DeVos’ attempt to curtail debt forgiveness to defrauded students meets judicial roadblocks

In rulings by two federal judges this week, Secretary of Education Betsy DeVos encountered some roadblocks in her efforts to roll back relief for some defrauded student borrowers who seek to cancel federal student loans.

On Monday, U.S. District Judge Sallie Kim certified a nationwide class action by 110,000 former students of the collapsed Corinthian Colleges who claim the Department of Education violated federal privacy law to obtain their income data, Courthouse News Service reports.

The department used data from the Social Security Administration to eliminate full debt forgiveness for the students, forcing them to repay part of their loans.

On Tuesday, U.S. District Judge Randolph Moss refused to block the Obama-era version of the so-called borrower defense rule from taking effect, report Courthouse News Service, the New York Times and the Washington Post. The rule makes it easier for borrowers to assert misconduct by a for-profit school as a defense to loan repayment.

DeVos wants to rewrite the Obama-era rule to make it tougher to obtain loan forgiveness, but she has agreed not to challenge an earlier decision by Moss allowing the Obama-era rule to take effect.

The rule took effect at noon on Tuesday, the same day Moss refused a request for a preliminary injunction to block the rule by the California Association of Private Postsecondary Schools.

Under the Obama-era revision to the borrower defense rule, borrowers no longer have to default on a loan before they use the defense in a collection action. Students who attended some closed schools would automatically have their loans forgiven.

The changes also define school misconduct more broadly. Now borrowers can assert the defense when a school makes a substantial misrepresentation, and the borrowers reasonably relied on that misrepresentation to their detriment when deciding to attend the school or take out a federal loan.

When the DOE determines a student borrower doesn’t have to repay the debt, it can turn to the school for payment. At-risk schools must provide collateral.

The revisions were adopted after the collapse of Corinthian Colleges in May 2015, according to Moss’ opinion. The DOE had concluded that Corinthian misrepresented job placement rates, leading to thousands of claims for relief and the decision to make debt forgiveness easier in the 2016 borrower defense regulations.

DeVos initially sought to delay the 2016 regulations and replace them with her own version. Among other things, she wanted to require that borrowers asserting the defense prove that their college knowingly misled them. She also wanted to limit availability of the defense to borrowers in default on their loans.

Moss had ruled against DeVos last month in another suit challenging the delay of the 2016 rules. The plaintiffs included 19 states and the District of Columbia. A DeVos spokeswoman told the Washington Post that the DOE would defer to the September judgment on whether the Obama regulations may take effect, but the department still wants to rewrite the regulations.

“Many provisions of the 2016 regulations are bad policy, and the department will continue the work of finalizing a new rule that protects both borrowers and taxpayers,” said the spokeswoman, Elizabeth Hill.