New Regulations Impose Near-Impossible Standards for Defrauded Students Seeking to Cancel Loans
NEW YORK – Student advocates filed suit today to invalidate the U.S. Department of Education’s new borrower defense rules, which reverse vital protections from predatory schools and impose onerous standards and procedural hurdles for defrauded students seeking to assert their legal rights to cancel loans.
The complaint was filed by the Project on Predatory Student Lending and Public Citizen Litigation Group on behalf of the New York Legal Assistance Group (NYLAG), in the U.S. District Court for the Southern District of New York. The lawsuit challenges borrower defense regulations published in September 2019 that are due to take effect in July 2020.
Federal law provides that students may seek cancellation of their federal student loans when the schools they attended engaged in misconduct or closed suddenly. Based on the inadequacy of the standards at the time, in 2016 under the Obama administration, the Department of Education issued new rules to protect student borrowers and federal taxpayers. U.S. Secretary of Education Betsy DeVos attempted to block those rules from going into effect three times – and lawyers from Public Citizen Litigation Group and the Project on Predatory Student Lending were successful in having those attempts declared illegal.
Undeterred, the Department of Education in 2019 issued a new rule, which resulted from a fatally-flawed process and is grounded on the false premise that student borrowers are the bad actors. Ignoring the department’s responsibility to students and taxpayers, the rule protects predatory schools from liability for their bad behavior. The rule is contrary to the purpose of borrower defense, which is to allow cheated borrowers to cancel fraudulent debt. Among other harmful changes, the new rule:
- Eliminates conditions on the use of forced arbitration and class-action bans;
- Increases the hoops students must jump through to obtain relief when their schools close;
- Removes key disclosure requirements that inform students about their schools’ status;
- Imposes a narrow three-year statute of limitations for borrowers to raise claims;
- Eliminates the ability of borrowers to seek or be granted relief on a groupwide basis; and
- Heightens the evidentiary standard to which borrowers’ claims would be held, including requiring students to offer proof of financial harm beyond that of the federal loan itself.
- As a result of these changes, student borrowers will be harmed, and organizations like NYLAG, a nonprofit that provides services including financial counseling and legal assistance to student borrowers, will see an increase in their workload.
“Although the Department of Education uses ‘Institutional Accountability’ in the title of this rule, the reality is this rule does not hold schools accountable,” said Adam Pulver, attorney for Public Citizen. “Rather, DeVos’ new rule allows predatory institutions to escape responsibility for their deceptive and misleading conduct, and forces students – and organizations like NYLAG – to bear the consequences.”
“This devastating rule goes above and beyond the department’s other significant efforts to deny defrauded students loan relief,” said Project on Predatory Student Lending Director Toby Merrill. “It imposes impossible standards for defrauded students seeking to assert their legal rights to loan cancellation, and relies on explanations that defy logic and rest on no evidence. There is no question this rule is illegal and will not stand up in court.”
“If allowed to go into effect, this rule not only would harm thousands of student loan borrowers with low income in New York and across the country, but also put a drain on the resources of NYLAG and other organizations that assist borrowers in seeking the relief they are entitled to. By issuing this rule, Secretary DeVos is helping for-profit schools evade responsibility and putting even more of a burden on students facing crushing debt,” said Jane Greengold Stevens, co-director of NYLAG’s Special Litigation Unit.
The complaint also asserts that the department failed to comply with procedures required by law to implement the new rule. In addition, the justifications offered in support of the 2019 rule are contrary to logic and are unsupported by the record. The Department of Education’s own reasoning does not support its conclusions. It has gone outside the boundaries of law in its quest to deny relief to borrowers, the groups maintain.
Public Citizen and the Project on Predatory Student Lending previously worked together representing two former Art Institutes students in a case that forced the Department of Education to implement the 2016 borrower defense rule despite its repeated illegal delays, and in another case, the two groups successfully defended the lawfulness of the 2016 rule.
About New York Legal Assistance Group
Founded in 1990, the New York Legal Assistance Group (NYLAG) is a leading not-for-profit civil legal services organization advocating for adults, children, and families that are experiencing poverty or have low income. We tackle the legal challenges and systematic barriers that threaten our clients’ economic stability, well-being, and safety. We are committed to diversity, equity, and inclusion and constantly improving how we respond to systemic issues of racism that affect our clients in their pursuit of justice. We address emerging and urgent needs with comprehensive, free civil legal services, direct representation, impact litigation, policy advocacy, financial counseling, medical-legal partnerships, and community education and partnerships. Last year, we affected the lives of 90,800 people.
About Public Citizen Litigation Group
Public Citizen Litigation Group is the litigating arm of Public Citizen, a nonprofit consumer advocacy organization that champions the public interest in the halls of power. Public Citizen defends democracy, resists corporate power and works to ensure that government works for the people. Public Citizen works to protect the rights of consumers to access the courts and to stop rollbacks of important consumer, worker and environmental protections.
About the Project on Predatory Student Lending
Established in 2012, the Project on Predatory Student Lending represents former students of predatory for-profit colleges. Its mission is to litigate to make it legally and financially impossible for federally funded predatory schools to cheat students. The Project has brought a wide variety of cases on behalf of former students of for-profit colleges. It has sued the federal Department of Education for its failures to meet its legal obligation to police this industry and stop the perpetration and collection of fraudulent student loan debt.