In November 2016, the Department of Education issued a regulation to protect students and the federal investment in postsecondary education, known as the Borrower Defense Rule, scheduled to go into effect on July 1, 2017. The Rule contained four major provisions: (1) limiting participant schools in the Direct Loan Program from forcing their students into forced arbitration or class action waiver contract provisions or enforcing any existing such provisions; (2) creating a streamlined process by which student loan borrowers may seek cancellation of federal loans when the loans were used to attend a school that engaged in fraud or certain other unlawful conduct; (3) new financial responsibility standards for participating schools; and (4) disclosure requirements for schools whose graduates were unable to repay their loans.
Starting in June 2017, the Department of Education issued a series of delay rules aimed to keep the Borrower Defense Rule from ever taking effect. Public Citizen, along with the Project on Predatory Student Lending Project of the Legal Services Center of Harvard Law School, on behalf of two federal student loan borrowers, brought suit to compel the Department to implement the rule without delay, challenging each of the three delay rules as arbitrary and capricious and procedurally improper.
After three rounds of summary judgment briefing, on September 12, 2018, the District Court granted plaintiffs’ motion for summary judgment, and denied defendants’ cross-motion. The court held that each of the three delay rules was unlawful under the APA. First, the court ruled that the Department of Education’s interpretation of the “master calendar rule,” which it relied on in issuing the October 2017 and February 2018 delays, was contrary to law. Second, it held that the Department had improperly invoked the “good cause” exception to avoid negotiated rulemaking as to the February 2018 rule. Finally, the Court held that stays issued by federal agencies pursuant to 5 USC 705 are judicially reviewable, that the Department failed to consider the appropriate factors in issuing its stay pursuant to section 705, and that the analysis the Department did engage in was arbitrary and capricious.
In a follow-up opinion on September 17, 2018, the Court held that vacatur of the delay rules was the appropriate remedy. The Court stayed its ruling with respect to vacatur of the Department’s Section 705 rule “to allow the Department to attempt to remedy the deficiencies identified in the Court’s original opinion,” while noting its skepticism that the Department would be able to do so, and so it could resolve a pending motion for a preliminary injunction in the related CAPPS case, On October 12, 2018, the Department announced it would not attempt to issue another delay, and on October 16, 2018, the Court denied the motion for a preliminary injunction in CAPPS. The 2016 Borrower Defense Rule is now in effect. In December 2018, ED announced that approximately 15,000 student borrowers would see nearly $150 million in loans automatically discharged as the closed school provisions of the Rule went into effect.