Court allows Obama-era student loan rules to take effect, delivering defeat to Devos

Students defrauded by colleges can now erase their debt

WASHINGTON – Obama-era rules that lay out how students defrauded by colleges can erase their debt took effect Tuesday, after the Trump administration and an association of for-profit colleges lost their bids to delay them.

That means that Education Secretary Betsy Devos is now responsible for implementing a rule that she said makes it too easy for students to cancel their student loans and that she has fought to kill.

Consumer advocates back the regulations, saying the government must take a more aggressive stance against colleges that they say routinely take advantage of veterans and vulnerable students.

But conservatives worry about the hit 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 Obama administration rules as harmful to their programs and students seeking loans to attend them.

In June 2017, Devos put the regulations on hold and said she would replace them with her own. Two former students of a forprofit college, as well as 19 states and Washington D.C., sued to stop the delay.

Last month, a U.S. district court said that 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 spokeswoman, 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 rule took effect but did not rule on the merits of the case. He also nodded to the long history already recorded in the case. “This is not the first (and presumably not the last) chapter,” he wrote.

The suit will continue, but in the meantime, the rules are to take effect.

“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, the Devos spokeswoman, said the department still wants to rewrite the regulations.

“Regardless of what the court decides, many provisions of the 2016 regulations are bad policy, and the department will continue the work of finalizing a new rule that protects both borrowers and taxpayers,” she said.

Students have long had the authority to assert that they are not obligated to repay federal student loans if they were defrauded, but these new regulations help clarify what exactly qualifies as defrauded and other related questions.

The 2016 rule was part of a larger crackdown on for-profit colleges under President Barack Obama. Under the normal course of events, that regulation Education Secretary Betsy Devos at the Conservative Political Action Conference in National Harbor, Md., on Feb. 22.

would have taken effect July 1, 2017. Instead, it has been in limbo.

This summer, Devos published her proposed replacement, making it harder for students to win debt relief. For instance, under the Devos version, students were required to prove schools knowingly deceived them in order to get their federal loans canceled. And it scuttled an Obama administration provision that allowed similar claims to be processed as a group. Instead, students would have to prove their claims individually.

Officials said at the time that their regulation would be finalized by Nov. 1, the deadline for it 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-era 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 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 following complaints of deceptive marketing and predatory recruitment.