Student-loan rules take effect after bids for delay denied
WASHINGTON — Rules that lay out how students defrauded by colleges can erase their debt took effect Tuesday after President Donald Trump’s administration and an association of for-profit colleges lost their bids to delay them.
Education Secretary Betsy DeVos is now responsible for implementing rules that she has fought to kill, saying they make it too easy for students to cancel their student loans.
Consumer advocates back the regulations, saying the government must take a more aggressive stance against colleges that routinely take advantage of veterans and vulnerable students.
But conservatives worry about the effect on taxpayers if a large number of student borrowers are allowed to avoid paying off their loans. In addition, colleges, particularly for-profit ventures, opposed the rules drafted by President Barack Obama’s administration, criticizing them as harmful to their programs and to students seeking loans.
In June 2017, DeVos put the regulations on hold and said she would replace them with her own. Two former students of a for-profit college, as well as 19 states and Washington, D.C., sued to stop the delay.
Last month, a U.S. district court said the DeVos move was “arbitrary and capricious” and that the rules should take effect. It gave the agency until last Friday to try to issue a new delay, but the Education Department said it would not try again.
“The secretary respects the role of the court and will defer to its judgment in whether parts of the 2016 rule will go into effect,” Elizabeth
Hill, a DeVos spokesman, said Friday.
But there was one more obstacle. In a related suit, the California Association of Private Postsecondary Schools, an industry group, had asked the court to block the rules. On Tuesday, the court denied the motion and allowed the regulations to take effect.
U.S. District Judge Randolph D. Moss ruled that the association had failed to show it would suffer irreparable harm if the rules took effect, but he did not rule on the merits of the case. He also mentioned the long history already recorded in the case. “This is not the first (and presumably not the last) chapter,” he wrote.
The lawsuit will continue, but in the meantime, the rules are to take effect.
Under the rules, students whose schools closed midprogram or shortly after the programs’ completion will become eligible for automatic loan discharge.
Other provisions allow students to apply for loan discharge as a group. The rules prevent schools from forcing students to sign away their rights to sue. The rules also make sure that the schools, not just taxpayers, bear financial responsibility in case the schools shut down.
More than 100,000 students who say they have been swindled by their schools are currently waiting for the Education Department to consider their applications for loan forgiveness. James Kvaal, president of the Institute for College Access and Success, said the agency must immediately halt debt collections and wipe out the loans of borrowers whose schools have been shut down.
“Today’s decision is a huge win for defrauded borrowers around the country,” said Julie Murray, an attorney who represented the students who sued the department. “The rule is finally in effect. No more excuses. No more delays. Industry will continue to challenge the rule in court, but we will work as long as it takes to defeat those corporate interests and an administration beholden to them.”
Hill, DeVos’ spokesman, said the department still wants to rewrite the regulations.
Students have long had the ability to assert that they are not obligated to repay federal student loans if they were defrauded, but the new regulations help clarify certain questions, including what qualifies as being defrauded.
The 2016 rules were part of a larger crackdown on forprofit colleges by the Obama administration. Under the normal course of events, the regulations would have taken effect July 1, 2017. Instead, that has been in limbo.
This summer, DeVos published her proposed replacement rules, which would make it harder for students to win debt relief. Under the DeVos version, students seeking
to have their federal loans canceled would be required to prove that schools knowingly deceived them. The proposed rules also would scuttle the Obama administration provision that allows similar claims to be processed in groups. Instead, students would have to prove their claims individually.
Officials said at the time that their regulations would be finalized by Nov. 1, the deadline for them to take effect next summer. But this month, officials said the department would miss that deadline. They blamed a flood of public comments that must be sorted and responded to.
This means that the soonest the department can replace the Obama administration-drafted rules is July 2020.
The federal government has a virtual monopoly over the $100 billion-a-year student loan market, so the rules about how it will handle fraud and other issues are seen as important.
Students with existing student loans have been able to ask for loan forgiveness under standards established in 1995. That process was rarely used before two huge for-profit chains, Corinthian Colleges and ITT Technical Institute, collapsed after complaints of deceptive marketing and predatory recruitment.
Information for this article was contributed by Laura Meckler of The Washington Post and by Maria Danilova of The Associated Press.