In November 2016, the Department of Education adopted the Borrower Defense Rule, a regulation that consists of numerous provisions to protect students and the federal investment in postsecondary education. Once effective, the rule will require schools that participate in the Direct Loan Program not to rely on existing agreements or enter into new agreements with their students that include forced arbitration provisions or provisions waiving students’ right to participate in certain class actions. The rule will also provide needed protections to a longstanding right (often referred to as a “borrower defense”), for student loan borrowers to seek cancellation of federal loans when the loans were used to attend a school that engaged in fraud or certain other unlawful conduct. In May 2017, the California Association of Private Postsecondary Schools (CAPPS) filed suit against the Department of Education seeking to invalidate the rule. Along with the Project on Predatory Student Lending, Public Citizen represents two federal student loan borrowers who intervened in the suit as defendants to help defend the rule. After the Department delayed key provisions of the rule in actions challenged by the borrowers in another lawsuit (Bauer v. DeVos), the district court stayed proceedings in this case as it considered the legality of the delay in Bauer. In September 2018, the district court held in Bauer that the delay actions taken by the Department were unlawful.
On September 22, 2018, CAPPS moved for a preliminary injunction to enjoin four major provisions of the rule. Public Citizen filed an opposition on behalf of our student borrower clients. The Court denied the motion in its entirety on October 16, 2018, finding that CAPPS had failed to demonstrate a substantial likelihood of irreparable harm.
The parties filed cross-motions for summary judgment, in which we defended the Rule’s forced arbitration and class action waiver provisions as lawful exercises of ED’s authority and supported by the record. After briefing was complete, the court concluded that Public Citizen’s clients no longer had standing to participate as intervenors in light of CAPPS’s changes to its complaint, but allowed them to participate as amici. In January 2020, the court issued a decision finding the arbitration and class-action provisions valid for reasons that closely tracked our arguments, and entered a judgment upholding the Rule.
CAPPS appealed the district court’s decision to the U.S. Court of Appeals for the D.C. Circuit. After the Department of Education’s 2019 borrower defense rule went into effect, CAPPS and ED suggested that the case was moot, and requested the appellate court vacate the lower court’s decision on those grounds. In October 2020, the D.C. Circuit dismissed the appeal and vacated the district court’s decision as moot.