The Department of Education (ED) changed its rules on how students defrauded by for-profit colleges seek debt relief, leading to a political fight to return the rule to its Obama-era form and a veto from President Trump in support of the rule change.
And now consumer advocates are suing over the program.
A lawsuit filed on Tuesday by Public Citizen and the Project on Predatory Student Lending against the Department of Education (ED) targets the “Partial Relief Rule,” arguing that DeVos’ new standards “wrongfully denies student loan borrowers who have successfully established a claim through the borrower defense process most of the relief to which they are entitled on their federal student loans.”
The Department of Education did not immediately return a request for comment.
‘Arbitrary, capricious, and contrary to law’
The borrower defense rule was originally written into law through the Higher Education Act in the early 1990s and was meant to help victims of fraudulent schools seek relief. Under existing law, borrowers with federal loans are eligible for loan forgiveness if a college or a university has misled them or engaged in other misconduct in violation of certain state laws.
Under the Obama administration, after several for-profit colleges went extinct amid scandals, rules were implemented such that defrauded students who made a successful claim would be granted full debt relief.
Education Secretary Betsy DeVos modified that rule in 2019, and made it tougher to access relief, alleging that the Obama administration left behind a messy set of policies.
“When borrower defense arrived in 1995, it … was little used… in the 20 years from 1995 to 2015, fewer than 60 claims were filed,” she said during a previous hearing in front of the House Committee on Education and Labor. “Then the previous administration weaponized the regulation against schools it simply didn’t like. They applied the law in a discriminatory fashion. So since 2015, there has been a 5,000% increase in borrower defense claims.”
A political spat resulted: Congress rejected DeVos’ new rules, tried to re-install Obama-era rules, which then passed the GOP-controlled Senate, only to be rejected by President Donald Trump. (The House signaled that it would attempt to override the veto.)
The new lawsuit argues that DeVos’ rules made it such that the “vast majority of student borrowers receive only partial or no relief… despite having established a borrower defense claims.”
Previously, when an applicant makes a claim and is successful, all their debt would be dissolved.
Under the new Partial Relief Rule, ED compares the median earnings of recent graduates of the program the borrower attended against the median earnings of recent graduates from similar programs and then decides on the amount of debt relief.
ED’s rule “ignores evidence submitted by borrowers about how their schools’ actions harmed them,” the lawsuit argues. “The Partial Relief Rule adopts a flawed formula, providing borrowers with full debt relief only when the median earnings data from their program are two standard deviations below that of comparison programs. The formula assumes that the data will fall along a normal distribution pattern, but the earnings data do not.”
Aarthi is a reporter for Yahoo Finance covering consumer finance and education. Follow her on Twitter @aarthiswami. If you attended a for-profit college and would like to share your experience, reach out to her at [email protected]