Bauer v. DeVos

Consumer Justice
Case Description: 

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 June 2017, the Department of Education delayed the effective date of key portions of the rule pending resolution of claims in another case brought by a trade group to invalidate the rule. The Department relied on the Administrative Procedure Act (APA), 5 U.S.C. 705. 

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, arguing that the Department’s delay violates the APA.  In late October 2017, while plaintiffs’ motion for summary judgment was pending, the Department issued an “Interim Final Rule,” stating that even if the delay pursuant to section 705 of the APA were struck down, or if the companion case was resolved, the earliest the Borrower Defense Rule could go into effect was July 1, 2018.  The Department claimed this was required by the Higher Education Act’s “master calendar rule.”  We amended our complaint, and in November, filed a renewed motion for summary judgment, arguing that the new Interim Final Rule also was unlawful, both because of its incorrect interpretation of the master calendar rule and because it was issued without notice and comment or negotiated rulemaking.

After the second motion for summary judgment was fully briefed, the Department acted again, issuing a third rule, delaying the effective date of the Borrower Defense Rule to July 1, 2019—explicitly for the purpose of giving it time to complete the rulemaking process to “revise” the Rule without the Rule’s protections ever going into effect. We amended our complaint again, and filed a third motion for summary judgment in March 2018.

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’s 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.