Judge Orders Delayed Obama For-Profit Fraud Protection Be Enforced

WASHINGTON (CN) – A federal judge paved the way Tuesday for an Obama-era rule to take effect that helps protect students defrauded by for-profit colleges from predatory lending practices get their loans forgiven.

The California Association of Private Postsecondary Schools, or CAPPS, moved to block the 2016 rule last year and had asked the court to preliminarily enjoin it while the for-profit college industry trade group proceeds with a constitutional challenge to the rule.

But U.S. District Judge Randolph Moss denied the preliminary bid to block the rule, known as the borrower defense rule, which subsequently took effect at noon on Tuesday.

“CAPPS has failed to carry its burden of demonstrating that any one of its members is likely to suffer an irreparable injury in the absence of an injunction,” the 37-page opinion says.

In the next phase of litigation, Moss will rule on the merits of CAPPS’ constitutional challenge to the borrower defense rule.

Finalized in the twilight of the Obama administration, the rule offers full debt forgiveness to students misled by for-profit colleges about things like guaranteed employment after graduation and job placement rates.

Set to take effect on July 1, 2017, education secretary Betsy DeVos sought to delay the rule just weeks before it was set to take effect, citing the CAPPS litigation as a reason to put it on hold. But Moss ruled last month that the attempted delay was unlawful after defrauded students and 19 attorneys general sued DeVos, successfully arguing that she skirted statutory requirements in trying to keep the rule from taking effect.

Though Moss determined that vacating the rule was the most appropriate course of action, the rule’s fate hinges on the final outcome of CAPPS’ challenge.

CAPPS had claimed in a federal lawsuit last year that the borrower defense rule overly burdened for-profit colleges that cater to nontraditional students, and challenged four of the rule’s provisions.

Moss said in his opinion that he need not reach the merits of the arguments CAPPS had raised now, saying that would be better left for the next chapter of this litigation.

Julie Murray, an attorney with Public Citizen said after having briefed the issues and addressed the merits of CAPPS’ claims during litigation that she doesn’t think the court should find any merit to them.

“We think it’s on a solid legal footing,” Murray said in a phone interview.  “What’s important today though is that the rule has gone into effect and that students will get the benefit of the rule that they’ve been unlawfully denied for the past year because of the secretary’s delay.”

Murray represents student borrowers Meaghan Bauer and Stephen Del Rose, who intervened in the CAPPS litigation.

Liz Hill, press secretary at the U.S. Department of Education, said in a statement provided to Courthouse News that “the Secretary respects the role of the court and accepts the court’s decision not to preliminarily enjoin the 2016 borrower defense regulation.

“The Secretary continues to believe the rule promulgated by the previous administration is bad policy, and the Department will continue the work of finalizing a rule that protects both borrowers and taxpayers,” Hill continued. “The Department will soon be providing further information regarding the next steps for implementation of the 2016 borrower defense regulation.”

Meanwhile, the parties in the CAPPS litigation will undergo another round of briefing on cross-motions for summary judgment, where Moss will rule on the merits of the claims. A briefing schedule has not yet been set.

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