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NY, other states sue over rule narrowing student loan protections

Education Secretary Betsy DeVos, left, on July 8

Education Secretary Betsy DeVos, left, on July 8 and New York State Attorney General Letitia James in January. Credit: Composite: AP / Manuel Balce Ceneta; Charles Eckert

A coalition of 23 states including New York has sued Education Secretary Betsy DeVos and the U.S. Department of Education for drastically narrowing protections for students who allege schools defrauded or misled them.

A U.S. Department of Education rule to take effect this month would limit the scope of defenses used by students to get federal loan relief when schools allegedly use fraud and deception to encourage debt to enroll. In May, President Donald Trump vetoed bipartisan resolutions overturning the rule. Those resolutions had been widely supported by student and veterans groups, who said veterans were frequent targets of predatory for-profit schools.

DeVos' rule replaced a 2016 Obama administration rule updating a 1995 law known as "borrower defense to repayment." She said her rule would protect community colleges, historically Black colleges and universities and taxpayers “from undue harm from the poorly written Obama-era regulation.”

Students will not only have to demonstrate that their school misrepresented a fact, but they also individually must prove that “it did so knowingly or with reckless disregard for the truth.” They would have three years to prove their claim and show they were financially harmed by the deception.

Unlike decades of past practice, students will no longer be able to use state enforcement actions or judgments against schools for violating state consumer protection laws as defenses for federal loan forgiveness.

The states’ suit, filed in U.S. District Court in Northern California, alleges that the DeVos rule was arbitrary and capricious and violates administrative law.

The suit alleges that the new requirements “are so onerous that they make this defense impossible for a student loan borrower to assert successfully.”

The new rule, the coalition said, does not comply with Congress’ requirement that the Education Department “implement a meaningful process for borrowers to obtain relief. Instead, it establishes an illusory process that makes it practically impossible for students to qualify for borrower defense relief” and the department acknowledged as much by “acknowledging” that only around 4% of borrowers eligible for relief would actually be provided assistance.

“The repeal of these critical protections for student borrowers is just the latest in the long list of actions the Trump administration has taken to prioritize profits for predatory schools over the success of our students,” New York State Attorney General Letitia James said in a statement. “Students have a right to a fair, consistent and transparent process of seeking debt relief, and predatory businesses and institutions have an obligation to bear the cost of their misconduct.”

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