States Sue Education Dept. Over Relief for Cheated Students

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Twenty-two states and the District of Columbia sued the Education Department on Wednesday, claiming it broke federal law in adopting new rules for a program meant to wipe out the student loan debt of borrowers whose schools defrauded them.

The new rule also “unreasonably favors the interests of predatory schools over students and would deny relief to borrowers who have been indisputably harmed by their schools,” according to the complaint filed in San Francisco federal court.

The suit was the latest legal battle over the decades-old program, known as Borrower Defense to Repayment, which allows students to ask that their federal loans be eliminated if their schools seriously misled them or violated state laws. Education Secretary Betsy DeVos has called Borrower Defense a “free money” giveaway and repeatedly tried to slash the relief available through the program.

Last year, her agency finalized a policy revision that significantly raised the bar for new claims. Among other changes, the new rule eliminated a group-discharge process, forcing each borrower to pursue relief individually, and required applicants to prove both that their school had knowingly lied to them and that the deception caused them financial harm.

Those requirements “are so onerous that they make this defense impossible for a student loan borrower to assert successfully,” the state attorneys general wrote.

Angela Morabito, a spokeswoman for the Education Department, said: “This is yet another grandstanding, politically driven lawsuit meant to grab a cheap headline, and the media seems to always oblige. To any objective observer, our borrower defense rule clearly protects students from fraud, ensures they are entitled to financial relief if they suffered harm and holds schools accountable.”

State attorneys general have successfully challenged some of Ms. DeVos’s efforts to strip down the borrower-defense system. In 2018, a federal judge ruled in their favor in a lawsuit over a delay implementing a rule created during the Obama administration that made claims easier to pursue. The ruling forced the department to let the delayed rule to take effect, clearing the way for thousands of students enrolled at ITT Technical Institute when it closed to have their loans automatically eliminated.

Ms. DeVos’s revised rule reversed most of the Obama-era changes and applies to all federal student loans made from this month onward. It survived a rare bipartisan effort in Congress to overturn it: Mr. Trump vetoed the bill, and lawmakers couldn’t override him.

The states’ lawsuit says the revision violated the Administrative Procedure Act, a law that guides the federal government’s rule-making process, by imposing “arbitrary and capricious” requirements. The Trump administration has lost dozens of federal court cases on similar grounds.

A second lawsuit challenging the Education Department’s borrower-defense rule revision is already underway in federal court in Manhattan. That complaint, brought in February by the New York Legal Assistance Group on behalf of student borrowers, said the new rule “imposed herculean standards” that would block nearly all claims.

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