Promise of Student-Debt Relief Draws Fire From School Group

WASHINGTON (CN) - Weeks ahead of a regulatory rollout geared at helping students saddled with predatory student loans, a group representing private vocational schools in California has brought a federal complaint casting the rules as an existential threat.

"The final rule is a sprawling mass of thinly studied new requirements that, by the [Education] Department's own estimates, will cost schools almost $1 billion dollars per year," the complaint filed with a federal judge in Washington states. "The ten year impact on the public is estimated at $14.9 billion. It is necessary and important that regulations with such a profound fiscal impact be justified and supported by reasoned decision-making. This rule was not.”

Leading the challenge is the California Association of Private Postsecondary Schools, or CAPPS. The trade group notes that some of its 150 members are for-profit schools, but that it also represents nonprofit schools that receive Title IV funding.

Many of the students who attend these schools — whether to get a job in nursing, electrical work or another field — don’t meet the traditional student mold. CAPPS says its members’ students are “more likely to be low-income, older, and minorities than are students at public or non-profit colleges and universities.”

If enacted in July, according to the complaint, the Education Department’s final rule will put these schools out of business.

“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 says. “The lack of procedural safeguards and clear standards throughout the final rule severely exacerbates these problems.”

In addition to the nontraditional students who will be left with few or no educational options, leaving a wide range of American industries without a workforce, CAPPS says the regulations will also hurt standard liberal-arts programs, including many historically black colleges and universities.

When the Department of Education finalized the rules in October, it billed them as a way for students to more easily discharge loan debt if they find that their schools have subjected them to fraud or misrepresentation.

But CAPPS says “the final rule creates a seismic shift in multiple areas of higher education regulation without legal basis or reasonable justification.”

It was already possible under the old system, CAPPS notes, for students who were the subject of an adversarial debt-collection proceeding to assert borrower defenses against loan repayment.

“But the department has transformed the borrower ‘defense’ into a wide-ranging affirmative cause of action that a student can use to have all of his or her Title IV debts cancelled, or even recover loan amounts previously paid, with the student’s financial liability transferred to either the student’s school or federal taxpayers,” the complaint states. “Although Congress has created a handful of explicit and targeted debt forgiveness programs that help borrowers who commit their careers to public service, Congress has never intimated that borrower ‘defenses’ were meant to erase debt for thousands of students who were reliably paying back their loans, or to charge schools for those losses. Making matters worse, the department has failed to provide sufficient procedural protections for affected educational institutions.”

CAPPS contends that regulators hurried their way through rulemaking to push the changes through before President Donald Trump’s inauguration. “Despite the regulations’ $14.9 billion price tag," according to the complaint, the Office of Management and Budget even completed its review process in just over 30 days, about one-third of the time this process usually takes.

One problem with the rules that CAPPS identifies is that a school can be labeled financially unsound just because a public entity has sued it, regardless of the case’s merits.

CAPPS says the rules would also make schools report negatively on their own financial standing to both current and prospective students, even if the school is able to demonstrate a pending lawsuit or regulatory filing that shows the school to be financially sound.

The department wants schools to notify prospective students when recent alumni have not paid their loans back quickly enough, but CAPPS says this requirement unfairly targets institutions whose students rely on income-based repayment plans or other financial aid. 

CAPPS says the rules also fly in the face of federal policy which has long favored arbitration for students.

Alleging violations of the First and Fifth Amendments, as well as the Administrative Procedures Act, the group wants the final regulations vacated.

CAPPS is represented by Clifford Sloan of Skadden, Arps, Slate, Meagher and Flom.

The Department of Education did not immediately return a request for comment.

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