States Say Education Secretary Betsy DeVos Broke Law By Delaying Protections For Student Loan Borrowers

Following Education Secretary Betsy DeVos’ decision to “reset” new regulations put in place to protect students at for-profit colleges, two separate lawsuits now accuse the Secretary of breaking federal law by running roughshod over the regulatory process when she delayed the so-called Borrower Defense rule, which would have made it easier for defrauded students to get out from under their student loan burdens.

This new rule grew out of the recent collapses of major for-profit chains — like Corinthian and ITT — amid allegations that they had used inflated graduation and job-placement rates to mislead new students into paying top dollar for their education.

In Oct. 2016, the Dept. of Education finalized an overhaul of its “Borrower Defense” rule, with the goal of making it easier for students to have their federal loans discharged if they attended a school that had used illegal or deceptive tactics to persuade them to borrow funds to finance their education.

The rule was also revised so that schools receiving federal aid can no longer put forced arbitration clauses in their student enrollment agreements. This is important because these clauses prevent students from suing the school in court and from joining their complaints together in class actions. While arbitration is now commonly used in consumer goods and services, in the education field it is almost exclusively used by for-profit schools.

The new Borrower Defense rule was supposed to take effect on July 1, but Secy. DeVos short-circuited that implementation on June 16, declaring that the rule was being delayed indefinitely.

Students Fight Back

This morning, two separate lawsuits filed against DeVos and the Education Department allege violations of the Administrative Procedure Act, the federal law which dictates the process for creating and revising regulations.

The first lawsuit [PDF] was filed by Public Citizen on behalf of two former students at the New England Institute of Art (NEIA) who owe a total of more than $80,000 in federal student loans and interest.

The two former students want to bring state law complaints against NEIA and its owner, Education Management Corporation, alleging illegal and unfair business practices, including the use of inflated job-placement statistics. However, they can’t make their case in court against NEIA because of the forced arbitration clause in the school’s enrollment agreement. As mentioned above, that clause would have been voided if the revised Borrower Defense rule had been allowed to take effect, argues the lawsuit.

The two plaintiff students have also been waiting for nearly two years for the Education Dept. to make a decision on their pending applications for loan forgiveness under the current Defense rules, which are much less transparent. Under the new rules, the Dept. would have to provide a more transparent process, including giving applicants a written explanation for any denial. Additionally, any non-defaulted loans being reviewed pending under the new Borrower Defense rule would go into automatic forbearance until the outcome of the process.

States Take On DeVos

The second lawsuit [PDF] was filed by a coalition of 18 states and the District of Columbia. It accuses DeVos of using the delay as an illegally expedient way of repealing the Borrower Defense rule without going through the lengthy official process of doing so.

As we’ve covered before, the process of repealing a federal regulation is effectively the same as the process for creating a new rule: proposing the rule, drafting it, seeking comment, finalizing the text. Even the most expeditious rulemaking takes several months. Some rules require years to finalize.

The states contend that, rather than go through this process, DeVos is using a last-minute legal legal challenge filed in May by the California Association of Private Postsecondary Schools (CAPPS), a trade group representing for-profit and private colleges, to justify a de facto repeal of the rule.

Federal law does allow for agencies to postpone new rules “when justice so requires,” and in her explanation of the delay, DeVos notes that CAPPS had “identified substantial injuries that could result if the final regulations go into effect before those questions are resolved.”

However both lawsuits argue that DeVos did not claim or make the case that any damage CAPPS would suffer would be irreparable. Further, they allege the Department is ignoring the harmful effects that this delay will have on student borrowers.

Jumping The Gun

According to the lawsuits, since the Education Department is effectively repealing the Borrower Defense rule by delaying it indefinitely, it violated the law by not going through the required public notice and comment process.

The complaints also allege that DeVos’ explanation for the delay fails to meet the legal standard needed to justify postponing a new regulation, and that her justification was not sufficiently based in the concerns raised by the CAPPS suit. That lawsuit only sought a preliminary injunction on the arbitration-related aspect of the rule, but DeVos has delayed all of the revised provisions from going into effect.

“Since day one, Secretary DeVos has sided with for-profit school executives against students and families drowning in unaffordable student loans,” said Massachusetts Attorney General Maura Healey, who is leading the multi-state coalition. “Her decision to cancel vital protections for students and taxpayers is a betrayal of her office’s responsibility and a violation of federal law.”

Toby Merrill, director of Harvard Law’s Project on Predatory Student Lending, says that delaying the rule will affect hundreds of thousands of student loan borrowers who have bona fide Borrower Defense claims but must navigate a byzantine and outdated system.

“Not only does the Department want to pull back the process it has committed to, but it also is capitulating to companies that want to keep borrowers from enforcing their rights in court,” says Merrill.

In a statement to Consumerist, Education Department Press Secretary Liz Hill called the states’ lawsuit “ideologically driven” and accused the attorneys general of taking a “regulate first, and ask the legal questions later” approach.

Hill reiterates DeVos’ previous argument that the CAPPS lawsuit involves “serious and credible charges that the Borrower Defense regulations exceed the statutory authority conferred on the Department by Congress in the Higher Education Act, violate the Federal Arbitration Act, and deny due process to regulated parties… The Department cannot simply dismiss these allegations.”

The states involved in the lawsuit against DeVos and the Department are Massachusetts, California, Connecticut, Delaware, Hawaii, Illinois, Iowa, Maryland, Minnesota, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, and the District of Columbia.

In June, several of these same states filed a motion to intervene in the CAPPS lawsuit, arguing that the Trump administration would not adequately defend the Borrower Defense rule. That motion is still pending.

(Updated to include statement from Department Press Secretary)