Blog

Judge Rules for Project’s Clients; Strikes Down Department of Education Illegal Delay of 2016 Borrower Defense Rule

In another major rebuke to DeVos, the Project wins Bauer v. DeVos case

Judge rules that the Department of Education’s delays in implementing 2016 borrower defense rule were illegal and caused serious harm to borrowers

In a victory for student borrowers, and another massive rebuke to Betsy DeVos, a court this week ruled that the Department of Education’s delays in implementing the 2016 borrower defense rule were illegal. The ruling also rejects the Department’s attempts to do whatever it wants with impunity.

This is an incredibly important win for student borrowers, and really anyone who cares about having a government that operates under the rule of law, rather than as a pawn of the for-profit college industry.

The case, Bauer v. DeVos, was brought by the Project on Predatory Student Lending and Public Citizen in 2017 on behalf of two former students of the New England Institute of Art, which was owned by Education Management Corporation (EDMC).

The ruling establishes that all three of the actions the Department took to thwart the 2016 borrower defense rule were illegal, and that the Department failed to weigh the harm that its delay imposed on student borrowers. The court also found that Department offered a plainly inadequate justification for changing its mind just months after it concluded, in 2016, that the use of forced arbitration by schools was a risk to the integrity of the federal student loan program and unfair to borrowers.

The 2016 borrower defense rule offers far more protection to borrowers, federal student aid programs and taxpayers than the Department’s recent proposal, in ways including:

  • It prevents schools from forcing students to give up their right to go to court;
  • It uses the preponderance of the evidence standard;
  • It offers a fair process for student borrowers to assert school misconduct in defense of their loan obligations, without requiring them to default on their loan obligations first, and allows for an efficient group-based process; and
  • It protects taxpayers by requiring risky schools to post letters of credit as insurance against borrower claims.

This ruling exposes even more flaws in the Department’s recent proposed rulemaking on borrower defense.

The Court explains in many different ways that the Department is entitled to change its conclusions, but it cannot do so without acknowledging its prior conclusions and offering an explanation for its fundamental change in course. And as we documented, the 2018 proposed rule contains serious misrepresentations and fundamental lies.

Today, the judge held a hearing today to consider next steps, including whether the 2016 borrower defense rule should take effect right away. The judge has taken the question under advisement and will issue a further ruling in the coming weeks. We were encouraged that the judge focused on the harm that these significant delays have caused student borrowers, and continue to be outraged that the Department continues to ignore this harm.

The judge also set a very speedy briefing schedule for CAPPS, an industry group of for-profit schools in California, to renew its efforts to get rid of the 2016 rule. CAPPS’s first brief is due on September 24, and the Department, the students, and states have two weeks to respond. In handling this part of the case, the Department will—finally—have to say why it thinks the 2016 rule should not take effect.

We will continue to fight alongside students who are standing up to the Department’s unfair and illegal attempts to delay and eliminate their rights in order to protect a predatory industry.

The ruling has been covered extensively the media, including in the New York Times, Associated Press, MarketWatch, and NPR.

Click here to read more about this and other Project cases.