The Higher Education Act provides that student borrowers who have been harmed by their school’s misconduct, and those whose schools suddenly close while they are enrolled, may be eligible to have their federal student loans cancelled. In 2016, the Department of Education issued regulations that sought to hold predatory schools more accountable for their misconduct and to make it easier for students to navigate both the “borrower defense” and “closed school discharge” loan-cancellation processes. In Bauer v. DeVos, Public Citizen, along with the Project on Predatory Student Lending at Harvard Law School, represented student borrowers in a successful challenge to the Department’s attempts to delay that rule; in CAPPS v. DeVos, we successfully helped to defend aspects of that rule against an industry challenge.
In 2019, the Department issued a new rule that largely rescinded the 2016 rule—creating new procedural requirements for student borrowers, imposing a higher evidentiary standard for students seeking relief, rescinding various disclosure requirements that educated student borrowers, and eliminating provisions that held schools responsible for their misconduct, including conditions on the use of forced arbitration provisions and class action bans.
In February 2020, Public Citizen and the Project on Predatory Student Lending, representing plaintiff New York Legal Assistance Group (NYLAG), filed a lawsuit challenging the 2019 Rule as both procedurally and substantively flawed. Procedurally, the suit alleges that, by refusing to discuss features of the 2016 Rule or explain its position as to various aspects of its proposal at the 2017‑2018 negotiated rulemaking sessions, the Department failed to comply with the special “negotiated rulemaking” requirements that apply to Higher Education Act regulations. The suit also alleges that the Department engaged in procedural violations by not allowing new comments or providing for public participation after the 2016 Rule went into effect—even though the Department purported to rely on its experience implementing the 2016 Rule in issuing its final 2019 Rule—and by including in the final rule a statute of limitations for so-called “defensive” borrower defense claims that was not a “logical outgrowth” of the proposed rule. Substantively, the suit alleges the Rule is arbitrary and capricious because, among other things, it is contrary to the evidence of the record, unjustifiably imposes burdens on students and those who assist them, including groups like NYLAG, and fails to acknowledge the role the 2016 Rule had in incentivizing institutions not to make misrepresentations.
In March 2021, the district court ruled on the parties’ cross-motions for summary judgment. It agreed that the statute of limitations for “defensive” claims was not a logical outgrowth of the proposed rule and remanded that rule to the Department to address that problem. The court upheld the remainder of the Rule.
We appealed to the Second Circuit, arguing that the district court erred in declining to find the Rule arbitrary and capricious, and in refusing to vacate the part of the Rule it found unlawful. In January 2024, the court of appeals, agreeing that the district court had abused its discretion by failing to consider severing and vacating the portion of the rule that it found unlawful, issued a limited remand to the district court to reconsider that issue, while retaining jurisdiction over the other issues raised in the appeal.