Betsy DeVos' Plan To Replace Obama-Era Student Loan Rules Hit Another Roadblock

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On Tuesday, a judge ruled that the Obama-era student loan rules Betsy DeVos had been delaying will officially go into effect. The rules, which laid out paths for students who have been defrauded by colleges to erase their debt, have been frozen for over a year as DeVos has worked to kill them, claiming that they make it too easy for students to cancel their student loans.

The Obama-era regulations have been on hold since June 2017, when DeVos froze them and suggested she was going to replace them with her own. A month later, DeVos released the rewritten rules, which would limit relief for defrauded students, and predicted they'd take effect the following July in 2019. However, two college students (along with 19 states and D.C.) soon sued the government for delaying the Obama-era rules.

To be clear, the lawsuit is still ongoing. But U.S. District Judge Randolph D. Moss, the judge who made the decision on Tuesday, has decided that the Obama-era rules should take effect until the lawsuit is otherwise determined.

Julie Murray, the attorney representing one of the students, said on Tuesday to reporters, “Today’s decision is a huge win for defrauded borrowers around the country. No more excuses. No more delays. Industry will continue to challenge the rule in court, but we will work as long as it takes to defeat those corporate interests and an administration beholden to them.”

The Department of Education confirmed last Friday that it will not seek a new delay, regardless of Judge Moss's reinstatement or the final verdict on the lawsuit. A spokesperson for DeVos said to reporters on Friday, “The secretary respects the role of the court and will defer to its judgment in whether parts of the 2016 rule will go into effect."

However, the spokesperson also confirmed that the Department of Education still wants to rewrite the Obama-era regulations. She said, “Regardless of what the court decides, 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."

The Obama-era loan borrower protections will now make it easier for defrauded students to have their federal loans forgiven if their for-profit college was abruptly closed or engaged in fraudulent activity. It will also prevent colleges from forcing students to resolve their complaints within arbitration, rather than going to court to settle the dispute.

The rule was written by the Obama administration in 2015 after Corinthian Colleges collapsed, leading to an unprecedented number of claims by students who said they had been defrauded; when further investigation revealed that Corinthian Colleges had deceived students with false job placement numbers, the government took action.

Three years later, it appears that the rule might finally begin to enact change within the tangled world of the student loan industry. And given that the government has a $100 billion monopoly on the student loan industry via federal loan servicing, the enactment of this rule could have a massive ripple effect for hundreds of thousands of students and former students across the country.

Massachusetts Attorney General Maura Healey, who was one of the leaders in the legal battle to end the delay, said to reporters on Tuesday, “[The ruling] was a win for thousands of students across the country who were cheated by predatory for-profit schools.”