Education Secretary Blocks New Borrower Defense Laws

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Summary: Department of Education Secretary Betsy DeVos has blocked a new set of rules governing student loan forgiveness in relation to fraudulent schools from becoming active.

Department of Education Secretary Betsy DeVos is not making many friends in the student loan debt department.  Democratic attorney generals from 18 states plus the District of Columbia has sued DeVos and the Department of Education after she halted new rules from being implemented that would eliminate student loan debt from students that were taken advantage of by their colleges.

  

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The rules are referred to as borrower defense and would protect students that attend colleges deemed to have acted fraudulently. The rules were finalized in October under the Obama administration’s reign, slated to take effect on July 1. It took the administration years of negotiation and review to reach an agreement that DeVos has essentially swept under the rug.

DeVos is using a federal lawsuit from May by a California for-profit college association that wants the rules permanently blocked. She has already been criticized for her support of for-profit schools. She called the rules “a muddled process that’s unfair to students and schools.” She wants to establish her own committee to look into the rules and possibly making new ones.

This latest lawsuit against her and the department was filed in the Federal District Court in Washington. The leader of the lawsuit, Massachusetts attorney general Maura Healey said, “Since day one, Secretary DeVos has sided with for-profit school executives against students and families drowning in unaffordable student loans. Her decision to cancel vital protections for students and taxpayers is a betrayal of her office’s responsibility and a violation of federal law.”

The Department of Education was also sued by two student borrowers in the same court for delaying the rules. Both students attended New England Institute of Art in Brookline, Massachusetts. The for-profit school stopped enrolling new students two years ago. The parent company of the school, Education Management Corporation, settled a government lawsuit for $95 million that alleged that they made illegal payments to recruiters.

Hundreds of for-profit schools have been accused in the past several years of fraud, resulting in the collapse of most. The largest chains affected were ITT Technical Institute and Corinthian Colleges. This left students with huge amounts of debt and no degree.

A current law allows students to apply for loan forgiveness if their school has been accused of fraud or broken state consumer protection laws. With Corinthian’s breakdown, this system was overwhelmed with over 15,000 loans being wiped away totaling $247 million. Taxpayers foot the bill.

The new laws would have moved some of the responsibility back onto the schools by ordering them to provide financial collateral when they are at risk of closing. The rules would also seek to ban mandatory arbitration agreements, which have prevented a number of students from being able to sue schools that have committed wrongs.

The lawsuits brought by students Meaghan Bauer and Stephano Del Rose focused on the arbitration clause. They want to sue their old school, claiming they were misled on graduate job prospects and earnings. However, they have been unable to sue because of a school contract they signed to requires problems to be solved in arbitration. The new laws would prevent schools from using those clauses. Bauer and Del Rose have been waiting for the rules to be enacted so they could file their lawsuit.

They have both submitted documents to have their federal loans dismissed under the current borrower defense system but it has been pending for almost two years.

Do you think the schools should be responsible for the loans? Tell us in the comments below.

To learn more about the Department of Education, read these articles:

• How Does the Navient Student Loan Scandal Affect You?
• Education Department Making a Killing on Student Loans
• Harvard Law Mismanaged Sexual Assault Allegations, Department of Education Finds

Photo: flickr.com