Betsy DeVos Just Got Sued. The Decision Could Affect 68,000 Student Borrowers

Betsy DeVos

This week, a group of 19 state attorneys general sued the Department of Education and its secretary, Betsy DeVos, for delaying a rule meant to protect student loan borrowers.

Comprising the plaintiffs are Democratic attorneys general from 18 states and the District of Columbia. Among them is Maura Healey of Massachusetts.

“Betsy DeVos and the billion-dollar for-profit school industry want to cancel student protections,” she tweeted on July 6. “With 18 fellow AG’s, I’m fighting back.”

Here’s a breakdown of the news — and how it could affect you.

Why did these states sue the Department of Education?

It all has to do with for-profit colleges, whose students hold a disproportionate share of student loan debt. These institutions have also been accused of making false claims about job-placement rates and other statistics.

The pressure became so intense for one such institution, Corinthian Colleges, that it abruptly filed for bankruptcy in 2015, leaving many students wondering what would happen to their loans.

In an attempt to protect students from the predatory practices of Corinthian and similar schools, the Obama administration introduced two regulations: gainful employment (GE) and borrower defense to repayment (BDR).

A few weeks ago, however, Secretary DeVos announced it was time for a “regulatory reset,” during which her department would reassess both regulations.

Although gainful employment will remain in place while being reworked (more details below), the BDR rule, which was set to go into effect on July 1, 2017, was put on hold indefinitely.

The decision to delay BDR prompted the lawsuit by 19 state attorneys general, who said, “the Department effectively canceled a duly promulgated regulation without soliciting, receiving, or responding to any comment from any stakeholder or member of the public, and without engaging in a public deliberative process.”

In their suit, the state attorneys general ask a U.S. District Court to declare DeVos’ delay unlawful and order the Department of Education to implement BDR “promptly.”

Education press secretary Liz Hill, in a statement emailed to Student Loan Hero, called the suit “ideologically driven,” and said that “the state attorneys general are saying to regulate first, and ask the legal questions later.”

What was behind Betsy DeVos’ initial decision?

When it came to reassessing GE and BDR in the first place, here’s what DeVos said:

“Fraud, especially fraud committed by a school, is simply unacceptable. Unfortunately, last year’s rulemaking effort missed an opportunity to get it right. The result is a muddled process that’s unfair to students and schools, and puts taxpayers on the hook for significant costs.”

The Department of Education also cited a pending lawsuit from a group of for-profit institutions, which Hill said makes “serious and credible charges” that they “cannot simply dismiss.”

The state attorneys general lawsuit, however, called the pending litigation “a mere pretext” for creating a new rule “that will remove or dilute student rights and protections.”

Which DOE regulations were affected?

If you’re curious about which regulations were affected by Devos’ original announcement — and how they might change — keep reading.

Gainful employment

This rule, which came into effect on July 1, 2015, will remain active while it’s being reworked. Its purpose is to punish colleges whose graduates are unable to find “gainful employment” after graduation.

If a school’s typical graduate has loan payments exceeding 20 percent of their discretionary income or 8 percent of their total salary, it might lose federal aid. That’s a big deal since federal aid comprises nearly 90 percent of revenue at for-profit colleges.

In January 2017, the Department of Education announced that more than 800 programs had “failed” the new standards and were at risk of losing federal funding. Ninety-eight percent of those programs were offered by for-profit institutions.

If you’d like to see if your school’s on the list, you can search this directory of the failing programs.

Borrower defense to repayment

The borrower defense to repayment rule affects borrowers more directly. It would’ve allowed students who were defrauded to seek forgiveness on student loans. It was set to go into effect on July 1, 2017, but is now on hold indefinitely.

Although there are regulations in place for getting student loans discharged in cases of fraud or misrepresentation, they’re complicated. The new regulations would’ve greatly simplified and streamlined the process.

Borrowers, for example, would’ve been able to seek forgiveness in groups and get their loans canceled all at once — rather than submitting individual petitions.

Under current regulations, student loan borrowers must sometimes wait years before their applications are approved. As of January 2017, more than 68,000 applications were still pending further review.

Here’s what student borrowers think of the BDR delay

Student Loan Hero surveyed 1,000 people from July 6 through 8 and found nearly one-third (32.7 percent) of respondents said they agree or strongly agree with the BDR regulation: Students should not have to repay student loans if a college is found using illegal or deceptive tactics to attract or enroll students.

Furthermore, despite knowing the student loans expected to be forgiven total more than $646 million, 36.6 percent of all respondents said they would still support the BDR rule if it were implemented.

What can student borrowers do?

It’s unclear what will happen in the future. We do know that the borrower defense to repayment rule won’t roll out as planned and both rules will be reviewed by Devos-appointed rulemaking committees.

Regardless of what happens, you can still take steps to improve your situation, if you are affected by high student debt:

If you haven’t applied to school yet, think carefully before attending a for-profit college. Given the latest news, you may have fewer protections if you are duped by a for-profit institution.

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