Obama-Era Borrower Defense Regulations Go Into Effect After Federal Judge Ruling

By Allie Bidwell, NASFAA Senior Reporter

After more than a year of delays and legal challenges, the Obama-era borrower defense to repayment regulations took effect Tuesday afternoon, when a federal judge ruled against a group of for-profit institutions that asked for an injunction to block the implementation of the rule.

The ruling led to the regulations, which set out a framework for circumstances under which borrowers may seek to have their federal student loans discharged, immediately taking effect. In the ruling, Washington District Court Judge Randolph Moss wrote that the California Association of Private Postsecondary Schools (CAPPS) had “failed to carry its burden of demonstrating that it, or one of its members, is likely to incur some irreparable injury” if the rule was not blocked.

Education Secretary Betsy DeVos in June 2017 initially set out to delay the implementation of the regulations, claiming the pending lawsuit from CAPPS gave the Department of Education (ED) the authority to halt the effective date of the regulation under section 705 of the Administrative Procedures Act (APA), which states that when an agency finds "that justice so requires, it may postpone the effective date of action taken by it, pending judicial review.”

ED subsequently convened another negotiated rulemaking committee to re-write the regulations, which ultimately ended in February with the group not reaching consensus, giving ED the opportunity to write the regulations as it saw fit, presumably taking into account feedback from stakeholders on the negotiating committee. It’s likely that ED will miss the Nov. 1, 2018 deadline to publish final regulations, meaning the earliest new borrower defense regulations could take effect is July 1, 2020.

Meanwhile, Tuesday’s court ruling means that until ED publishes new, final regulations for borrower defense to repayment, the regulations published by the Obama administration are the law of the land.

Several key changes come along with the ruling. Notably, the Obama borrower defense regulations would ban predispute arbitration agreements, which essentially prohibit borrowers from taking action against a school in court. The regulations also allow for students who attended institutions that closed—such as Corinthian Colleges—to have their loans automatically discharged.

The same federal judge, Randolph Moss, last month also ruled against ED in a simultaneous lawsuit brought on by a group of student loan borrowers challenging DeVos’s delay of the rule.

“It’s extremely validating to see a court agree that what the Department did was wrong, and to know that students who were cheated will finally be able to seek relief,” said Meaghan Bauer, one of the students involved in the litigation, in a statement. “I hope these rulings remind the Department of Education of its obligation to care for its citizens who are the future of this country, and that it will start to act in the interest of students instead of focusing on lining the pockets of for-profit institutions.”

Since DeVos announced the delay of the regulations and ED’s intent to rewrite the rule, other states and consumer groups have filed lawsuits challenging the decision.

California Attorney General Xavier Becerra in July announced the state had amended an existing lawsuit to establish that the state had the right to bring the lawsuit, which claims ED's "failure to expeditiously discharge the entirety" of former Corinthian Colleges students' federal loans violates the Administrative Procedures Act (APA).

Massachusetts Attorney General Maura Healey, who has also been outspoken against DeVos’s decision to delay the regulations and joined in on the students’ lawsuit against ED, said Tuesday’s ruling is “a major victory for families across the country cheated by predatory for-profit schools.”

“With the Borrower Defense Rule in place, Betsy DeVos must no longer delay giving students the debt relief they deserve,” she continued.

It’s unclear, however, how quickly the regulations will be implemented.


Publication Date: 10/17/2018

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