Attorney General sues U.S. Education Secretary for halting predatory for-profit School loan protections

Thursday, July 27, 2017

DES MOINES – Attorney General Tom Miller and attorneys general from 18 states plus the District of Columbia today sued the U.S. Department of Education and Secretary Betsy DeVos for setting aside critical federal protections designed to erase federal student loan debts for students who were defrauded by their schools.

The federal lawsuit, filed in Massachusetts, alleges the Department of Education violated the law by abruptly rescinding its “borrower defense rule.”

The regulation was created to hold abusive higher education institutions accountable for cheating students and taxpayers out of billions of dollars in federal loans. 

The rule, which was set to take effect July 1, was finalized by the Obama administration in November 2016 after nearly two years of negotiations, following the collapse of Corinthian Colleges, a national for-profit chain. 

In May, DeVos announced the department was reevaluating the rule. On June 14, the department announced it intended to delay large portions of the rule without soliciting, receiving, or responding to comments from stakeholders or the public, and without a public deliberative process.

The department also announced it intends to replace the rule. In a short notice published in the Federal Register, the department cited its delay in implementing the regulation based on pending litigation in a California for-profit college trade association’s lawsuit against DeVos.

Last month, attorneys general, including Miller, filed a motion to intervene in the case to defend students and taxpayers. State attorneys general argue in their lawsuit 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 department helped develop the rule in large part as a result of state and federal investigations into for-profit schools such as Corinthian. Under the rule, a successful enforcement action against a school by a state attorney general entitles borrowers to obtain loan forgiveness, and enables the Department of Education to seek repayment of any amounts forgiven from the school. Additionally, according to the lawsuit, without the rule’s protections, many students harmed by the misconduct of for-profit schools are unable to seek a remedy in court.

The borrower defense rule limits the ability of schools to require students to sign mandatory arbitration agreements and class action waivers, which are commonly used by for-profit schools to avoid negative publicity and to thwart legal actions by students harmed by schools’ abusive conduct. 

The lawsuit asks the court to declare the department’s delay notice unlawful and to order the department to implement the rule.