18 States Sue Education Secretary Betsy DeVos for Halting Student Loan Protections

A coalition of attorneys general sued Education Secretary Betsy DeVos for freezing regulations designed to protect student loan borrowers who were cheated by colleges.

The lawsuit brought by 18 states and the District of Columbia accused the Department of Education of violating federal law by suddenly delaying the rules without seeking stakeholder or public input.

Massachusetts Attorney General Maura Healey led the lawsuit, which was filed in U.S. District Court in Washington on July 6. Healey was joined by the attorneys general of Connecticut, California, District of Columbia, Delaware, Hawaii, Iowa, Illinois, Minnesota, Maryland, North Carolina, New York, New Mexico, Pennsylvania, Oregon, Rhode Island, Virginia, Vermont and Washington.

The multistate lawsuit concerns a rule known as borrower defense to repayment. It was devised in the 1990s to erase federal loans for students who were deceived by fraudulent colleges that misled them with unlawful schemes or otherwise disregarded state consumer protection laws. In their complaint, the attorneys general claimed DeVos violated the Administrative Procedures Act by failing to give proper notice, offer the public time to comment and meet the standards for a delay in implementing regulations that were already finalized.

“With no notice, with no opportunity for comment . . . the DeVos team is trying to cancel this rule,” Healey told reporters. “Since day one, Secretary DeVos has sided with for-profit school executives against students and families drowning in unaffordable student loans. 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 Obama administration last year decided to clarify and streamline the regulations for loan forgiveness for students collectively on the hook for millions of dollars due to predatory colleges. The revised rules, which were finalized in October after extensive review and negotiation for almost two years, were scheduled to be implemented on July 1.

DeVos delayed the planned changes in June, saying “a regulatory reset” was necessary. She cited a pending lawsuit brought in California by an association of for-profit colleges in an effort to block the borrower defense regulations. However, attorneys general criticized the Education Department’s rationale for the delay, calling it “a mere pretext” for replacing an already finalized rule with one that would eliminate crucial student loan protections. Some attorneys general involved in the multistate lawsuit had also filed a motion in the California case in June to stop the rules from being frozen.

“The attorneys general lawsuit strikes back against an administration that has appeared to have chosen schools over students,” said Stanley Love Tate III, a student loan attorney at Missouri-based Tate Law. “By halting the new rule, Secretary DeVos has made it easier for schools to continue to hide fraud and evade accountability.”

The changes that were expected to take effect in July would have made it easier for students defrauded by colleges to seek loan forgiveness. Colleges would have been banned from requiring students to engage in mandatory arbitration to resolve complaints related to fraud or misconduct. The arbitration clause has enabled for-profit schools to prevent students from going to court to take legal action. In addition, colleges under regulatory scrutiny or risk of closure would have to put up financial collateral under the revised rules.

DeVos last month announced that a new rulemaking committee would be established to rewrite the borrower defense regulations from scratch. She also plans to hold public hearings on the rules. Defending the rule delay and rewrite, the Education Secretary argued that the Obama administration “missed an opportunity to get it right. The result is a muddled process that is unfair to students and schools, and puts taxpayers on the hook for significant costs.”

However, consumer advocates contend that the regulatory changes actually require for-profit colleges to foot more of the loan forgiveness costs than defrauded students, while limiting financial risk to taxpayers. DeVos’ critics said that by delaying the borrower defense revisions, she has favored for-profit colleges, which have consistently opposed the new rules.

The Obama administration decided to revise the borrower defense rules following the shutdown of hundreds of prominent for-profit colleges such as Corinthian Colleges Inc. and ITT Technical Institute amid allegations of rampant fraud and misconduct. Thousands of students were left with no degrees and mountains of debt. The collapse of the college chains unleashed a wave of claims at the Department of Education.

Although DeVos maintained that the rule’s suspension would not affect the 16,000 borrower defense claims currently pending, the processing of such claims has nearly stopped under the Trump administration. The state attorneys general who filed the lawsuit are concerned the existing borrower defense regulations do not extend enough protections to students.

Lawyer Carmen Dellutri, founder of Dellutri Law Group, dismissed the attorneys general lawsuit as a “political stunt.” “The lawsuit will resolve nothing. The only thing the lawsuit did do was to guarantee a slowdown of the process,” said Dellutri. “DeVos said she ‘intends to develop fair, effective and improved regulations to protect individual borrowers from fraud, ensure accountability across institutions of higher education and protect taxpayers.’ This goal, on its face, sounds very reasonable. Therefore, the lawsuit filed by the attorneys general should be taken with a grain of salt.”