F I L E D

United States Court of Appeals

Tenth Circuit

JUN 1 1998

PATRICK FISHER

Clerk

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

MISSION GROUP KANSAS, INC.,

Plaintiff - Appellee,

v.

RICHARD RILEY, Secretary of the

United States Department of

Education, in his official capacity,

Defendant - Appellant.

No. 96-3025

Appeal from the United States District Court

for the District of Kansas

(D.C. No. 95-CV-2382)

Frank A. Rosenfeld (William Kanter with him on the brief), United States

Department of Justice, Washington, D.C. for the Defendant - Appellant.

Ronald L. Holt (Daniel R. Young with him on the brief), Bryan Cave, LLP,

Kansas City, MO for the Plaintiff - Appellee.

Before LUCERO, MCWILLIAMS and MURPHY, Circuit Judges.

LUCERO, Circuit Judge.
- 2 -

In 1992, Congress amended the Higher Education Act of 1965 (“HEA”),

see 20 U.S.C. §§ 1001-1146a, to improve the financial accountability and

integrity of postsecondary educational institutions in receipt of federally-funded

student financial aid provided under Title IV of that Act. See H.R. Rep. No. 102-

447, at 10 (1992), reprinted in 1992 U.S.C.C.A.N. 334, 343. As a result of those

amendments, for-profit postsecondary institutions are statutorily barred from

participating in Title IV programs unless they derive at least 15% of their gross

revenues from sources other than Title IV. See 20 U.S.C. § 1088(b)(6). Nonprofit schools, however, are not statutorily required to comply with this so-called

“85/15 rule.”

Mission Group Kansas, Inc. (“Mission”), the appellee before us today, was

established in 1994 as a non-profit educational institution. When it took over a

number of for-profit business schools to convert them to non-profit status, the

Secretary of Education refused to exempt Mission’s schools from the 85/15 rule. 

Instead, he has conditioned their receipt of Title IV funds on their complying with

the 85/15 rule for a provisional period—despite Mission’s non-profit status. See

Appellant’s App. at 84. The questions before us are what level of deference is

due an agency’s interpretation of its own regulations and is the Secretary’s

decision to impose the 85/15 rule entitled to such deference.
- 3 -

I

A

Prior to Mission’s formation, its founders owned a for-profit corporation,

Professional Training Institute, Inc. (“PTI”), which in turn owned three business

schools, each named Wright Business School. The schools were located in

Oklahoma City; Lenexa, Kansas; and Kansas City, Missouri. After Congress

passed the 1992 amendments, PTI’s directors realized that the Wright Schools

would shortly become subject to the 85/15 rule. For the sole purpose of avoiding

the application of that rule, see Appellant’s App. at 122, they formed a non-profit,

Mission Group Kansas, Inc., and transferred ownership of the schools from PTI to

Mission.

After Mission acquired ownership of the Lenexa school in March 1995, it

applied to the Department of Education, seeking to participate in Title IV student

financial aid programs. The Department prepared a new program participation

agreement for the Lenexa school, see 20 U.S.C. § 1094(a) (describing nature and

requirements of program participation agreements), mandating compliance with

the 85/15 rule, and which Mission was required to accept in order to obtain the

Secretary’s provisional certification for Title IV participation. See 34 C.F.R. §

668.13(c)(4)(ii). Mission signed under protest, reserving the right to challenge

the incorporation of the 85/15 rule into the program participation agreement and
- 4 -

provisional certification process. Shortly thereafter, the Lenexa school took over

the Kansas City and Oklahoma City schools, and Mission filed the present action

claiming that the Secretary’s imposition of the 85/15 rule violates the

Administrative Procedure Act, the HEA, and Mission’s constitutional right to due

process.

B

When a school changes ownership, “the Secretary may provisionally certify

[the] institution’s eligibility to participate in programs under [Title IV] . . . for not

more than 3 complete award years . . . .” 20 U.S.C. § 1099c(h)(1)(B)(ii). 

Mission concedes the shift from profit to non-profit status is a change in

ownership, triggering the need for provisional certification. See 34 C.F.R. §

600.31(d)(7). According to the applicable regulations: 

“Provisional certification” means that the Secretary certifies that an

institution has demonstrated to the Secretary’s satisfaction that the

institution . . . [i]s able to meet the institution’s responsibilities under

its program participation agreement, including compliance with any

additional conditions specified in the institution’s program

participation agreement that the Secretary requires the institution to

meet in order for the institution to participate under provisional

certification.

34 C.F.R. § 668.13(c)(4)(ii) (emphasis added).

All institutions receiving Title IV funds are required to enter into “program

participation agreement[s]” that state the terms of their “initial and continued

eligibility . . . to participate in a [Title IV] program.” 20 U.S.C. § 1094(a). 
- 5 -

Again, Mission concedes that it was required to enter into a new program

participation agreement as a result of the shift to non-profit status. See 34 C.F.R.

§ 668.14(h)(1). Paralleling the requirements for provisional certification, see 34

C.F.R. § 668.13(c)(4)(ii), a program participation agreement

conditions the initial and continued participation of an eligible

institution in any Title IV, HEA program upon compliance with the

provisions of this part, the individual program regulations, and any

additional conditions specified in the program participation

agreement that the Secretary requires the institution to meet.

34 C.F.R. § 668.14(a)(1) (emphasis added). It is on the basis of the “any

additional condition” language contained in 34 C.F.R. § 668.13(c)(4)(ii) and 34

C.F.R. § 668.14(a)(1) that the Secretary would require Mission’s compliance with

the 85/15 rule. And it is this reliance that Mission insists is beyond the

Secretary’s statutory authority.

C

After a bench trial, the district court agreed with Mission that the

Secretary’s action contravened the plain language of the HEA, and granted the

requested declaratory and injunctive relief against imposition of the 85/15 rule. 

The government appeals, arguing that the Secretary has several sources of

statutory authority sufficient to justify imposition of the 85/15 rule against a nonprofit like Mission. We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and

reverse.
- 6 -

II

The district court reviewed the Secretary’s action under the framework

enunciated in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. ,

467 U.S. 837 (1984). Under that framework, “[f]irst, always, is the question

whether Congress has directly spoken to the precise question at issue. If the

intent of Congress is clear, that is the end of the matter; for the court, as well as

the agency, must give effect to the unambiguously expressed intent of Congress.” 

Chevron , 467 U.S. at 842-43. On the basis of this first Chevron step, the district

court invalidated the Secretary’s action as beyond his authorization under the

HEA. See Mission Group Kansas, Inc. v. Riley , 909 F. Supp. 835, 842 (D. Kan.

1995). There are two errors in this analysis.

A. Plain Meaning

The district court ruled that imposition of the 85/15 rule on Mission’s nonprofit schools was contrary to the “express language of the statute, [under which]

the 85/15 Rule only applies to proprietary institutions.” Id. at 842 (citing 20

U.S.C. §§ 1088(b) & 1141(a)(4)). We disagree. Even were we to accept the

district court’s contention that 20 U.S.C. § 1088 “defines the substantive

eligibility requirements for both full and provisional certification” of non-profit

educational institutions such as Mission, id. at 843, we still could not agree that
- 7 -

Mission’s compliance with those minimum eligibility requirements mandates the

Secretary’s certification. Eligibility is not entitlement.

The plain language of 20 U.S.C. §§ 1088(b) and 1088(c) distinguishes

between “proprietary institution[s] of higher education” and “postsecondary

vocational institution[s].” The two terms are mutually exclusive: a “proprietary

institution of higher education” cannot be “a public or other non-profit

institution,” see 20 U.S.C. § 1088(b)(3) (incorporating by reference § 1141(a)(4)),

whereas a “postsecondary vocational institution” must be, see 20 U.S.C. §

1088(c)(2) (incorporating by reference § 1141(a)(4)). Beyond that, in order to be

a proprietary institution of higher education, a school must satisfy a number of

conditions, the last of which is compliance with the 85/15 rule. See 20 U.S.C. §

1088(b)(6). In contrast, there is no requirement that a postsecondary vocational

institution comply with that rule. The listed conditions simply do not mention it. 

See § 1088(c); see also 20 U.S.C. §§ 1141(a)(1)-(2), 1141(a)(4)-(5) (stating

requirements incorporated by reference at § 1088(c)(2)).

Consequently, we are unable to discern the plain meaning identified by the

district court. Section 1088 makes only two express statements about the 85/15

rule: first, a school not in compliance with that rule cannot be a proprietary

institution of higher education; second, the determination of whether a school is

eligible to apply as a postsecondary vocational institution to participate in Title
1

 We note that the Secretary did find that Mission met the definition of an eligible

postsecondary vocational institution under § 1088(c). See Appellee’s Br., tab. B,

Plaintiff’s Ex. 10, at 1. 

- 8 -

IV programs shall not be based on its compliance with the 85/15 rule. 1 The

statute is silent on whether a postsecondary vocational institution may be

subjected to the rule as an added condition of its participation. Consequently,

imposing such a rule against a non-profit does not contravene the general

presumption “that Congress acts intentionally and purposely when it includes

particular language in one section of a statute but omits it in another.” BFP v.

Resolution Trust Corp. , 511 U.S. 531, 537 (1994) (quoting Chicago v.

Environmental Defense Fund , 511 U.S. 328, 338 (1994)) (cited in Appellee’s Br.

at 13). Furthermore, we see no reason stated in the statute why the inclusion of

postsecondary vocational institutions within the statutory definition of the term,

“institution of higher education,” see § 1088(a)(1)(B), should make vocational

institutions entitled, without more, to participate in Title IV programs. Standing

alone, § 1088 does not plainly indicate that the Secretary is without authority to

impose the 85/15 rule against a non-profit such as Mission in addition to the

minimum eligibility requirements. 

The plain language of the statute’s provisional certification and program

participation provisions does not mandate a different result. Contrary to the

district court’s view, 20 U.S.C. § 1099c(i)(1) does not plainly contravene the
- 9 -

Secretary’s action in this case. That provision states only that an eligible

institution undergoing a change in ownership “shall not qualify to participate” in

Title IV programs “unless it establishes that it meets the requirements of section

1088 of this title . . . after such change in control.” 20 U.S.C. § 1099c(i)(1). This

plainly states only a necessary—rather than a sufficient—condition of

participation. 

The same is true of 20 U.S.C. § 1094(a), which prescribes the contents of

program participation agreements. Though an institution of higher education

must comply with these statutorily-stated prescriptions in order to establish its

“initial and continuing eligibility” to participate in Title IV programs, see 20

U.S.C. § 1094(a), that does not mean that compliance confers entitlement to

participate in such programs, nor that program participation agreements can only

include the conditions listed in 20 U.S.C. §§ 1094(a)(1) through 1094(a)(22). 

Simply put, neither § 1099c nor § 1094(a) expressly prohibits the Secretary from

conditioning Mission’s Title IV participation on compliance with the 85/15 rule.

The District of Columbia Circuit has recently come to a closely analogous

conclusion in Career College Ass’n v. Riley , 74 F.3d 1265, 1272-74 (D.C. Cir.

1996). In that case, the court was presented with a challenge to the regulatory

“Cohort Default Rate Rule,” which states that an institution of higher education

will be deemed “administratively incapable” of adequately administering Title IV
- 10 -

programs if, for any of the three most recent fiscal years, more than 25% of the

students in any given award year have defaulted on federally insured loans. See

id. at 1273. The rule was promulgated pursuant to 20 U.S.C. § 1094(c), which,

among other things, authorizes the Secretary to “‘establish[] reasonable standards

of financial responsibility and appropriate institutional capability for the

administration by an eligible institution of [Title IV programs].’” See id. at 1273

(quoting 20 U.S.C. § 1094(c)(1)(B)). The Career College plaintiffs argued that

the rule conflicted with the statutory eligibility requirements for participation in

Title IV programs, which state in part that an institution of higher education may

not participate in such programs if, for each of the three most recent fiscal years,

more than 25% of the students in any given award year have defaulted on

federally insured loans. See id. at 1272-73 (citing 20 U.S.C. § 1085(a)(2)). The

court rejected this claim principally on the grounds that the “statutory structure

indicates that ‘eligibility’ is not synonymous with ‘administrative capability.’” 

Id. at 1274. Career College therefore stands squarely for the proposition that the

statute’s threshold eligibility requirements do not exhaustively list the criteria that

an institution must satisfy in order to participate in Title IV programs.

B. Standard of Review

The district court’s second error was to rely only on Chevron in its

evaluation of the Secretary’s action. To justify its action against Mission, the
2

 The Secretary’s reliance on 34 C.F.R. § 668.13(c)(4)(ii), the provisional

certification regulation, is more explicit than his reliance on 34 C.F.R. § 668.14(a)(1), the

program participation agreement regulation. But we have little doubt that the Secretary’s

express invocation of § 668.13(c)(4)(ii) effectively referenced § 668.14(a)(1). Where the

former allows the Secretary to limit provisional certification for participation in Title IV

programs to cases in which the institution has accepted “any additional conditions

specified in the institution’s program participation agreement,” § 668.13(c)(4)(ii), the

Secretary claims precisely the same authority in the latter to condition participation in

Title IV programs on an institution’s accepting “any additional conditions specified in the

program participation agreement,” § 668.14(a)(1). Mission itself apparently has no

doubts on the matter, and refers to the two regulatory provisions as “counterpart[s].” See

Appellee’s Br. at 20.

- 11 -

government has consistently placed reliance on both 34 C.F.R. §§ 668.13(c)(4)(ii)

and 668.14(a)(1). 2

 Thus, in imposing the 85/15 rule against Mission, the

Secretary appears to have done no more than follow his own interpretation of the

Department’s regulations, an interpretation clearly stated in the Federal Register. 

See 59 Fed. Reg. 22,333-34 (1994). Where an agency purports to act pursuant to

an interpretation of its own regulations, the court should generally undertake a

two-step review of the government’s action to determine whether it was

statutorily authorized.

First, “provided an agency’s interpretation of its own regulations does not

violate the Constitution or a federal statute, it must be given ‘controlling weight

unless it is plainly erroneous or inconsistent with the regulation.’” Stinson v.

United States , 508 U.S. 36, 45 (1993) (quoting Bowles v. Seminole Rock & Sand
3

 Some authorities suggest that—at least as used in Stinson—“plainly erroneous”

means “flatly inconsistent with a legislative rule, a statute, or the Constitution.” See

Kenneth Culp Davis & Richard J. Pierce, Jr., I Administrative Law Treatise § 6.10, at 284

(3d ed. 1994) (“Davis & Pierce”). On that interpretation, Stinson “eliminate[s] all judicial

power to reject an agency’s interpretation of its own rules through application of any

version of the arbitrary and capricious test.” Id. at 284-85. But the weight of authority

indicates that an agency’s interpretation of its own regulations is subject to challenge

under 5 U.S.C. § 706(2)(A) for being arbitrary, capricious, or an abuse of discretion. See

Allentown Mack Sales & Serv., Inc. v. NLRB, 118 S. Ct. 818, 828 (1998) (holding that §

706(2)(A) governs substantive review of agency’s interpretation of its own regulations);

Martin v. Occupational Safety & Health Review Comm’n, 499 U.S. 144, 150-51 (1991)

(reviewing agency’s interpretation of regulations for “reasonableness”); Edwards v.

Califano, 619 F.2d 865, 868 (10th Cir. 1980) (holding that acknowledged deference to

agency’s interpretation of own regulation does not preclude review under § 706(2)(A));

see also Robert A. Anthony, The Supreme Court and the APA, 10 Admin. L.J. Am. U. 1,

5 (Spring 1996) (noting that unless “plainly erroneous” as used in Seminole Rock

“embraces reasonableness component . . . it is hard to conceive a meaning for that phrase

that is not already comprehended in the ‘inconsistent’ test”).

“‘Review under [§ 706(2)(A)] provokes inquiry [into] whether the administrative

decisions were based on a consideration of all the relevant factors and whether there was

a clear error of judgment.’” Edwards, 619 F.2d at 868 (quoting Sabin v. Butz, 515 F.2d

1061, 1066-67 (10th Cir. 1975) (citing Citizens to Preserve Overton Park v. Volpe, 401

U.S. 402, 416 (1971))). “The court’s function is exhausted where a rational basis is found

for the agency action taken.” Id.

There are some exceptions to the rule of Seminole Rock deference. For example,

when an agency’s interpretation of its own regulation is based not on its expertise in a

particular field but on general common law principles, it is not entitled to great deference. 

See Jicarilla Apache Tribe v. Federal Energy Regulatory Comm’n, 578 F.2d 289, 292-93

(10th Cir. 1978).

- 12 -

Co., 325 U.S. 410, 414 (1945)). 3 But Seminole Rock review only establishes that

the agency’s administrative action is a permissible construction of its own

regulatory authority; it does not establish that that regulation, as interpreted, is

statutorily authorized. See Seminole Rock, 325 U.S. at 418-19 (noting that in

holding administrative interpretation of regulation controlling, “[w]e do not, of
4

 This court’s decision in Headrick v. Rockwell Int’l Corp., 24 F.3d 1272 (10th

Cir. 1994), is not to the contrary. That case stands only for the proposition that we owe

no Chevron deference to a statutory interpretation not reached through proper rulemaking

procedures. See 24 F.3d at 1282. Following the district court, see Mission, 909 F. Supp.

at 844, Mission argues that the comment to the final regulations contained in the Federal

Register is the only basis for the Secretary’s imposition of the 85/15 rule. As a purely

interpretive rule, argues Mission, that comment is nothing to which we owe deference

under Chevron. See Appellee’s Br. at 14-15 (citing Headrick, 24 F.3d at 1282). But

Mission apparently does not challenge the Secretary’s claim to have acted pursuant to his

own regulations, see Appellee’s Br. at 23 (recognizing that “the Secretary rested his claim

to authority . . on his own regulations”), so this objection misses the point. If the

Secretary’s imposition of the 85/15 rule represents no more than a proper interpretation of

his own regulations, then enforcing Mission’s compliance with the rule does not depend

on any act of statutory interpretation beyond that advanced by the operative regulations,

and cannot therefore fall afoul of Headrick’s rule.

- 13 -

course, reach any question here to the constitutional or statutory validity of the

regulation as we have construed it” (emphasis added)).

Thus, if the agency’s interpretation of its regulations survives Seminole

Rock review, we then analyze the regulations as interpreted under the framework

established by Chevron. See United States v. LaBonte, 70 F.3d 1396, 1403-04

(1st Cir. 1995), overruled on other grounds by United States v. LaBonte, 117 S.

Ct. 1673 (1997); see also Martin v. Occupational Safety and Health Review

Comm’n, 499 U.S. 144, 151 (1991) (“Because applying an agency’s regulation to

complex or changing circumstances calls upon the agency’s unique expertise and

policymaking prerogatives, we presume that the power authoritatively to interpret

its own regulations is a component of the agency’s delegated lawmaking powers.”

(emphasis added)).4
5

 These procedures include, most obviously, legislative rulemaking by agencies

granted policymaking authority by Congress. See I Davis & Pierce § 3.5, at 119. 

Adjudicative decisions may also serve this role, at least when made by bodies with

rulemaking power. See id. at 120-21; see also Martin, 499 U.S. at 154 (“Within

traditional agencies—that is, agencies possessing a unitary structure—adjudication

operates as an appropriate mechanism not only for factfinding, but also for the exercise of

delegated lawmaking powers, including lawmaking by interpretation.”); Southern Ute

Indian Tribe v. Amoco Prod. Co., 119 F.3d 816, 832 (10th Cir. 1997) (holding that

Chevron deference only applies to rules promulgated in full conformity with APA

procedures and “‘adjudications that create binding precedents’” (quoting Amrep Corp. v.

FTC, 768 F.2d 1171, 1178 (10th Cir. 1985))). 

- 14 -

The above analysis notwithstanding, reviewing courts should not follow the

Seminole Rock-Chevron two-step analysis when the disputed administrative

action does not represent an actual interpretation of the agency’s own regulations. 

If the Secretary’s decision to impose the 85/15 rule against institutions of higher

education converting to non-profit status is not an interpretation of the regulations

at issue here, deferential review under the Seminole Rock-Chevron analysis will

be inappropriate because, in such a case, the rule will have been adopted outside

of the procedures Congress has authorized the Secretary to use when giving

binding meaning to the statute. See I Davis & Pierce § 3.5, at 119-23.5

 

This distinction is easier to conceptualize than apply. Consider whether, by

imposing the 85/15 rule against schools converting to non-profit status, the

Secretary has merely interpreted the “any additional condition” language of 34

C.F.R. §§ 668.13(c)(4)(ii) and 668.14(a)(1). True, the rule is unquestionably an

“additional condition.” But mere linguistic consistency between the rule and the
6

 The regulations might therefore be open to challenge as unconstitutionally

vague. See, e.g., Brennan v. Occupational Safety & Health Review Comm’n, 505 F.2d

869, 872 (10th Cir. 1974). Although Mission’s complaint broadly raised due process

concerns, we see little argument to that effect in its trial brief. Because the district court’s

opinion does not suggest that it either considered the issue abandoned below or not raised

at all, we leave it to the discretion of the district court whether to consider vagueness

objections to the regulations at issue here. 

7

 Although it is true that the regulations at issue here might otherwise be exempt

from notice and comment requirements under the APA’s statutory exemption of matters

“relating to . . . benefits,” see 5 U.S.C. § 553(a)(2), the Department of Education has

waived any such exemption, see 36 Fed. Reg. 2532 (1971). 

- 15 -

regulations cannot establish that the former is within the interpretive scope of the

latter. Because the plain language of both regulations is entirely unrestrictive, the

Secretary could insert any condition into a program participation agreement, and

claim authorization for that action under the plain terms of §§ 668.13(c)(4)(ii) or

668.14(a)(1). 6 Chevron deference to that condition would be inappropriate

because, unless interested parties could reasonably anticipate the application of

the regulation advanced by the agency such that they had a meaningful

opportunity for notice and comment on the conditions to be selected, the

imposition of an additional condition would not actually follow from an exercise

of the agency’s delegated policymaking authority. 7 Cf. Southern Ute Indian Tribe

v. Amoco Prod. Co., 119 F.3d 816, 833 (10th Cir. 1997) (holding that Chevron

deference does not apply to administrative actions “not promulgated with

procedural protections attendant to” legislative rules and adjudications); Atchison,

Topeka & Santa Fe Ry. Co. v. Pena , 44 F.3d 437, 441-42 (7th Cir. 1994) (en
- 16 -

banc) (administrative rules are only entitled to Chevron deference when agency

follows APA’s rulemaking procedures, including notice and comment provision, 5

U.S.C. § 553).

Stated another way, the dispositive question is whether imposition of the

85/15 rule is a new rule, in which case the agency may not give it binding effect

in the absence of compliance with APA notice and comment procedures, or an

interpretation of an existing rule, in which case it is binding precisely because it

has, in effect, already been subject to the necessary procedural protections. 

Compare Director, OWCP v. Greenwich Collieries , 512 U.S. 267, 271 (1994)

(refusing to uphold agency’s position when claimed regulatory authorization too

vague to encompass even broad outlines of that position) with Thomas Jefferson

Univ. v. Shalala , 512 U.S. 504, 517 (1994) (upholding agency’s interpretation of

Medicare regulations on reimbursement of costs under Seminole where regulatory

“language . . . speaks not in vague generalities but in precise terms about the

conditions under which reimbursement is, and is not, available”). That

determination must be made by examining the procedural passage of the operative

regulations to establish whether potentially affected parties were given an

opportunity to comment on the “interpretation” now advanced. Cf. Robert A.

Anthony, The Supreme Court and the APA , 10 Admin. L.J. Am. U. 1, 8 (Spring

1996) (arguing that for an administrative action to be interpretive of a regulation
- 17 -

there must be a “logical connection between the substantive content of the

established regulation . . . and the substantive content of the document that

purports to interpret it, such that the latter flows fairly from and is justified by the

former”).

Without such a safeguard, agencies could simply replace statutory

ambiguity with regulatory ambiguity, thus creating Chevron deference for any

administrative action that might be squeezed within the unrestricted terms of a

promulgated regulation. Such a practice would make a mockery of Chevron , the

APA, and judicial review because “the very purpose behind the delegation of

lawmaking power to administrative agencies . . . is to ‘resol[ve] . . . ambiguity in

a statutory text.’” Thomas Jefferson Univ. , 512 U.S. at 525 (Thomas, J.,

dissenting) (quoting Pauley v. BethEnergy Mines, Inc. , 501 U.S. 680, 696

(1991)). “‘An agency whose powers are not limited either by meaningful

statutory standards or . . . legislative rules poses a serious potential threat to

liberty and to democracy.’” Id. (quoting II Davis & Pierce § 11.5, at 204). 

To resolve the case before us, we need not delineate formal criteria for

defining a regulation’s interpretive scope. Certainly, to be interpretive of the

operative regulations, the condition selected by the Secretary need not be fully

developed or examined in the notice of proposed rulemaking or in subsequent

regulatory proceedings. Yet, regardless of the precise distinction employed, the
8

 This point has been made in a slightly different context by Judge Posner: “For a

rule to be interpretive it is not enough, I believe, that the rule is consistent with the

purpose of the statute that it is interpreting; for that is equally true of any valid legislative

rule. A valid interpretive rule must in addition be derivable from the statute that it

implements by a process fairly to be described as interpretive; that is, there must be a path

that runs from the statute to the rule, rather than merely consistency between statute and

rule.” Richard A. Posner, The Rise and Fall of Administrative Law, 72 Chi.-Kent L. Rev.

953, 962 (1997).

- 18 -

administrative action taken by the Secretary here cannot be regarded as within the

legitimate interpretive scope of the regulations upon which he purports to have

acted. The plain language of the regulations is entirely unrestricted, and the

operative notice of proposed rulemaking and public statements of basis and

purpose provide scant, if any, indication of how the Secretary proposes to utilize

that apparently unlimited regulatory discretion. Mere consistency between the

rule and the regulation does not establish that the former is derived from the latter

by a process fairly described as interpretive. 8 We cannot therefore view the

Secretary’s actions as a proper interpretation of his own regulations because it is

no interpretation at all.

III 

Although we conclude the Secretary is entitled to no deference under the

Seminole Rock -Chevron standard, the agency’s action might represent an
9

 The appropriate degree of Skidmore deference will also be affected by whether

the record “actually addresse[s] in any detail the statutory authorization” for the agency’s

action. SEC v. Sloan, 436 U.S. 103, 117 (1978).

10

 Interpretive rules of “general applicability” are subject to a notice requirement

by the APA. See 5 U.S.C. § 552(a)(1)(D).

11

 Mission argues that the only source of statutory authority on which the Secretary

may rely is 20 U.S.C. § 1099c(h), which governs provisional certification of institutional

(continued...)

- 19 -

interpretation of its governing statute adopted outside of administrative

lawmaking channels. As a statutory “interpretive rule,” it would then properly be

reviewed under the less deferential standards enunciated in Skidmore v. Swift &

Co., 323 U.S. 134 (1944), the stringency of judicial review varying with “the

thoroughness evident in its consideration, the validity of its reasoning, its

consistency with earlier and later pronouncements, and all those factors which

give it power to persuade, if lacking power to control.” Id. at 140. 9

 When

Skidmore applies, Seminole Rock is necessarily inapplicable because the agency’s

action no longer represents an interpretation of its regulatory authority. Likewise,

Chevron does not apply because, by the same token, no duly promulgated

regulation actually informs the administrative action taken. And the APA’s notice

and comment procedures do not apply because interpretative rules are exempt

from such requirements. See 5 U.S.C. § 553(b)(A). 10

Although not focused on Skidmore review, the Secretary points us to 20

U.S.C. §§ 1099c(a) and 1094(c)(1)(B) as authority for the 85/15 rule. 11 We 
11(...continued)

eligibility, both because that is the provision relied on by the Secretary in advancing the

rule’s application to non-profits such as Mission, see Appellee’s Br. at 18, and because

the government failed to cite §§ 1099c(a) and 1094(c)(1)(B) to the district court, see id. at

22-23; see also Tele-Communications, Inc. v. Commissioner, 12 F.3d 1005, 1007 (10th

Cir. 1993) (“[G]eneral rule is that an appellate court will not consider an issue raised for

the first time on appeal.”). Neither claim has merit. As we have noted, the Secretary has

consistently defended his application of the rule as being pursuant to his regulatory

authority under 34 C.F.R. §§ 668.13(c)(4)(ii) and 668.14(a)(1). See supra note 2 and

accompanying text. In addition, the district court addressed itself to both regulatory

provisions without objection from Mission. See Mission, 909 F. Supp. at 839-40. 

Consequently, the relevant question is which sources of statutory authority were claimed

by the Secretary for the promulgation of these two controverted regulations. The record

reveals that 34 C.F.R. § 668.13(c)(4)(ii) was promulgated pursuant to 20 U.S.C. § 1099c,

and 34 C.F.R. § 668.14(a)(1) pursuant to 20 U.S.C. §§ 1085, 1088, 1091, 1092, 1094,

1099a-3, 1099c, and 1141.

Moreover, the government’s trial brief, though not a model of legal clarity, argues

that the 1992 amendments to the HEA provide the Secretary with broad legal authority to

oversee and regulate the terms and conditions under which schools may be approved to

participate in Title IV programs. See Appellee’s Supp. App. at 226 (“The 1992 HEA

Amendments . . . contained many program integrity provisions that required new

regulations to interpret and implement them.”). The government stressed to the trial court

that the HEA was amended in order to “increase[] the monitoring by the Secretary and

accountability of institutions participating in the student financial aid programs. The[]

regulations implement many statutory requirements pertaining to the financial

responsibility and administrative standards for schools that participate or seek to

participate in the Title IV, HEA programs . . . .” Appellee’s Supp. App. at 230-31

(emphasis added). Finally, the Secretary cited to the regulations addressing certification

and provisional participation agreements, see id. at 231 (citing 34 C.F.R. §§ 668.13 &

668.14; 59 Fed. Reg. 9534-39), and specifically referenced 34 C.F.R. § 668.13(c)(4)(ii),

see id. at 232.

As a result, the government’s arguments in reliance on 20 U.S.C. §§ 1099c(a) and

1094(c)(1)(B) are best viewed as a more detailed exposition of an issue already placed

before the district court. They do no more than explain with particularity the general

claim raised below that the Secretary’s actions are permissible because they proceed from

a statutory “mandate . . . to improve the accountability and integrity of schools

participating in the HEA programs through increased oversight and control.” Appellee’s

Supp. App. at 226. As such, they are not “new.” Cf. Majors v. Housing Authority, 652

(continued...)

- 20 -
11(...continued)

F.2d 454, 457 n.2 (5th Cir. 1981) (regulation cited by plaintiff on appeal is not “new

issue” when it directly supports argument raised below that statute imposed specific

obligation on defendant); see also Ford v. Bernard Fineson Dev. Ctr., 81 F.3d 304, 307

(2d Cir. 1996) (allowing appellate submission of “a new legal argument that concerns an

issue already considered at some length by the district court”).

We also see little merit to appellee’s claim that, because the Secretary’s grant of

provisional certification also certified Mission’s administrative capability and financial

responsibility, imposition of the 85/15 rule cannot proceed from the statutory

requirements of 20 U.S.C. §§ 1099c(a) or 1094(c)(1)(B). See Appellee’s Br., tab B,

Plaintiff’s Ex. 9, at 1. The Secretary stated only that the Wright Business School “meets

the minimum requirements . . . of administrative capability, and financial responsibility.” 

Id. (emphasis added). Furthermore, the same communication to Mission explicitly

conditioned provisional certification on acceptance of a provisional participation

agreement that mandated compliance with the 85/15 rule. See id. at 2 (incorporating

conditions in provisional participation agreement by reference); Appellant’s App. at 84

(conditioning certification in provisional participation agreement on compliance with

85/15 rule). We therefore agree with the Secretary that this communication need not be

read to mean that Mission would have met its administrative capability and financial

responsibility requirements even without compliance with the 85/15 rule.

- 21 -

cannot agree with the government’s assertion that the 85/15 rule is merely an

interpretation of 20 U.S.C. § 1094(c)(1)(B). Properly read, § 1094(c)(1)(B) only

authorizes the Secretary to adopt regulations setting financial responsibility and

administrative capability standards . In such a case, we must agree with the

Seventh Circuit that

[w]hen Congress authorizes an agency to create standards, it is

delegating legislative authority, rather than itself setting forth a

standard which the agency might then particularize through

interpretation. Put differently, when a statute does not impose a duty

on the persons subject to it but instead authorizes (or requires—it

makes no difference) an agency to impose a duty, the formulation of

that duty becomes a legislative task entrusted to the agency. 

Provided that a rule promulgated pursuant to such a delegation is

intended to bind, and not merely to be a tentative statement of the
- 22 -

agency's view, which would make it just a policy statement, and not a

rule at all, the rule would be the clearest possible example of a

legislative rule, as to which the notice and comment procedure not

followed here is mandatory, as distinct from an interpretive rule; for

there would be nothing to interpret.

Hoctor v. United States Dep’t of Agric. , 82 F.3d 165, 169-70 (7th Cir. 1996)

(citing American Mining Congress v. Mine Safety & Health Admin. , 995 F.2d

1106, 1109 (D.C. Cir. 1993); Robert A. Anthony, “Interpretive” Rules,

“Legislative” Rules and “Spurious” Rules: Lifting the Smog , 8 Admin. L.J. Am.

U. 1 (1994)). Thus, the imposition of the 85/15 rule cannot be justified as an

interpretation of § 1094(c)(1)(B). See id. at 170-71 (“When agencies base rules

on arbitrary choices they are legislating, and so these rules are legislative or

substantive and require notice and comment rulemaking, a procedure that is

analogous to the procedure employed by legislatures in making statutes.”). And,

in issuing the 85/15 rule, the Secretary made no attempt to comply with the

APA’s required procedures for legislative rulemaking. 

Whether the 85/15 rule may be upheld as a statutory “interpretive rule”

under 20 U.S.C. § 1099c(a) is unclear on this record. Under § 1099c(a), the

Secretary is charged with “determin[ing] the administrative capability and

financial responsibility of an institution of higher education in accordance with

the requirements of this section.” Unlike the specific directive to develop

“standards” in § 1094(c), the Secretary is charged with “determin[ing] whether an
12

 For instance, we note that the appellee submitted to the trial court two

depositions from the Acting Director of the Department’s Institutional Participation

Division. See Appellee’s Supp. App. at 151 n.3. The briefs to the trial court suggest that

some of this material may well bear on the “thoroughness” of the agency’s

“consideration” in issuing the 85/15 rule, which matter is directly relevant to review

under Skidmore. See, e.g., id. at 153, 158-61; Skidmore, 323 U.S. at 140.

- 23 -

institution has the financial responsibility” to participate in Title IV financial aid

programs, see 20 U.S.C. §§ 1070 to 1099c-1, and federal work study programs,

see 42 U.S.C. §§ 2751-2756b. Because the Secretary is charged merely with

determining the financial responsibility of covered institutions, the government

may have a legitimate argument that the 85/15 rule is a valid interpretation of §

1099c(c), even when evaluated under the less deferential Skidmore standard. The

record before us, however, appears insufficient to evaluate properly whether the

85/15 rule survives Skidmore review as a valid statutory “interpretative rule.” 12

We therefore remand to the district court for further proceedings.

REVERSED and REMANDED for further proceedings consonant with the

views herein expressed.