Students Can Challenge U.S. Education Department Over Loan Forgiveness, Judge Rules

by Kim Boateng Posted on September 22nd, 2018

Washington, D.C., USA :  A U.S. district court has found that two graduates of a Massachusetts for-profit college have standing to challenge the U.S. Department of Education’s recent decision to delay implementation of the borrower defense regulation, which shifts loan repayment responsibility from the student to the school if it’s found that the school engaged in misconduct.

In addition to the two students, the lawsuit was brought by 19 states and the District of Columbia.

The regulations were to take effect on July 1, 2017, but the government delayed implementation in June of that year after the California Association of Private Postsecondary Schools sued challenging the validity of the rule.

DeVos said then that while her “first priority” was to protect students, the Obama administration’s rule-making effort had “missed an opportunity to get it right.” In October, her department provisionally reset the effective date to July 1, 2018, and then, in February postponed it again, now to July 1, 2019.

The regulation, issued by the Obama administration, was meant to police for-profit colleges, and protect studentsnwho took out loans to attend college from predatory practices.

The Obama administration created the rule in the wake of revelations that some for-profit colleges enticed students with promises of an education and diplomas that would allow them to get jobs in their chosen fields. In reality, many of those certifications weren’t recognized by prospective employers, leaving graduates saddled with student loans they couldn’t repay.

Education secretary Betsy DeVos, also a defendant in the U.S. District Court for the District of Columbia action, wanted to delay the rule on the basis that the regulations were too broad and allowed for possible abuse of students.

In a Sept. 12 order granting the plaintiffs’ summary judgment motion, U.S. District Judge Randolph Moss ruled that the agency’s decision to hold off on the borrowers defense regulations was inconsistent.

Following a status conference hearing on Monday with government attorneys and lawyers representing for-profit colleges asking for more time, Moss said the DOE violated the Administrative Procedure Act and gave the agency until Oct. 12 to “remedy the deficiencies identified in the Court’s original opinion.”

The Borrower Defense regulations changed the rules for forgiving student loans in cases of school misconduct and required “financially risky institutions” to be prepared to cover government losses in those instances, according to U.S. District Judge Randolph Moss’s 57-page ruling.

By postponing the effective date of those regulations, the Education Department deprived students “of several concrete benefits that they would have otherwise accrued,” Moss said. “The relief they seek in this action — immediate implementation of the Borrower Defense regulations — would restore those benefits.”

Writing that he didn’t want to delay matters further, Moss — a 2014 appointee of President Barack Obama — said he will hold a hearing Friday to consider remedies.

Moss ruled all those delays were invalid. He rejected a succession of arguments from government lawyers, calling some “unpersuasive,” and others “unhelpful.” His decision also covered claims by two student-borrowers in a lawsuit filed on their behalf by the consumer advocacy group Public Citizen. The states’ suit was later consolidated with it.

The ruling “is a victory for every family defrauded by a predatory for-profit school and a total rejection of President Trump and Betsy DeVos’s agenda to cheat students and taxpayers,” Massachusetts Attorney General Maura Healey told Forbes.

In July, DeVos announced new proposed regulations, including one that would require student loan-holders hoping to qualify for a “borrowers defense” for repayment adjudication to prove their college knowingly misled them. The proposed regulationsl suggested limiting loan forgiveness applications to those in default on their student loans and expanding the closed-school loan discharge eligibility period from 120 days to 180 days for students who left an institution before it closed.

The Friday hearing will include California Association attorneys.

The states’ case is Commonwealth of Massachusetts v. U.S. Department of Education, 17-cv-01331, U.S. District Court, District of Columbia (Washington). The individuals’ case is Bauer v. DeVos, 17-cv-1330, U.S. District Court, District of Columbia (Washington).


Kim Boateng

Kim Boateng

Staff Writer

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