Two consumer groups also filed a lawsuit.
Attorney generals in eighteen states and Washington, D.C., filed a lawsuit against Secretary of Education Betsy DeVos over the delay of implementing regulations sculpted to protect any federal student loan borrowers defrauded by for-profit colleges.
The attorney generals state that DeVos has illegaly delayed these regulations, which should have gone into affect on July 1. From Politico:
The rules, known as “borrower defense to repayment,” sought to make it easier for defrauded student loan borrowers to seek debt forgiveness. They also prohibit colleges from requiring students to resolve complaints against their school through arbitration rather than in court.
The Trump administration last month delayed implementation of the rules, citing a legal challenge by a California association representing for-profit colleges. DeVos said at the time the rule created “a muddled process that’s unfair to students and schools, and puts taxpayers on the hook for significant costs.” The Education Department has said it will begin a process to rewrite the rules later this year.
Politico also reported that consumer groups Public Citizen and Harvard Law School’s Project on Predatory Student Lending filed their own lawsuit against DeVos “on behalf of two former students who claim they were defrauded by the New England Institute of Art, which is owned by the Education Management Corporation.”
The students have said they cannot sue the company “because they signed an agreement to resolve any complaints through arbitration.” The rules from the Obama administration would have banned this type of agreement.
Both lawsuits argue that DeVos’ delay of the rules violates the Administrative Procedure Act and ask a federal court to order the administration to enforce the rules.
“Since Day One, Secretary DeVos has sided with for-profit school executives against students and families drowning in unaffordable student loans,” Massachusetts Attorney General Maura Healey said in a statement. “Her decision to cancel vital protections for students and taxpayers is a betrayal of her office’s responsibility and a violation of federal law.”
The Massachusetts lawsuit was joined by California, Connecticut, Delaware, Hawaii, Iowa, Illinois, Maryland, Minnesota, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington and the District of Columbia.
The Obama Rules
Obama’s administration wrote new rules after the “2015 collapse of Corinthian Colleges, a chain of four-profit schools, amid allegations of fraud.” This led students from these colleges and other schools like ITT Tech to approach the Department of Education “with claims for debt relief relying on a seldom-used provision of the Higher Education Act that makes federal student loans unenforceable when a college engages in misconduct.”
These rules provide “updates to a regulation known as the borrower defense to repayment,” which was established in the 1990s. This regulation “wipes away federal loans for students whose colleges used illegal or deceptive tactics to get them to borrow money to attend.”
Last year, the Obama administration tried to change that. Federal officials drafted new rules that would give the government greater authority to demand that financially troubled colleges put up collateral in case the government had to forgo repayment of a loan because a college defrauded a student or unexpectedly shut down. U.S. officials also sought to ban colleges—many of them for-profits—from mandating that aggrieved students use secretive arbitration instead of going to court, on the theory that it’d be easier for regulators to spot wrongdoing and students would be at less of a disadvantage. That rule, put in place by the Obama administration, was set to take effect this year during the Trump administration.
A “more formal system” exists in the rules that would allow “the Education Department to stick the predatory colleges, rather than taxpayers, with the cost of loan forgiveness,” unless the “school became defunct.” In that case, the government pays.
Why the Delay?
DeVos explained she had to delay the new rules “as the department fought a federal lawsuit by a group of for-profit colleges in California seeking to block the rules.” The Washington Post continued:
In defending the rule delay and rewrite, DeVos said the Obama administration created “a muddled process that’s unfair to students and schools, and puts taxpayers on the hook for significant costs.” But consumer advocates and liberal lawmakers contend that the changes achieve exactly the opposite by speeding up loan discharges and having colleges foot more of the bill.
Well, she has a point. The Obama administration admitted “that the regulations would cost taxpayers $16.6 billions over the next decade.”DONATE
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