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Federal Judge Upholds Most of DeVos’ Stricter Borrower Defense Rules

By Owen Daugherty, NASFAA Staff Reporter

Former Education Secretary Betsy DeVos notched a legal victory on Wednesday as a federal judge mostly upheld stricter standards put in place under her administration for debt relief for borrowers who were subject to fraud by their institutions.

While U.S. District Judge Lorna Schofield largely ruled in DeVos’ favor on the rewrite of the Obama-era borrower defense rules, she rejected the three-year statute of limitations on borrower claims included in the policy implemented under DeVos when she was at the helm of the Department of Education (ED), ruling that the administration illegally added the three-year deadline for when borrowers must apply for loan forgiveness, according to Politico

The decision Wednesday marks the latest chapter in the borrower defense saga that has seen DeVos’ rewritten rules face numerous legal challenges, this one coming from the New York Legal Assistance Group and represented by both Public Citizen and Harvard Law School’s Project on Predatory Lending, who argued the final rules from DeVos were arbitrary and capricious. 

The final rule from DeVos created a much higher burden of proof for student borrowers to show they were defrauded by their institutions. Under the Obama rule, a student needed to show a substantial misrepresentation by the school to receive relief. DeVos’s rule requires borrowers to show they suffered financial harm from their institution's misconduct and that the college knowingly made deceptive or false statements.

Congress last year passed a resolution to block the DeVos rules from going into effect, but it was vetoed by former President Donald Trump, which paved the way for the rules to take effect last July and apply to all new federal student loans. 

Schofield, an Obama appointee, did not strike down the provision of the DeVos rule that she found violated the law. Politico reports Schofield in the ruling expressed concern about “some degree of disruption to students asserting borrower defenses under the rule currently in place.” She instead sent the rules back to (ED) “for further proceedings consistent with” her ruling.

The ruling likely opens the door for the rules to be revised again, as President Joe Biden said while campaigning that he intends to reinstate the Obama-era borrower defense rules. ED under new Education Secretary Miguel Cardona has not yet issued formal plans on how it will address borrower defense rules.

The DeVos-era rules are currently facing another legal challenge brought forward by 23 state attorneys general. While preliminary approval of a settlement was reached in that case, a federal judge later rejected the settlement due to ED’s blanket denials to ongoing applications, with litigation over the settlement expected to continue.

 

Publication Date: 3/18/2021


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