Eighteen states and the District of Columbia filed suit against Education Secretary Betsy DeVos on Thursday over her delay of regulations meant to protect federal student loan borrowers defrauded by their schools.
The lawsuit filed in Federal District Court in D.C., led by Massachusetts and joined by 18 other Democratic attorneys general, accuses DeVos of illegally delaying the regulations aimed at predatory colleges, which were finalized by the Obama administration and had been set to take effect on July 1.
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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.
Separately, consumer groups on Thursday filed a second legal challenge to the Trump administration’s delay of the regulations.
Public Citizen and Harvard Law School’s Project on Predatory Student Lending filed a lawsuit 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 say they want to sue that company but can’t because they signed an agreement to resolve any complaints through arbitration — an agreement that would have been banned by the regulations DeVos is delaying.
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.
A spokeswoman for DeVos said she is reviewing the lawsuit and would not immediately comment.
The Obama administration began writing the regulations following the 2015 collapse of Corinthian Colleges, a chain of for-profit schools, amid allegations of fraud. Tens of thousands of former Corinthian students — as well as those from other troubled schools like ITT Tech — flooded the Education Department 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.
Using existing rules, Obama’s Education Department had already approved debt relief claims from more than 30,000 student borrowers, totaling hundreds of millions of dollars. DeVos has promised to honor those claims, but the processing of undecided claims has slowed to a virtual halt during the Trump administration.
Obama’s regulations were meant to clarify and make uniform the standard for when borrowers could seek loan forgiveness — for example, when a school makes a “substantial misrepresentation” to students. The rules also set up a more formal system for allowing the Education Department to stick the predatory colleges, rather than taxpayers, with the cost of loan forgiveness. But the government would still pick up the tab in cases where the school became defunct.
The Obama administration estimated that the regulations would cost taxpayers $16.6 billion over the next decade.
Congressional Republicans expressed concerns about the cost to taxpayers, but opted not to include the regulation as one of the many Obama-era rules they axed through a flurry of Congressional Review Act resolutions earlier this year.
Democrats, meanwhile, have blasted DeVos for delaying the regulations, which they say are crucial protections for student borrowers.
Both lawsuits will likely center around complex questions of the Trump administration’s authority under the Administrative Procedure Act to delay regulations that have already been finalized. DeVos cited a section of that law — section 705 — that allows an agency to postpone a regulation when “justice so requires,” while a rule is “pending judicial review.”
The administration’s reliance on the California for-profit colleges association’s lawsuit as a reason to delay the rule is a “mere pretext for repealing the rule and replacing it with a new rule that will remove or dilute student rights and protections,” the Massachusetts lawsuit says.
Internal documents obtained by POLITICO last month show that the administration had previously considered a different way to delay the rule.
The agency considered, but ultimately decided against, writing a new “interim final rule” that pushed back the effective date of the rules by two years to July 2019. That draft notice cited the need for additional review of the regulation as well as its estimated cost to taxpayers.
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