this

circuit. And neither decision stated that its holding was

unambiguously compelled by the HEA; hence, neither can

trump the Department’s interpretation. See Brand X Internet

Servs., 545 U.S. at 982.

We therefore proceed to Chevron step two. Appellant

initially argues that the Department forfeited its right to invoke

step-two deference. In the final rule, the Department responded

to comments that its test for identifying prohibited compensation

was unclear, stating that it “believe[d] that the prohibition

identified in section 487(a)(20) of the HEA is clear and that

institutions should not have difficulty maintaining compliance

with the new regulatory language.” Final Regulations, 75 Fed.

Reg. at 66,876–77. An agency cannot claim deference, when it

adopts a regulation based on its judgment that a particular

“interpretation is compelled by Congress.” Peter Pan Bus

Lines, Inc. v. Fed. Motor Carrier Safety Admin., 471 F.3d 1350,

1354 (D.C. Cir. 2006) (citations omitted) (internal quotation

marks omitted). However, it would be a stretch, to say the least,

to hold that the Department’s use of the word “clear”

demonstrates that the agency meant to suggest that its regulatory

interpretation was “compelled by Congress.” Id. In Peter Pan,

the agency had declared that a private party’s interpretation of

a statutory term was “not consistent with the plain language of

the statute and the legislative history,” and the agency had

23

further stated what the statutory phrase “clearly meant.” Id. at

1353 (citation omitted) (internal quotation marks omitted).

But the regulations at issue here reflect more than mere “parsing

of the statutory language.” Id. at 1354 (citation omitted)

(internal quotation marks omitted). The agency adopted the

regulations based on its “experience and expertise,” id. (citation

omitted) (internal quotation marks omitted), after administering

the safe harbors for almost a decade, see Final Regulations, 75

Fed. Reg. at 66,872–73, 66,877.

At step two, we easily conclude that the Compensation

Regulations are entitled to deference, because they are not

manifestly contrary to the HEA. The agency promulgated the

regulations based on known abuses. As the Department

explained, “unscrupulous” institutions used the safe harbor for

salary adjustments to “circumvent the intent” of the HEA and to

avoid detection and sanction for engaging in unlawful

compensation practices. See Final Regulations, 75 Fed. Reg. at

66,872–73, 66,877. The safe harbor enabled a school to tell the

Department that it was basing compensation on both recruitment

numbers and other qualitative factors, when in fact, “these other

qualitative factors [were] not really considered when

compensation decisions [were] made.” Id. at 66,873. As we

have already discussed, the agency’s assessment of the safe

harbor finds support in the record – specifically, in the

Department’s investigation into the practices of one school,

several qui tam actions against other schools, and media reports,

as well as from comments the agency received during the

rulemaking. See, e.g., Comments from Nat’l Ass’n for Coll.

Admission Counseling to U.S. Dep’t of Educ. 1–6 (June 22,

2009) (“NACAC Comment”), J.A. 323–28.

Appellant’s reliance on GAO Report Number 10-370R to

refute the Department’s assessment of the safe harbor is

misplaced. Appellant summarizes that report as finding that

“substantiated violations of the HEA’s compensation restriction

24

have not significantly increased in frequency or severity since

the adoption of the 2002 regulations.” Appellant’s Br. at 31.

But that report expressly “d[id] not . . . assess the overall impact

of the safe harbor regulations on Education’s efforts to enforce

the incentive compensation ban.” U.S. GOV’T ACCOUNTABILITY

OFFICE, GAO-10-370R, HIGHER EDUCATION 2 (2010), J.A. 268.

Indeed, the Department justified the regulations partially on its

conclusion that the safe harbors had made it more difficult to

substantiate violations of the HEA in the first place. Moreover,

the Compensation Regulations address this problem. They

allow the Department to use any evidence that an institution

based compensation on recruitment numbers to substantiate a

violation; thus, the Department no longer needs to see through

an institution’s “smoke and mirrors.” Phoenix Report at 10, J.A.

156; see also id. at 17–18, 25–26 (documenting the school’s

deceptive compensation practices), J.A. 163–64, 171–72.

Appellant also argues that the Department’s interpretation

is arbitrary and capricious, because it deprives institutions of the

ability to provide any merit-based salary adjustments to

recruiters. After all, Appellant insists, a recruiter’s job is to

recruit. But the Department adequately addressed this claim. A

recruiter’s job goes beyond maximizing recruitment numbers; a

recruiter also offers students “a form of counseling” about

whether they are a good fit for a particular institution. Final

Regulations, 75 Fed. Reg. at 66,872. Therefore, a school may

still provide merit-based salary adjustments based on a

recruiter’s ability effectively to match students with that school.

Moreover, the Department has identified a number of other

factors on which permissible salary adjustments may be based

– e.g., professionalism, expertise, student evaluations, and

seniority. See id. at 66,877.

Indeed, even under the 2002 regulations, schools were not

allowed to offer salary adjustments “based solely” on

recruitment numbers. 34 C.F.R. § 668.14(b)(22)(ii)(A) (2010).

25

Schools have thus been required to take into account job-

performance factors unrelated to recruitment numbers for nearly

a decade. We think it implausible that schools are now at a loss

for such factors. Appellant objects that its members cannot rely

on the factors that they identified under the 2002 regulations,

because the Department has sought to punish schools for using

those factors. See Appellant’s Br. at 23 n. 3; Appellant’s Reply

Br. at 22 n.10. This argument is farcical. The Department

means to sanction institutions for using these factors to hide

their true compensation practices. The Department has never

adopted Appellant’s straw-person position that factors such as

professionalism or experience are inherently related to

recruitment numbers. And because of the facial nature of

Appellant’s challenge, we need not address the concern that the

Department could adopt that position under the regulations in

the future. In the event that the Department does so, a school

may seek relief through an as-applied challenge.

• Managers and Supervisors

The Compensation Regulations apply the HEA’s incentive

based compensation prohibition to higher level employees. To

achieve this effect, the Department interpreted the phrase “any

persons . . . engaged in any student recruiting or admission

activities or in making decisions regarding the award of student

financial assistance,” 20 U.S.C. § 1094(a)(20), to include

“higher level employee[s] with responsibility for recruitment or

admission of students, or making decisions about awarding title

IV, HEA program funds,” 34 C.F.R. § 668.14(b)(22)(iii)(C)(2)

(2011). This interpretation easily passes muster under Chevron.

At step one, the statutory phrase is broad, using the word

“any” to modify “persons,” “recruiting,” and “admission

activities.” Appellant argues that the phrase “engaged in” must

be construed narrowly. But the term is undefined, and Appellant

offers no authority suggesting that the term has a limited,

specific meaning. The Department, by contrast, argues

26

persuasively that “engaged in” should be read broadly based on

both the plain meaning of “engage” – “[t]o involve onself,”

AMERICAN HERITAGE DICTIONARY 454 – and case law, see

Ramos v. Universal Dredging Corp., 653 F.2d 1353, 1358 (9th

Cir. 1981) (noting that a statute should be “liberally construed”

because of its use of the “broad” phrase “‘engaged in maritime

employment’”). The phrase “admission activities” is also broad

and can connote supervision as well as participation. See

AMERICAN HERITAGE DICTIONARY 77 (defining “activity” to

include “[a] specified form of supervised action or field of

action”). Therefore, there was a statutory basis for the

Department to conclude that persons “with responsibility for”

recruitment or admission activities can be “engaged in”

recruitment or admission activities.

At step two, the Department’s interpretation that the HEA’s

prohibition on incentive based compensation can apply to higher

level employees is permissible, because it is not manifestly

contrary to the statute. Here too, the Department was

responding to known abuses. As the Department explained in

its proposed rulemaking, “senior management may drive the

organizational and operational culture at an institution, creating

pressures for top, and even middle, management to secure

increasing numbers of enrollments from their recruiters.”

NPRM, 75 Fed. Reg. at 34,818. This conclusion finds support

in the administrative record – particularly, the Department’s

investigation into the practices of the managers overseeing

recruitment at the University of Phoenix. See Phoenix Report at

10–12, 17–20, J.A. 156–58, 163–66.

Appellant’s argument that the Department’s application of

the HEA to higher level employees is counter to the Act’s

legislative history – whether intended as a Chevron step-one or

step-two argument – is unpersuasive. The House Report on

which Appellant relies demonstrates merely that Congress was

concerned with “salespeople,” H.R. REP. NO. 102-630, at 499

27

(1992) (Conf. Rep.), reprinted in 1992 U.S.C.C.A.N. at 614, not

that Congress manifestly did not intend to regulate managers

and supervisors. Appellant’s claim that the Department

forfeited its right to invoke Chevron is also unavailing for the

reasons discussed above.

Finally, the Department has committed to evaluating

whether a specific employee or manager is subject to the

incentive based compensation prohibition on a case-by-case

basis. See Final Regulations, 75 Fed. Reg. at 66,874. If the

agency overreaches by pursuing actions against institutions that

provide incentive based compensation to employees or

managers who are not responsible for driving organizational

culture toward a focus exclusively on recruitment numbers,

those institutions may seek appropriate as-applied relief.

2. Two Aspects of the Regulations Are Arbitrary and

Capricious for Want of Reasoned Decisionmaking

Appellant argues that the Compensation Regulations fail for

want of reasoned decisionmaking. For the most part, we find

Appellant’s arguments to be specious and unworthy of serious

discussion. The Compensation Regulations “have sufficient

content and definitiveness as to be a meaningful exercise in

agency lawmaking,” Paralyzed Veterans of Am. v. D.C. Arena

L.P., 117 F.3d 579, 584 (D.C. Cir. 1997), with or without

reference to the Department’s Dear Colleague Letter. The

Department provided an adequate and more-than-conclusory

explanation for why it adopted the regulations, primarily based

on its experience administering the 2002 safe harbors. The

Department’s budgetary analysis does not call into question the

benefits of the regulations – it reflects that the benefits were

difficult to quantify. And the Department was entitled to replace

bright-line rules with contextual rules.

Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir.

2011), on which Appellant places much emphasis, is easily

28

distinguishable, even apart from our conclusion that the

Department has satisfactorily justified its adoption of the

Compensation Regulations. In Business Roundtable, we found

a regulation to be arbitrary and capricious, because, in

promulgating it, the SEC had failed to satisfy its “unique

[statutory] obligation to consider the effect of a new rule upon

‘efficiency, competition, and capital formation.’” Id. at 1148

(citation omitted). Appellant points to no such “unique”

statutory obligation here. Moreover, in Business Roundtable,

this court criticized the SEC for failing to consider empirical

studies and quantitative data. See id. at 1150–51. The Appellant

points to no data or study the Department ignored and thus

Business Roundtable is of no help to its argument.

There are two aspects of the regulations, however, that are

lacking for want of adequate explanations. First, the elimination

of the safe harbor for compensation “based upon students

successfully completing their educational programs, or one

academic year of their educational programs,” 34 C.F.R. §

668.14(b)(22)(ii)(E) (2010), is arbitrary and capricious without

some better explanation from the Department. Congress created

the Title IV programs to enable more students to attend and

graduate from postsecondary institutions. This specific safe

harbor seems perfectly in keeping with that goal. Indeed, the

elimination of this safe harbor could even discourage recruiters

from focusing on the most qualified students.

The Department offered a brief explanation for its

elimination of this safe harbor. But its fleeting reference to

“short-term, accelerated programs” and its isolated examples of

students who graduated from schools but could not find

commensurate work, see Final Regulations, 75 Fed. Reg. at

66,874, are insufficient. Furthermore, the Department points to

nothing in the record supporting these assertions. It may well be

that the Department actually eliminated this safe harbor based

on the agency’s belief that institutions have used graduation

29

rates as a proxy for recruitment numbers. But the Department

never offered that explanation. We thus remand to the District

Court with instructions to remand to the Department to allow it

to explain its decision to eliminate this specific safe harbor. Cf.

La. Fed. Land Bank Ass’n, FLCA v. Farm Credit Admin., 336

F.3d 1075, 1085 (D.C. Cir. 2003) (remanding, rather than

vacating, based on the conclusion that it was “not unlikely” that

the agency “‘[would] be able to justify a future decision to retain

the [r]ule’” (citation omitted)).

Second, the Department failed to address the concern,

identified by at least two commenters, that the Compensation

Regulations could have an adverse effect on minority

enrollment. During the comment period, the Career Education

Corporation posed the following question to the Department:

How will the new regulations apply to employees who are

not involved in general student recruiting, but who are

involved in recruiting certain types of students? Examples

would include college coaches who recruit student athletes,

and employees in college diversity offices who recruit

minority students.

Letter from Career Educ. Corp. to Jessica Finkel, U.S. Dep’t of

Educ. 40 (Aug. 1, 2010), J.A. 357. DeVry, Inc. asked similar

questions:

Can schools increase compensation to personnel involved

in diversity outreach programs for successfully assembling

a diverse student body? Does the Department intend to

foreclose schools’ ability to compensate their staffs for

successfully managing outreach programs for students from

disadvantaged backgrounds . . . ?

Letter from DeVry, Inc. to Jessica Finkel (Aug. 1, 2010), J.A.

359.

As noted, an agency’s obligation to address specific

30

comments is not demanding. Here, the Department fell just

short. In the rulemaking, the Department appears to have

grouped together related comments. In one such bundle, the

Department summarized that “[s]ome commenters . . . asked

whether the proposed regulations would permit a president to

receive a bonus or other payment if one factor in attaining the

bonus or other payment was meeting an institutional

management plan or goal that included increasing minority

enrollment.” Final Regulations, 75 Fed. Reg. at 66,874.

In the discussion that followed, the Department stated that

the Compensation Regulations “apply to all employees at an

institution who are engaged in any student recruitment or

admission activity or in making decisions regarding the award

of title IV, HEA program funds.” Id. However, the Department

never really answered the questions posed by Career Education

Corporation and DeVry, Inc., because it failed to address the

commenters’ concerns. It may be that the Department

misinterpreted the concerns raised by the comments to be

limited to minority recruitment by higher-level employees. See

id. Nevertheless, the agency’s “failure to address these

comments, or at best its attempt to address them in a conclusory

manner, is fatal to its defense.” Int’l Union, United Mine

Workers, 626 F.3d at 94 (citation omitted). We therefore

remand to the District Court with instructions to remand to the

Department to allow it to address these concerns. It will be a

simple matter for the Department to address these matters on

remand.

In short, because the Department has not adequately

explained its reasoning with respect to two aspects of the

Compensation Regulations, we reverse, in part, the judgment of

the District Court. The case is remanded with instructions to

remand to the Department for further consideration. On remand,

the Department must better explain its decision to eliminate the

safe harbor based on graduation rates, and it must offer a

31

reasoned response to the comments suggesting that the new

regulations might adversely affect diversity outreach.

C. The Misrepresentation Regulations

1. The Regulations Exceed the HEA’s Limits in Three

Respects

Appellant claims that the Misrepresentation Regulations

exceed the HEA’s limitations in several respects: by allowing

the Secretary to sanction an institution without providing it with

statutorily required procedural protections; by allowing the

Secretary to sanction an institution for making

misrepresentations regarding subjects that are not covered by the

HEA; and by allowing the Secretary to take action against an

institution for making statements that are not substantial

misrepresentations.

• Procedural Protections

The HEA provides that the Secretary may – following

reasonable notice and opportunity for a hearing – limit, suspend,

or terminate a school’s eligibility to participate in Title IV

programs for making certain misrepresentations. See 20 U.S.C.

§ 1094(c)(3)(A). Section 668.71(a) of the Misrepresentation

Regulations states that, upon determining that an institution has

engaged in substantial misrepresentation, the agency may: “(1)

Revoke the eligible institution’s program participation

agreement; (2) Impose limitations on the institution’s

participation in the title IV, HEA programs; (3) Deny

participation applications made on behalf of the institution; or

(4) Initiate a proceeding against the eligible institution under

subpart G of this part.” 34 C.F.R. § 668.71(a) (2011). Subpart

G of the Department’s regulations sets forth the procedures that

the agency must follow to initiate a formal proceeding against

a school. See id. §§ 668.81–.98.

According to Appellant, because section 668.71(a) lists the

32

agency’s options using “or,” and because only the fourth option

requires the agency to follow subpart G’s procedures, the effect

of the provision is to allow the agency to take the first three

actions without following those procedures. Appellant does not

challenge section 668.71(a)(3), which deals only with

applicants, as opposed to participating schools. But Appellant

argues that sections 668.71(a)(1) and (a)(2) exceed the HEA’s

limits by allowing the agency – without affording any

procedural protections – to revoke certified schools’ program

participation agreements and to impose limitations on certified

schools’ participation. We agree.

The Department does not contest that if sections

668.71(a)(1) and (a)(2) have the described effect, they are

impermissible. Instead, it attempts to salvage section 668.71(a)

as a whole by interpreting sections 668.71(a)(1) and (a)(2) not

to affect the procedural rights of certified schools. We

acknowledge that the Department has consistently maintained

the same position with respect to these sections throughout the

rulemaking. See, e.g., Dear Colleague Letter at 14, J.A. 143

(“There is nothing in revised section 668.71(a) that reduces the

procedural protection given by the HEA and applicable

regulations to an institution to contest the specific action the

Department may take to address substantial misrepresentation

by the institution.”); Final Regulations, 75 Fed. Reg. at 66,915

(“[N]othing in the proposed regulations diminishes the

procedural rights that an institution otherwise possesses to

respond to [an adverse] action.”). The Department’s

explanations are unconvincing. They merely purport to explain

why the disputed regulatory provisions were never erroneous in

the first place by reinterpreting the regulation in a way the text

does not support.

With respect to section 668.71(a)(1), the Department

contends that the word “revoke” is a term of art that refers

specifically and only to the act of ending an agreement with a

33

provisionally certified institution. See 20 U.S.C. § 1099c(h)

(allowing for provisional certification of schools). The

Department apparently uses the word “terminate” to describe the

process of ending an agreement with a fully certified school.

See 34 C.F.R. § 668.86(a) (2011). Under this interpretation,

section 668.71(a)(1) would be valid, because the Department

may “revoke” provisional certification without following the

procedures required to “terminate” an agreement with a fully

certified school. See 34 C.F.R. § 668.13(d) (2011); Career Coll.

Ass’n v. Riley, 74 F.3d 1265, 1274–75 (D.C. Cir. 1996). But

section 668.71(a)(1) simply cannot bear the Department’s

interpretation. The section authorizes the agency to revoke the

agreement of an “eligible institution,” not of any provisionally

certified institution. We thus cannot defer to the Department’s

interpretation, because it is inconsistent with the terms of the

regulation. See Thomas Jefferson Univ., 504 U.S. at 512.

The Department’s interpretation of section 668.71(a)(2)

fares no better. The agency interprets that section to require the

Secretary to follow the procedures for imposing limitations on

the eligibility of institutions that are found in subpart G of the

Department’s regulations. See Gov’t’s Br. at 46–47 (citing 34

C.F.R. §§ 668.86(a)(1)(ii), (b)(1), (4)). But section 668.71(a)(4)

independently authorizes the Secretary to initiate proceedings

under subpart G. In other words, under the Department’s

interpretation, section 668.71(a)(2) is wholly included within

section 668.71(a)(4). The interpretation is thus plainly

inconsistent with section 668.71(a) as a whole, which lists the

Secretary’s options using the disjunctive. Under principles of

statutory construction, “terms connected by a disjunctive

[should] be given separate meanings, unless the context dictates

otherwise; here it does not.” Reiter v. Sonotone Corp., 442 U.S.

330, 339 (1979) (citation omitted); see also In re ESPY, 80 F.3d

501, 505 (D.C. Cir. 1996) (per curiam) (“[A] statute written in

the disjunctive is generally construed as ‘setting out separate and

distinct alternatives.’” (citation omitted)).

34

In sum, section 668.71(a) exceeds the Act’s limits by

allowing the Secretary – without affording procedural

protections – to revoke a program participation agreement with

a fully certified school and to impose limitations on the

eligibility of a fully certified school. The judgment of the

District Court is reversed on this point, and we remand to the

trial court with instructions to remand to the Department, so that

it can revise this provision.

• Misrepresentations Regarding Nonproscribed

Subjects

The HEA authorizes the agency to sanction an institution

for engaging in “substantial misrepresentation of the nature of

its educational program, its financial charges, or the

employability of its graduates.” 20 U.S.C. § 1094(c)(3)(A). In

notable contrast, the Misrepresentation Regulations provide that

the agency may sanction an institution for engaging in

“substantial misrepresentation regarding the eligible institution,

including about the nature of its educational program, its

financial charges, or the employability of its graduates.” 34

C.F.R. § 668.71(b) (2011) (emphasis added). The regulations

then clarify four categories of proscribed misrepresentations –

i.e., about the nature of an eligible institution’s educational

program, id. § 668.72, about the nature of an institution’s

financial charges, id. § 668.73, about the employability of an

institution’s graduates, id. § 668.74, and about an institution’s

relationship with the Department, id. § 668.75.

Appellant claims that the regulations allow the agency to

sanction schools for making misrepresentations regarding

subjects that are not covered by the HEA. We agree. Section

668.71(b) prohibits institutions from engaging in

“misrepresentation regarding the eligible institution.” That

phrase obviously covers the three subjects listed in the HEA, but

it also plainly encompasses more. Because it is followed by the

word “including,” the phrase encompasses both the enumerated

35

subjects listed in 20 U.S.C. § 1094(c)(3)(A) and anything falling

within the ordinary meaning of “misrepresentation regarding the

eligible institution.” See Schumann v. Comm’r, 857 F.2d 808,

811 (D.C. Cir. 1988). And an institution can clearly make

misrepresentations “regarding the institution” that do not fall

within the HEA’s three listed subject areas. We find immediate

support for that proposition in section 668.75, which prohibits

an institution from misrepresenting its relationship with the

Department, see 34 C.F.R § 668.75 (2011) – a subject that is not

proscribed by the HEA.

Here too, the Department essentially concedes the point. It

explained in the Dear Colleague Letter, and it argues here, that

the Misrepresentation Regulations should not be read to

authorize the agency to sanction misrepresentations regarding

nonproscribed topics. We cannot defer to this belated

interpretation, however, because it is plainly inconsistent with

the terms of the regulation. Thomas Jefferson Univ., 512 U.S.

at 512; see also Appalachian Power Co. v. EPA, 249 F.3d 1032,

1048 (D.C. Cir. 2001) (per curiam) (“[W]e should not defer to

an agency’s interpretation imputing a limiting provision to a rule

that is silent on the subject, lest we ‘permit the agency, under the

guise of interpreting a regulation, to create de facto a new

regulation.’” (citation omitted)). We therefore reverse on this

point and remand to the District Court with instructions to

remand to the Department, so that it can revise sections

668.71(b) and 668.75 to match its description of how the

regulations should function.

• “Substantial Misrepresentation”

The HEA prohibits institutions from engaging in

“substantial misrepresentation,” a phrase which is not defined in

the statute. In the Misrepresentation Regulations, the

Department adopted a new regulatory definition of

misrepresentation but kept the existing definition of substantial

misrepresentation. Appellant argues that the regulations as

36

modified exceed the HEA’s limits in several respects; we find

only one claim persuasive.

The agency has long defined “misrepresentation” as used

in the HEA to mean “[a]ny false, erroneous or misleading

statement.” E.g., 34 C.F.R. § 668.71(b) (2010). The new

Misrepresentation Regulations start with that same definition,

but further define “[a] misleading statement” to “include[] any

statement that has the likelihood or tendency to deceive or

confuse.” 34 C.F.R. § 668.71(c) (2011). Appellant’s primary

argument is that the provision exceeds the HEA’s limits, insofar

as it reaches statements that merely have the likelihood or

tendency to confuse. We review this claim under Chevron, and

we reject the Department’s interpretation at step one.

“Misrepresentation” means “[t]he act of making a false or

misleading statement about something, usu. with the intent to

deceive.” BLACK’S LAW DICTIONARY 1016 (7th ed. 1999).

Appellant argues that the statute unambiguously proscribes only

statements that are “false” or “misleading” – i.e., “[t]ending to

[lead in the wrong direction]” or “deceptive.” AMERICAN

HERITAGE DICTIONARY 803. A statement that is merely

confusing falls outside of that scope. The Department counters

that a “misrepresentation” can be a statement that is true, see

BLACK’S LAW DICTIONARY 1016 (“[A]n assertion need not be

fraudulent to be a misrepresentation.” (alteration in original)

(quoting RESTATEMENT (SECOND) OF CONTRACTS § 159 cmt. a.

(1981)), as well as a statement that is not made with the intent

to deceive, see id. (“Thus a statement intended to be truthful

may be a misrepresentation because of ignorance or

carelessness, as when the word ‘not’ is inadvertently omitted or

when inaccurate language is used.” (quoting RESTATEMENT

(SECOND) OF CONTRACTS § 159 cmt. a. (1981)).

If there is any merit to the Department’s claim that a

misrepresentation may include a statement that is both truthful

and nondeceitful, this view can hold no water in the context of

37

the HEA, which prohibits institutions from engaging in

substantial misrepresentation. See AMERICAN HERITAGE

DICTIONARY 1213 (defining “substantial” as “[c]onsiderable in

importance, value, degree, amount, or extent”). Furthermore, to

allow the Department to proscribe statements that are merely

confusing would raise serious First Amendment concerns – even

with respect to commercial speech. We therefore hold that,

under the HEA, “substantial misrepresentation” unambiguously

means something more than a statement that is merely

confusing. We accordingly vacate section 668.71(c), insofar as

it defines misrepresentation to include true and nondeceitful

statements that have only the tendency or likelihood to confuse.

We do not take Appellant to be challenging the

Department’s interpretation that the HEA reaches “misleading

statement[s],” insofar as that term encompasses “any statement,”

truthful or otherwise, “that has the likelihood or tendency to

deceive.” 34 C.F.R. § 668.71(c) (2011); see also Appellant’s

Br. at 42–44. Nor do we see how Appellant could challenge that

aspect of the Misrepresentation Regulations. At Chevron step

one, as we have already noted, a misrepresentation can be a true

statement that is deceitful. And at step two, the Department

justified the regulations based on known abuses, see Final

Regulations, 75 Fed. Reg. at 66,914, that are borne out by the

record, see, e.g., U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-

10-948T, FOR-PROFIT COLLEGES (2010), J.A. 439; NACAC

Comment 9–16 (summarizing investigations, allegations, and

reports of, inter alia, schools’ deceitful marketing practices),

J.A. 331–38. Moreover, the fact that one of the studies the

Department cited in the rulemaking was subject to

methodological criticisms and revision after the Department

promulgated the regulations, see Bobb Barr, GAO ‘Exposé’ of

For-Profit Colleges, P OLITICO (Feb. 2, 2011),

http://www.politico.com/news/stories/0211/48601.html, does

not call into question the Department’s reasoning.

38

Appellant separately argues that the Misrepresentation

Regulations exceed the HEA’s limitations by defining

“substantial misrepresentation” without an intent requirement.

See Appellant’s Br. at 46–47; Appellant’s Reply Br. at 37–38.

The scope of Appellant’s argument is unclear. On the one hand,

Appellant could be challenging only the Department’s

regulatory definition that “misleading statement[s]” include

nondeceitful, confusing statements. If that is the extent of

Appellant’s position, then we have already addressed it.

On the other hand, Appellant could be objecting to the

Department’s longstanding interpretation that the HEA prohibits

“false” and “erroneous” statements, regardless of the speaker’s

intent. If Appellant sought to advance that broader argument, it

needed to do so more much clearly. But the position is

untenable in any event. At Chevron step one, we have already

explained that “misrepresentation” does not unambiguously

exclude inadvertent and negligent, factually untrue statements.

Nor does the legislative history to which Appellant directs us

demonstrate that Congress unambiguously intended to prohibit

only intentionally false statements. See H.R. REP. NO. 94-1086,

at 13 (1976). And at step two, we think that allowing the

Secretary to sanction schools for making substantial, negligent

or inadvertent, false statements is consistent with the HEA’s

goals.

Finally, Appellant argues that the Department has read

“substantial” out of the statute. Here too, the breadth of

Appellant’s position is unclear. In its narrowest form,

Appellant’s argument is that the Department impermissibly

“eliminat[ed] a regulation that expressly stated that the

Department would address ‘minor’ misrepresentations that could

be ‘readily corrected’ on ‘an informal’ and ‘voluntary’ basis.”

Appellant’s Br. at 44 (quoting 34 C.F.R. § 668.75(b) (2010)).

We find no merit in this argument. The fact that “substantial”

appears in the HEA does not mean that the Department must

39

have a specific regulation stating how it will respond to minor

misrepresentations; it means that the Department may not seek

to sanction schools for engaging in minor misrepresentations.

The Department claims that its decision to delete that provision

was administrative house keeping, see Final Regulations, 75

Fed. Reg. at 66,915, and that it will pursue enforcement taking

into account aggravating and mitigating factors, see id. at

66,914–15. We have no reason – beyond Appellant’s

speculation – to think otherwise, and such speculation cannot be

the basis for declaring the regulations facially invalid.

Appellant might instead be making the broader argument

that the regulatory definition of “substantial misrepresentation”

exceeds the HEA’s limits by omitting a “materiality or objective

reliance requirement.” Appellant’s Br. at 44. The

Misrepresentation Regulations use the same definition of

“substantial misrepresentation” that the Department has used

for over thirty years: “Any misrepresentation on which the

person to whom it was made could reasonably be expected to

rely, or has reasonably relied, to that person’s detriment.”

Compare 34 C.F.R. § 668.71(c) (2011), with 34 C.F.R. § 668.62

(1981). Appellant claims that the definition should instead be:

any misrepresentation on which “a reasonably prudent person

would rely.” Appellant’s Br. at 45. This argument is

unpersuasive. It lacks entirely the hallmarks of Chevron

analysis – recourse to the plain meaning of text, legislative

history, context, etc. – and rests instead on speculation. To

prevail on its facial challenge, Appellant must demonstrate that

there is no set of circumstances under which the Department’s

interpretation of “substantial misrepresentation” can be applied

lawfully. Appellant cannot possibly satisfy this standard.

2. The Regulations Are Not Unconstitutional

Appellant argues that the Misrepresentation Regulations

impermissibly prohibit both core political speech and protected

commercial speech. We disagree.

40

• Noncommercial Speech

The Misrepresentation Regulations set forth that the

Department may sanction an institution for making a

misrepresentation “directly or indirectly to a student,

prospective student or any member of the public, or to an

accrediting agency, to a State agency, or to the Secretary.” 34

C.F.R. § 668.71(c) (2011). Appellant claims that the regulations

suppress core First Amendment speech, specifically by

authorizing the Department to sanction a statement made

“‘directly or indirectly to . . . any member of the

public’ . . . even if made with the best intentions and completely

outside of any advertising context.” Appellant’s Br. at 47 (first

and second alterations in original) (citation omitted). To

illustrate the breadth of the regulations, Appellant offers the

example that the Department could invoke section 668.71(c) to

sanction an institution for statements made by its president

during a public debate about education policy.

If Appellant were correct that the regulations apply to all of

an institution’s communications to “the public,” then we would

have some misgivings about the regulations’ constitutionality.

But we think that Appellant’s interpretation cannot be squared

with the regulations, when read as a whole and in context.

Furthermore, a law “must be construed, if fairly possible, so as

to avoid not only the conclusion that it is unconstitutional but

also grave doubts upon that score.” Weaver v. U.S. Info.

Agency, 87 F.3d 1429, 1436 (D.C. Cir. 1996) (citation omitted)

(internal quotation marks omitted). We therefore interpret the

regulations facially to reach only “commercial speech” – at least

insofar as statements to “the public” are concerned. And

because Appellant’s position is linked exclusively to the

potential application of the regulations to statements to the

public, we have no occasion to address the scope of the

regulations, insofar as statements to other entities, such as state

accrediting agencies or the Secretary, are concerned.

41

The Supreme Court has defined “commercial speech” to be

“expression related solely to the economic interests of the

speaker and its audience,” as well as “speech proposing a

commercial transaction.” Cent. Hudson Gas & Electric Corp.

v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557, 561, 562 (1980).

This court has added that “material representations about the

efficacy, safety, and quality of the advertiser’s product, and

other information asserted for the purpose of persuading the

public to purchase the product” also can qualify as commercial

speech. United States v. Philip Morris USA Inc., 566 F.3d 1095,

1143 (D.C. Cir. 2009) (per curiam) (citations omitted). We

construe the regulations facially to apply to nothing more.

As a threshold matter, a number of contextual clues make

it clear that – at least with respect to communications to the

public – the regulations encompass only advertisements, direct

solicitations, and other promotional and marketing materials and

statements. For example, the only parties prohibited from

engaging in misrepresentation under the regulations are “the

institution itself, one of its representatives, or any ineligible

institution, organization, or person with whom the eligible

institution has an agreement to provide educational programs,

marketing, advertising, recruiting or admissions services.” 34

C.F.R. § 668.71(b) (2011) (emphasis added). Additionally, in

describing the forms of proscribed misrepresentations, the

regulations specifically list only those “made in any advertising,

promotional materials, or in the marketing or sale of courses or

programs of instruction offered by the institution.” Id.

(emphasis added). And finally, the Department’s explanation

for adopting the regulations supports our reading. See Final

Regulations, 75 Fed. Reg. at 66,913–14 (documenting that the

regulations are a response to “overly aggressive advertising and

marketing tactics” and summarizing a study of “fraudulent,

deceptive, or otherwise questionable marketing practices”).

We understand that “[t]he mere fact that [statements] are

42

conceded to be advertisements clearly does not compel the

conclusion that they are commercial speech.” Bolger v. Youngs

Drug Prods. Corp., 463 U.S. 60, 66 (1983) (citation omitted).

However, when statements reference particular services or

products, and when they are offered to advance the economic

interests of the institution, they “constitute commercial speech

notwithstanding the fact that they contain discussions of

important public issues.” Id. at 67–68. “[A]dvertising which

links a product to a current public debate is not thereby entitled

to the constitutional protection afforded noncommercial speech.

[An institution] has the full panoply of protections available to

its direct comments on public issues, so there is no reason for

providing similar constitutional protection when such statements

are made in the context of” promoting a service or product. Id.

at 68 (footnote omitted) (citations omitted) (internal quotation

marks omitted). “Advertisers should not be permitted to

immunize false or misleading product information from

government regulation simply by including references to public

issues.” Id. (citation omitted).

As Appellant points out, commercial speech does not

“retain[] its commercial character when it is inextricably

intertwined with otherwise fully protected speech.” Riley v.

Nat’l Fed’n of the Blind of N.C., Inc., 487 U.S. 781, 796 (1988).

Thus, when the government seeks to restrict inextricably

intertwined commercial and noncommercial speech, courts must

subject the restriction to the test “for fully protected expression.”

Id. But even if the regulations create the possibility that the

Department could sanction an institution’s misrepresentations

made in the context of mixed commercial and noncommercial

speech – or contained in a purely informational pamphlet that

does not qualify as commercial speech at all – that possibility,

without more, does not require facial invalidation of the

regulations. See, e.g., Reno 507 U.S. at 301; Sherley, 644 F.3d

at 397. If the Department ever overreaches, schools will be able

to challenge particular applications as unconstitutional.

43

Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001) is not

to the contrary. There, on a facial challenge, the Supreme Court

invalidated state regulations of speech without expressly

following Reno’s no-set-of-circumstances test. But because the

regulations at issue were conceded facially to encompass purely

protected speech, see id. at 555, the state bore the burden of

demonstrating that the regulations were tailored to achieve the

state’s purpose, see id. at 561. The regulations were not so

tailored, hence their facial invalidation. See id. at 561–66.

Here, however, we face the inverse situation. The regulations

reach only commercial speech; and we have vacated the

regulations insofar as they reach anything other than false,

erroneous, or deceitful commercial speech. Therefore,

Appellant’s argument that the regulations could be applied

unlawfully is precisely the kind of argument that is disfavored

in the posture of a facial challenge.

Nor does the “overbreadth” doctrine save Appellant’s

challenge. At the outset, it is not clear that Appellant is entitled

to invoke the overbreadth doctrine here. That doctrine is

intended to prevent the chilling of speech by allowing a plaintiff

to challenge a restriction, even if the restriction could be

lawfully applied to that plaintiff. But the Supreme Court has

recognized that chilling is unlikely where, as here, the speech is

“the offspring of economic self-interest,” because such speech

“is a hardy breed of expression that is not ‘particularly

susceptible to being crushed by overbroad regulation.’” Cent.

Hudson, 447 U.S. at 564 n.6 (citation omitted).

But even were we to consider Appellant’s overbreadth

challenge, we would reject it. In bringing an overbreadth attack,

a plaintiff bears the burden of demonstrating that the challenged

law reaches a “‘substantial’ amount of protected free speech,

‘judged in relation to the [regulations’] plainly legitimate

sweep.’” Virginia v. Hicks, 539 U.S. 113, 118–19 (2003). The

Court established this high threshold because

44

there comes a point at which the chilling effect of an

overbroad law, significant though it may be, cannot justify

prohibiting all enforcement of that law – particularly a law

that reflects “legitimate state interests in maintaining

comprehensive controls over harmful, constitutionally

unprotected conduct.” For there are substantial costs

created by the overbreadth doctrine when it blocks

application of a law to constitutionally unprotected speech,

or especially to constitutionally unprotected conduct. To

ensure that these costs do not swallow the social benefits of

declaring a law “overbroad,” we have insisted that a law’s

application to protected speech be “substantial,” not only in

an absolute sense, but also relative to the scope of the law’s

plainly legitimate applications, before applying the “strong

medicine” of overbreadth invalidation.

Id. at 119–20 (citations omitted).

Appellant has failed to satisfy this standard. The

Misrepresentation Regulations clearly serve a legitimate state

interest: ensuring that schools receiving federal funds do not

deceive prospective students into accepting loans that they

cannot repay. And we have no basis to think that the

regulations’ potential application to noncommercial speech will

be substantial in either the absolute sense or relative to their

application to unprotected commercial speech.

• Commercial Speech

“[C]ommercial speech enjoys First Amendment protection

only if it . . . is not misleading.” Whitaker v. Thompson, 353

F.3d 947, 952 (D.C. Cir. 2004). Furthermore, misleading

commercial speech is not only subject to restraint; “[it] may be

prohibited entirely.” In re R. M. J., 455 U.S. 191, 203 (1982);

see also Cent. Hudson, 447 U.S. at 563 (“[T]here can be no

constitutional objection to the suppression of commercial

messages that do not accurately inform the public about lawful

45

activity. The government may ban forms of communication

more likely to deceive the public than to inform it . . . .”

(citations omitted)). Appellant argues that even if the

Misrepresentation Regulations reach only commercial speech,

they are still impermissible. But its position is predicated

entirely on the fact that section 668.71(c) interprets the HEA to

reach statements that have the “tendency or likelihood . . . to

confuse.” See Appellant’s Br. at 51–54. We have already

vacated that provision, insofar as it reaches merely confusing

statements. And since the regulations now facially reach only

false statements, erroneous statements, or statements that have

the likelihood or tendency to deceive, there can be no doubt that

the regulations are constitutional: They regulate speech that is

not entitled to protection in the first place.

D. The State Authorization Regulations

1. The School Authorization Regulation Is Valid

The school authorization regulation sets forth that an

institution is legally authorized within a state only if “the state

has a process to review and appropriately act on complaints

concerning the institution” and if “[t]he institution is established

by name as an educational institution by a State through” one of

several specifically designated actions. 34 C.F.R. §

600.9(a)(1)(i)(A) (2011). The District Court held that Appellant

lacks standing to challenge these requirements. See Career

Coll. Ass’n, 796 F. Supp. 2d at 133 n.16. We reverse on that

point.

To have standing to seek injunctive relief,

[Appellant] must show that [it] is under threat of suffering

“injury in fact” that is concrete and particularized; the threat

must be actual and imminent, not conjectural or

hypothetical; it must be fairly traceable to the challenged

action of [Appellee]; and it must be likely that a favorable

judicial decision will prevent or redress the injury.

46

Summers v. Earth Island Inst., 129 S. Ct. 1142, 1149 (2009)

(citation omitted). Where, as here, the challenged regulations

“neither require nor forbid any action on the part of [the

challenging party],” – i.e., where that party is not “the object of

the government action or inaction” – “standing is not precluded,

but it is ordinarily substantially more difficult to establish.” Id.

(citation omitted) (internal quotation marks omitted). In such

situations, the challenging party must demonstrate that

“application of the regulations by the Government will affect

[it]” in an adverse manner. Id.

Appellant satisfies this standard. “If States bend to the

Department’s will, [Appellant’s] members are harmed because

they will face even greater compliance costs.” Appellant’s Br.

at 55. That injury is not speculative or conclusory; indeed, even

the Department implicitly recognized it. See Final Regulations,

75 Fed. Reg. at 66,859 (“Since the final regulations only

establish minimal standards for institutions to qualify as legally

authorized by a State, we believe that, in most instances, they do

not impose significant burden or costs.” (emphasis added)).

Alternatively, “[i]f the States ignore the regulations,

[Appellant’s] members will be barred from Title IV programs

through no fault of their own. Whatever States do in response

to the regulations, [Appellant]’s members will suffer cognizable

injury.” Appellant’s Br. at 55 (citation omitted).

• Statutory Authority

Appellant’s primary argument is that the Department lacked

authority to promulgate the school authorization regulation.

Appellant argues that

[t]he Department can point to nothing in the HEA that

empowers it to dictate to States how to “authorize”

institutions of higher education. Oversight of education has

long been a state prerogative, and it is well established that

agencies may not alter the allocation of power between

47

federal and state governments in a traditional area of state

concern unless Congress has clearly authorized them to do

so.

Appellant’s Br. at 56 (citing Gregory v. Ashcroft, 501 U.S. 452,

461 (1991)).

We find this argument unpersuasive for two reasons. First,

the school authorization regulation does not impose any

mandatory requirements on states. In Gregory, the Court

confronted whether the Federal Age Discrimination in

Employment Act (“the ADEA”) covered state judges, such that

they could challenge a state constitutional provision requiring

their retirement. See 501 U.S. at 455–56. The Court explained

that to interpret the law in such manner would interfere with a

“decision of the most fundamental sort for a sovereign entity.”

Id. at 460. Here, by contrast, the regulations merely establish

criteria for schools that choose to participate in federal

programs. See Final Regulations, 75 Fed. Reg. at 66,858 (“The

proposed regulations do not seek to regulate what a State must

do, but instead considers [sic] whether a State authorization is

sufficient for an institution that participates, or seeks to

participate, in Federal programs.”).

This difference is constitutionally significant, because in

Gregory the Court was concerned with congressional overreach

in an area of state concern pursuant to Congress’s powers under

the Commerce Clause. Congress unquestionably enacted the

ADEA pursuant to its commerce powers, see Gregory, 501 U.S.

at 464, and the Court in Gregory justified adopting a plain

statement rule on the basis that “[a]s against [those] powers . . .,

the authority of the people of the States to determine the

qualifications of their government officials may be inviolate.”

Id. (emphasis added) (citation omitted). In contrast, Congress

enacted the HEA pursuant to its spending power. “Incident to

[that] power, Congress may attach conditions on the receipt of

federal funds, and has repeatedly employed the power ‘to further

48

broad policy objectives by conditioning receipt of federal

moneys upon compliance by the recipient with federal statutory

and administrative directives.’” South Dakota v. Dole, 483 U.S.

203, 206 (1987) (emphasis added) (citations omitted).

We are not aware of any case in which a court has applied

Gregory to an exercise of Congress’s spending power. This

absence of authority is hardly surprising: The Supreme Court

has consistently maintained that more permissive limitations

apply when Congress acts pursuant to its spending powers than

when it acts pursuant to its commerce power. See id. at 209

(“[T]he constitutional limitations on Congress when exercising

its spending power are less exacting than those on its authority

to regulate directly.”).

We understand that the Supreme Court’s spending power

case law is not directly apposite, because states are not the

recipients of federal funds under the HEA; schools are. But the

school authorization regulation’s requirements are more

analogous to conditions on federal grants to states than they are

to direct requirements on states, if for no other reason than that

the decision of whether to comply actually rests with the states.

And we have no basis to think that the Department’s presenting

states a noncoercive choice somehow “upset[s] the usual

constitutional balance of federal and state powers,” Gregory,

501 U.S. at 460.

Second, the Gregory rule is not inviolate, and we see no

reason to apply it here. This court has suggested that the rule

might apply in instances in which an agency regulates in an area

of state oversight – for example, the practice of law – without

plain authorization from Congress. See Am. Bar Ass’n v. FTC,

430 F.3d 457, 471–72 (D.C. Cir. 2005). But the Supreme Court

has also upheld federal regulation of activity in those same areas

of state concern. See, e.g., Milavetz, Gallop & Milavetz, P.A. v.

United States, 130 S. Ct. 1324, 1331–33 (2010) (holding that

Bankruptcy Abuse Prevention and Consumer Protect Action of

49

2005 plainly covers lawyers as “debt relief agencies”).

Moreover, Appellant’s claim that “[o]versight of education has

long been a state prerogative,” Appellant’s Br. at 56, is a non

sequitur in the context of a federal program in which the

Department has clear oversight responsibility. Cf. Sistema

Universitario Ana G. Mendez v. Riley, 234 F.3d 772, 778 (1st

Cir. 2000) (“This is a federal program, federal dollars are at

stake, and the most sensible reading of the statute is that the

Secretary has discretion to determine what is ‘legal

authorization’ in order to protect federal interests.”).

• Reasoned Decisionmaking

Appellant also argues that the school authorization

regulation is arbitrary and capricious – because it is “not a

solution to any problem” in the record, and because it

“penalize[s] schools and their students for the failure of States

to adopt compliant authorization regimes even though schools

and their students obviously cannot control States’ compliance.”

Appellant’s Br. at 58–59. As noted, our review of agency

regulations is deferential, especially where the administrative

action “involve[s] legislative-type policy judgments.”

EDWARDS & ELLIOTT 172 (citation omitted). During the

rulemaking, the Department identified three problems that the

regulation addresses. We can find no basis, and Appellant offers

none, to set aside the agency’s policy judgment.

First, the agency was concerned that the historical lack of

state oversight had prompted “movement of substandard

institutions and diploma mills from State to State in response to

changing requirements.” NPRM, 75 Fed. Reg. at 34,813. The

Department reiterated and amplified this concern in the final

rulemaking, describing that it had “anecdotally observed

institutions shopping for States with little or no oversight.”

Final Regulations, 75 Fed. Reg. at 66,859. This court has said

that while we “accord deference to a determination by [an

agency] that a problem exists within its regulatory domain, [that]

50

deference is not a blank check.” Alltel Corp. v. FCC, 838 F.2d

551, 561 (D.C. Cir. 1988). Furthermore, we have warned that

even plausible claims of “abuse” can fall short where an agency

offers no demonstration that “such abuse exists” or that a

challenged rule “targets [entities] engaged in such abuse.” Id.

at 560. But we think that, in this case, the Department has

offered more than a conclusory assertion of abuse. Furthermore,

the record certainly bears out that institutions have engaged in

other deceptive practices, and the Department was entitled to

adopt this regulation as a prophylactic response to burgeoning

forms of abuse.

Second, the Department was apparently concerned that the

absence of specific authorization requirements had “contributed

to the recent lapse in the existence of California’s Bureau for

Private Postsecondary and Vocational Education.” NPRM, 75

Fed. Reg. at 34,813. Commenters asked whether this “lapse”

had produced any actual harm to California’s students, and the

Department’s answer certainly leaves something to be desired.

The agency responded that it had been informed of at least one

instance of a school’s shutting down during the lapse, and it

asserted that “the absence of a regulation created uncertainty.”

Final Regulations, 75 Fed. Reg. at 66,859. It further suggested

that other problems might have occurred. See id. But the

Department also provided some explanation for why it believed

that such lapses could present risks to students in the future, and

why the regulation would likely prevent states from allowing

similar lapses, lest their institutions lose Title IV eligibility.

Those explanations are sufficient.

Third, the agency was concerned that states were “deferring

all, or nearly all, of their oversight responsibilities to accrediting

agencies,” thereby “[compromising] the checks and balances

provided by the separate processes of accreditation and State

legal authorization.” NPRM, 75 Fed. Reg. at 34,813. The

Department offered a similar explanation in the final

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rulemaking. See Final Regulations, 75 Fed. Reg. at 66,864.

Here too, we understand the Department to be justifying the

regulation – and the dual authorization-accreditation

requirements – as a prophylactic component to a larger

regulatory regime. We are unwilling to second-guess the

Department’s policy judgment in that regard.

The Department also offered two justifications for its

decision to revoke schools’ eligibility for states’ failure to adopt

compliant authorization procedures. First, the agency claimed

that the HEA compels that outcome by requiring schools to be

legally authorized. It noted that the HEA separately requires

schools to be “accredited,” 20 U.S.C. § 1001(a)(5), even though

institutions lack control over accrediting agencies. The

Department therefore claimed that an institution in a state which

has not complied with the school authorization regulation is not

“any different than an institution failing to comply with an

accreditation requirement that results in the institution’s loss of

accredited status.” Final Regulations, 75 Fed. Reg. at 66,859.

Second, the Department explained why it is likely that

states will comply with the school authorization regulation’s

requirements, such that most schools will not lose their

eligibility. See id. at 66,863 (“States may meet this requirement

in a number of ways, and also with different ways for different

types of institutions. . . . We believe that the provisions . . . are

so basic that State compliance will be easily established for most

institutions.”). But the agency also concluded that “[u]nless a

State provides at least this minimal level of review, we do not

believe it should be considered as authorizing an institution to

offer an education program beyond secondary education.” Id.

This conclusion is precisely the type of policy judgment that an

agency is entitled to make.

2. The Distance Education Regulation Violates the APA

The distance education regulation establishes specific

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requirements for schools that offer distance education. It sets

forth that a school offering education “to students in a State in

which it is not physically located . . . must meet any State

requirements for it to be legally offering postsecondary distance

or correspondence education in that State.” 34 C.F.R. § 600.9(c)

(2011). The District Court held that the regulation violated the

APA, because the Department had failed to provide adequate

notice of the rule to regulated parties. See Career Coll. Ass’n,

796 F. Supp. 2d at 133–35; see also 5 U.S.C. § 553(b)(3)

(requiring agencies to provide notice of proposed rulemaking

that includes “either the terms or substance of the proposed rule

or a description of the subjects and issues involved”). We agree.

This court succinctly summarized the governing standard

for the APA’s notice requirement in CSX Transportation, Inc. v.

Surface Transportation Board, 584 F.3d 1076 (D.C. Cir. 2009):

[T]he NPRM and the final rule need not be identical: “[a]n

agency’s final rule need only be a ‘logical outgrowth’ of its

notice.” A final rule qualifies as a logical outgrowth “if

interested parties ‘should have anticipated’ that the change

was possible, and thus reasonably should have filed their

comments on the subject during the notice-and-comment

period.” By contrast, a final rule fails the logical outgrowth

test and thus violates the APA’s notice requirement where

“interested parties would have had to ‘divine [the agency’s]

unspoken thoughts,’ because the final rule was surprisingly

distant from the proposed rule.”

Id. at 1079–80 (second and third alterations in original)

(citations omitted).

The Department does not point to anything in its Notice of

Proposed Rulemaking that specifically addressed distance

education. Nor did the Department solicit comments about the

adoption of such a rule. These failures cut against the

Department’s claim that the distance education regulation is a

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logical outgrowth of the proposed rules. See id. at 1081. More

importantly, we find the Department’s claims that parties should

have anticipated the regulation wanting.

First, the Department emphasizes that whereas the previous

regulations required authorization “in the State in which the

institution is physically located,” 34 C.F.R §§ 600.4(a)(3),

600.5(a)(4), 600.6(a)(3) (2010), the proposed regulations stated

that the HEA requires authorization “from the States where

[institutions] operate to provide postsecondary educational

programs,” NPRM, 75 Fed. Reg. at 34,812. But, as Appellant

points out, the word “operate” is not a term of art that clearly

refers only to distance education providers; “[m]any brick-and-

mortar programs ‘operate’ in several physical locations.”

Appellant’s Reply Br. at 58. Appellant’s members thus had no

way of knowing that the Department was contemplating specific

requirements for distance education providers. The agency

counters that “if the proposed regulation gave fair notice that the

Department was considering changing its ‘physically located’

rule . . ., and such a change has obvious relevance to distance

education programs . . ., then it is irrelevant that the proposed

change might also have relevance for brick-and-mortar schools

as well.” Gov’t’s Reply Br. at 7. But the critical point is that

“operate” is, at best, an oblique – and hence, insufficient –

indication that the Department was considering the distance

education regulation.

Second, the Department claims that its repeated references

to “reciprocal agreements between appropriate State agencies,”

in the proposed regulations, NPRM, 75 Fed. Reg. at 34,813, and

during the negotiated rulemaking proceedings provided notice

that the Department was contemplating regulation of distance

and correspondence education. But this argument suffers from

the same shortcomings as the Department’s first argument. The

reason the reference to reciprocal agreements did not put parties

on notice of the eventual regulation is that such agreements

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would be equally applicable to brick-and-mortar institutions

with locations in multiple states.

Third, the Department claims that “various commenters

took the proposed regulation . . . as contemplating a requirement

for state authorization beyond where a school is physically

located.” Gov’t’s Br. at 67 (citation omitted). This court has

made clear that “[t]he fact that some commenters actually

submitted comments” addressing the final rule “is of little

significance. . . . [T]he [agency] must itself provide notice of a

regulatory proposal.” Fertilizer Inst. v. EPA, 935 F.2d 1303,

1312 (D.C. Cir. 1991) (citations omitted) (internal quotation

marks omitted). The Department seeks to avoid this instruction

by expressly not arguing that interested parties received notice

from other parties’ comments; instead, it claims that the fact that

parties commented demonstrates that the Department provided

adequate notice. But at least some of the commenters that the

Department cites merely requested clarification as to the

Department’s new language without offering evaluations of the

final rule. See Letter from ITT Technical Inst. to Jessica Finkel

1–2 (July 30, 2010), J.A. 345–46. Therefore, we cannot

conclude that the “purposes of notice and comment have been

adequately served.” Fertilizer Inst., 935 F.2d at 1311 (citation

omitted).

Finally, the Department argues that in the proposed

regulations, it made clear its intent to impose, for the first time,

substantive requirements related to the legal authorization of

institutions by states. The Department urges that institutions

were therefore put on notice that authorization requirements for

distance education programs were possible. We agree that the

“final rule did not amount to a complete turnaround from the

NPRM.” CSX Transp., Inc., 584 F.3d at 1081–82. But the APA

simply requires more.

The Department does not challenge that its failure to

provide notice was prejudicial to Appellant, which never had the

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chance to explain why, in its view, the rule exceeded the HEA’s

limits or was arbitrary and capricious. See id. at 1083 (finding

that parties “were prejudiced by their inability to persuade the

[agency] not to adopt the . . . rule in the first place”). We are

thus constrained to affirm that section 600.9(c) violates the APA

and must be vacated.

III. Conclusion

For the foregoing reasons, the judgment is affirmed in part

and reversed in part. The case is remanded to the District Court

with instructions to remand the challenged regulations to the

Department for reconsideration consistent with this opinion.

So ordered.