Betsy DeVos loses student loan lawsuit brought by 19 States

A WASHINGTON FEDERAL court judge on Wednesday ruled that Betsy DeVos and the U.S. Department of Education's postponement of the so-called Borrower Defense rule was procedurally improper. / BLOOMBERG NEWS FILE PHOTO/ZACH GIBSON
A WASHINGTON FEDERAL court judge on Wednesday ruled that Betsy DeVos and the U.S. Department of Education's postponement of the so-called Borrower Defense rule was procedurally improper. / BLOOMBERG NEWS FILE PHOTO/ZACH GIBSON

NEW YORK – U.S. Secretary of Education Betsy DeVos lost a lawsuit brought by 19 states, including Rhode Island, and the District of Columbia, accusing her department of wrongly delaying implementation of Obama-era regulations meant to protect students who took out loans to attend college from predatory practices.

A Washington federal court judge on Wednesday ruled the department’s postponement of the so-called Borrower Defense rule was procedurally improper.

The Obama administration created the rule in the wake of revelations that some for-profit colleges enticed students with promises of an education and diplomas that would allow them to get jobs in their chosen fields. In reality, many of those certifications weren’t recognized by prospective employers, leaving graduates saddled with student loans they couldn’t repay.

The Borrower Defense regulations changed the rules for forgiving student loans in cases of school misconduct and required “financially risky institutions” to be prepared to cover government losses in those instances, according to U.S. District Judge Randolph Moss’s 57-page ruling.

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By postponing the effective date of those regulations, the Education Department deprived students “of several concrete benefits that they would have otherwise accrued,” Moss said. “The relief they seek in this action – immediate implementation of the Borrower Defense regulations – would restore those benefits.”

Writing that he didn’t want to delay matters further, Moss – a 2014 appointee of President Barack Obama – said he will hold a hearing Friday to consider remedies.

The department didn’t respond to a request for comment.

“We are pleased with the Court’s decision in finding Secretary DeVos and the Department of Education postponement of the Borrower Defense rule procedurally improper.  States worked diligently with the Department of Education for several years to develop regulations and safeguards to protect students from predatory for-profit colleges which often left students with near-worthless certificates and skyrocketing student loan debt, “said R.I. Attorney General Peter F. Kilmartin, who was one of the 19 attorneys general who filed the lawsuit. “I appreciate the Court’s recognition of the importance to move forward with the Borrower Defense Rule and willingness to immediately consider remedies.”

The regulations were to take effect on July 1, 2017, but the government delayed implementation in June of that year after the California Association of Private Postsecondary Schools sued challenging the validity of the rule.

DeVos said then that while her “first priority” was to protect students, the Obama administration’s rule-making effort had “missed an opportunity to get it right.” In October, her department provisionally reset the effective date to July 1, 2018, and then, in February postponed it again, now to July 1, 2019.

Moss ruled all those delays were invalid. He rejected a succession of arguments from government lawyers, calling some “unpersuasive,” and others “unhelpful.” His decision also covered claims by two student-borrowers in a lawsuit filed on their behalf by the consumer advocacy group Public Citizen. The states’ suit was later consolidated with it.

The Friday hearing will include California Association attorneys.

The states’ case is Commonwealth of Massachusetts v. U.S. Department of Education, 17-cv-01331, U.S. District Court, District of Columbia (Washington). The individuals’ case is Bauer v. DeVos, 17-cv-1330, U.S. District Court, District of Columbia (Washington).

Andrew Harris and Daniel Flatley are reporters for Bloomberg News.