An Obama-era regulation aimed at providing relief for scammed student-loan borrowers takes effect Tuesday, despite efforts by the Betsy DeVos-led Department of Education to delay it.
Judge Randolph Moss struck down an attempt by a group of private colleges to block the regulation, known as borrower defense, paving the way for it to take effect. For borrowers who say they were scammed by their schools, that could mean more immediate access to relief from their federal student loans as well as the ability to more easily sue their schools.
“Today’s news is a huge victory for borrowers,” said Julie Murray, a staff attorney at Public Citizen Litigation Group who is representing former for-profit college students who say they have been misled by their schools. “We’ve been waiting for more than a year for this rule to take effect.”
The decision came as part of multiple cases winding their way through the court. The first filed by the California Association of Private Postsecondary Colleges (CAPPS) last year took issue with the Obama-era rule, known as borrower defense. It argued that it created an existential threat for its members in part because it increased the threat of meritless litigation against them. The association had asked the judge to block implementation of the rule while their legal challenge is ongoing.
‘Students should be able to take their schools to court’
Borrower advocates will be watching closely to see how the agency implements certain provisions of the Obama-era rule that could have an immediate and significant impact on borrowers. That includes a requirement to automatically discharge the debt of some borrowers whose schools closed while they were enrolled or shortly after they left. The rule also created a process for borrowers who have been victims of large-scale cases of wrongdoing by schools.
The regulation also bans colleges receiving federal financial aid dollars from requiring students to sign away their rights to file lawsuits against the schools in court or as part of a class-action. That could make it easier for borrowers to sue their schools if they feel they’ve been wronged.
“Even though the Department is not a fan of this rule, it does need to implement it,” said Eileen Connor, the director of litigation at the Project on Predatory Student Lending. “Students should be able to take their schools to court, they should be able to do that collectively. There are thousands of students whose loans should be discharged automatically by the Secretary. Those are all really positive things.”
Devos took steps to delay the rule, which was due to take effect in 2017
Last year, the Devos-led Department of Education took steps to delay the implementation of the rule, which was supposed to take effect in 2017, citing the CAAPs litigation . Two borrowers represented by Public Citizen, a consumer advocacy organization, and Harvard Law School’s Project on Predatory Lending, as well as a group of states attorneys general challenged those efforts to delay implementation of the rule.
Judge Randolph Moss, who was overseeing both cases, ruled last month that the agency’s efforts to delay the rule were illegal, but his ruling did not allow the rule to take effect immediately or resolve CAPPS’s request for the judge to block the rule. On Tuesday, the judge rejected the association’s attempt to block the Obama-era regulation while the association’s lawsuit proceeds, paving the way for the rule to take effect.
Liz Hill, a Department of Education spokeswoman, said in an emailed statement that DeVos “continues to believe the rule promulgated by the previous administration is bad policy.” Still, DeVos respects the role of the court, Hill said, and the Department will soon provide information about the next steps for implementation of the Obama-era rule. A lawyer representing CAAPs didn’t immediately respond to a request for comment.
Steve Gunderson, the president of Career Education Colleges and Universities, an association representing for-profit colleges, called the ruling “disappointing” in a statement, adding that it would create confusion for students and schools.
The rule was a response to the collapse of a major for-profit college chain
Tuesday’s ruling is the latest development in a years-long battle over the borrower defense rule, which allows borrowers to have their federal student debt discharged in cases where they’ve been misled by their schools.
The regulation has been on the books since the 1990s, but borrowers rarely used it until activists organized students who had attended Corinthian and other for-profit colleges accused of misleading students to file claims under the law. With thousands clamoring for relief, the Obama-era Department started developing a process for borrowers to file claims and for the agency to evaluate them.
The rule was supposed to take effect in July 2017, but the DeVos-led Department of Education took multiple steps to delay it. Agency officials are also in the midst of attempting to rewrite the rule, though that version would take effect in July 2020, at the earliest.