DeVos Sued for Delay on Student Debt-Relief Scheme

WASHINGTON (CN) – Trying to keep afloat the new debt-relief system tailored to defrauded college students, 19 states slapped Education Secretary Betsy DeVos with a federal complaint Thursday.

When the Department of Education finalized the regulation in October, ahead of the election of President Donald Trump, it billed the so-called the borrower-defense rule as a way for students to more easily discharge loan debt if they find that their schools have subjected them to fraud or misrepresentation.

The rule was originally slated to take effect on July 1 but quickly joined the ranks of a swath of federal regulations taken into review by Trump appointees.

On June 14, just a month after Secretary DeVos took the rule in for re-evaluation, her office announced that it would put most of it on ice and issue a replacement regulation.

Massachusetts Gov. Maura Healey, who is leading Thursday’s complaint against DeVos in Washington, D.C., noted that the announcement came without a public deliberative process.

In contrast to the two years of negotiations that precipitated the rule after the collapse of for-profit chain Corinthian Colleges, Healey says DeVos tore the rule up without soliciting, receiving or responding to any comment from any stakeholder or member of the public.

Calling for a federal judge to vacate the delay notice, Healey says immediate implementation of the rule is needed.

“The loss of the rights and protections established by the rule causes a substantial injury to students who are unable to bring actions against abusive institutions because of mandatory arbitration agreements and class action waivers that remain in effect in the absence of the rule,” the 37-page complaint states. “The loss of rights and protections also causes substantial injury to students who cannot avail themselves of the rule’s new streamlined process for obtaining loan discharges, and who will enroll in abusive institutions without receiving the warnings and information necessary to make an informed enrollment decision.”

A spokeswoman for the Education Department meanwhile defended the delay.

“With this ideologically driven suit, the state attorneys general are saying to regulate first, and ask the legal questions later — which also seems to be the approach of the prior administration that adopted borrower-defense regulations through a heavily politicized process and failed to account for the interests of all stakeholders,” Education Press Secretary Liz Hill said in a statement.

For-profit schools have been especially critical of the borrower-defense rule.

One faction of them — members of a group called CAPPS or the California Association of Private Postsecondary Schools — argued in a May federal complaint that the rule overly burdens schools that cater to nontraditional students.

“The increased costs and the dramatically escalated threat of meritless claims and litigation, both before the Department and in court, will be crippling for many schools,” CAPPS had said in its complaint. “The lack of procedural safeguards and clear standards throughout the final rule severely exacerbates these problems.”

In addition to leading Thursday’s complaint, Healey is at the front of a coalition of attorneys general who moved last month to intervene in the CAPPS case. Though DeVos invoked the CAPPS case in her delay notice, Healey says the claim holds little water.

“Both the language of the Delay Notice and the circumstances of its announcement belie this rationale and make clear that the department’s reference to the pending litigation 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 complaint states.

Education Press Secretary Hill brought up the CAPPS case Thursday as well, saying it “makes serious and credible charges.”

“The department cannot simply dismiss these allegations,” Hill added.

“The borrower-defense regulations suffer from substantive and procedural flaws that need to be considered before imposing new burdens on regulated parties that will come at a cost to taxpayers of $14.9 billion in the next ten years,” her statement continues. “That is why the secretary decided it was time to take a step back and hit pause on these regulations until this case has been decided in court and to make sure these rules achieve their purpose: helping harmed students.”

Healey’s complaint outlines a number of benefits to state consumer-protection schemes that implementation of the rule will engender. Restoring private rights of actions for students and deterring misconduct by for-profit schools are two big ones.

Failure to implement the rule meanwhile “deprives the states of the economic contributions of students harmed by the misconduct of postsecondary institutions,” according to the complaint, which also cites the disparate impact to minority residents and low-income families “who are more likely to be subjected to the abuses of for-profit schools.”

“Since day one, Secretary DeVos has sided with for-profit school executives against students and families drowning in unaffordable student loans,” 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. We call on Secretary DeVos and the U.S. Department of Education to restore these rules immediately.”

Healey is joined in the case by the attorneys general of Massachusetts, 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 consumer-rights advocacy group Public Citizen and the Project on Predatory Student Lending brought a related complaint Thursday on behalf of two student borrowers.


Courthouse News reporter Britain Eakin contributed to this article

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