Press Release: Wednesday, October 17, 2018

Federal Judge Denies Motion from For-profit School Industry to Delay Critical Protections for Student Loan Borrowers

Federal Judge Denies Motion from For-profit School Industry to Delay Critical Protections for Student Loan Borrowers

Borrower Defense Rule Goes into Effect Immediately; U.S. Department of Education Must Automatically Discharge $381 Million in Loans for Students Whose Schools Closed

BOSTON — In a multistate effort led by Massachusetts Attorney General Maura Healey to save critical student loan protections, a federal judge today rejected a challenge to the Borrower Defense Rule, ordering its immediate implementation for students nationwide.

Today’s ruling in the case – California Association of Private Postsecondary Schools (CAPPS) v. Betsy DeVos – follows a decision by Judge Randolph Moss last month in the U.S. District Court in Washington, D.C., calling Secretary DeVos’ plan to dismantle the federal protections for students cheated by predatory, for-profit schools “unlawful,” “arbitrary and capricious” and “procedurally invalid.”

“This is our latest victory in court against Betsy DeVos and her efforts to scrap these critical protections for students,” AG Healey said. “This is a win for thousands of students across the country who were cheated by predatory for-profit schools. With this rule now in place, the U.S. Department of Education can no longer delay giving students and families the relief they deserve.”

The Borrower Defense Rule implements important protection for students immediately, including approximately $381 million in automatic loan discharges for students whose schools closed on or after November 1, 2013 before they could complete their degrees and who did not re-enroll in another school within three years. The Rule also immediately prohibits for-profit schools that take federal funds from forcing to students into secret arbitration proceedings.

The Borrower Defense Rule 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. AG Healey’s Office had an active role on the Department of Education’s negotiated rulemaking committee that helped develop the Borrower Defense Rule which was set to go into effect on July 1, 2017. In May 2017, Secretary DeVos announced that the Department was reevaluating the Borrower Defense Rule and later announced its intent to delay large portions of the Rule without soliciting, receiving, or responding to any comment from any stakeholder or member of the public, and without engaging in a public deliberative process. The Department simultaneously announced its intent to issue a new regulation to replace the Borrower Defense Rule.

In response, AG Healey, along with 19 other state attorneys general, filed a lawsuit in July 2017, including a related case brought by Public Citizen and the Project on Predatory Student Lending on behalf of two students who attended the now-bankrupt New England Institute of Art, a for-profit school in Brookline, Massachusetts. AG Healey and the students alleged that the U.S. Department of Education violated federal law by abruptly rescinding its Borrower Defense Rule which was designed to hold abusive higher education institutions accountable for cheating students and taxpayers out of billions of dollars in federal loans.

Without the protections of the Borrower Defense Rule, many students defrauded by for-profit schools are unable to seek a remedy in court. The Borrower Defense Rule also prohibits schools from enforcing mandatory arbitration agreements and class action waivers, which are commonly used by for-profit schools to thwart legal actions by students who have been harmed by schools’ abusive conduct.

AG Healey’s Office has been at the forefront of efforts to secure relief for defrauded students. Last month, the AG’s Office urged the Department to rescind its proposed regulations that provided no realistic prospect for borrowers to discharge their loans. In December 2017, AG Healey sued Secretary DeVos for failing to provide federal loan discharges for students victimized by Corinthian Colleges and subjecting them to wage garnishment and tax refund interception. In June 2017, AG Healey demanded that the Department stop delaying loan discharges for students victimized by predatory for-profit schools, including claims that have already been approved. In October 2017, AG Healey sued to protect the Gainful Employment Rule, a federal regulation designed to protect students and taxpayers from predatory for-profit schools.

Addressing fraud and abuse in student lending has been a top priority for AG Healey since taking office, whether taking predatory schools to court, changing the practices of student loan servicers, going after unlawful student loan “debt relief” companies, or helping student borrowers find more affordable repayment solutions through her first-in-the-nation Student Loan Assistance Unit.

Massachusetts borrowers who are looking for student loan help or information should visit the AG’s Student Loan Assistance page or call the Student Loan Assistance Unit Hotline at 1-888-830-6277.