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Press Release

Attorney General Shapiro Protects Student Borrowers as Federal Judge Denies Motion from For-Profit School Industry

October 17, 2018 | Topic: Peoples AG

Borrower Defense Rule Goes into Effect Immediately; U.S. Department of Education Must Automatically Discharge $381 Million in Loans for Students Whose Schools Closed

HARRISBURG — Following a successful effort by state Attorneys General to save critical student loan protections, a federal judge today rejected a challenge to the Borrower Defense Rule and ordered its immediate implementation for students nationwide.

Today’s ruling in the case – California Association of Private Postsecondary Schools (CAPPS) v. Betsy DeVos – follows a decision by Judge Randolph Moss last month in the U.S. District Court in Washington, D.C., calling Secretary DeVos’ plan to dismantle the federal protections for students cheated by predatory, for-profit schools “unlawful,” “arbitrary and capricious,” and “procedurally invalid.”

“Today’s ruling is a major win for student consumers who have been misled by predatory for-profit schools and student loan providers,” said Attorney General Shapiro.  “The Trump Administration’s Department of Education and Secretary DeVos continue to protect the interests of institutions and corporations over those of students. Together with 19 of my colleagues, I fought back and won for student borrowers, their families, and the rule of law.”

The Borrower Defense Rule, which was made effective immediately, implements important protections for students, including approximately $381 million in automatic loan discharges for students whose schools closed on or after November 1, 2013 before they could complete their degrees and who did not re-enroll in another school within three years. The Rule also immediately prohibits for-profit schools that take federal funds from forcing to students into secret arbitration proceedings.

The Borrower Defense Rule was finalized by the Obama administration in November 2016 after nearly two years of negotiations, following the collapse of Corinthian Colleges, a national for-profit chain of schools.  The Rule was set to go into effect on July 1, 2017.  But in May 2017, Secretary DeVos announced that the Department was rescinding the Borrower Defense Rule and later announced its intent to delay large portions of the Rule without soliciting, receiving, or responding to any comment from any student, stakeholder, or member of the public, and without engaging in a public deliberative process. The Department simultaneously announced its intent to issue a new regulation to replace the Borrower Defense Rule.

In response, a coalition of state attorneys general including Attorney General Shapiro, filed a lawsuit in July 2017, alleging that the U.S. Department of Education violated federal law by abruptly rescinding its Borrower Defense Rule, which was designed to hold abusive higher education institutions accountable for cheating students and taxpayers out of billions of dollars in federal loans.

Without the protections of the Borrower Defense Rule, many students defrauded by for-profit schools are unable to seek a remedy in court. The Borrower Defense Rule also prohibits schools from enforcing mandatory arbitration agreements and class action waivers, which are commonly used by for-profit schools to thwart legal actions by students who have been harmed by schools’ abusive conduct.

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