Rules protect federal student loan borrowers against predatory for-profit colleges

OLYMPIA — Attorney General Bob Ferguson today filed a federal lawsuit to stop the U.S. Department of Education from delaying implementation of Obama-era rules that protect student loan borrowers from predatory and deceptive practices by higher education institutions.

Last week, Ferguson sought permission from the court to join a separate lawsuit defending the borrower defense protections against a suit filed by a coalition of private schools that include for-profit colleges. This legal action seeks to ensure President Trump’s Department of Education complies with the law and implements the protections.

On June 14, Secretary DeVos announced the Department of Education’s decision to delay implementation of the rules, known as the borrower defense regulations. DeVos said the Department of Education will “take a step back” and review the rules. Before the delay, the rules were scheduled for implementation July 1.

In the lawsuit, filed by Washington, Massachusetts, and 17 other states today in the U.S. District Court for the District of Columbia, Ferguson argues the Department did not provide adequate justification or a notice and comment process regarding its delay of the rules.

Ferguson and the attorneys general argue the Department’s decision to delay the rules denies critical protections to the states’ student loan borrowers and violates the Administrative Procedure Act. According to the complaint, the rules deter colleges, including for-profit institutions, from violating consumer protection laws.

Under the rules, a state attorney general’s successful litigation against a school can make its students eligible for student loan forgiveness.

“These protections prevent predatory for-profit colleges from taking advantage of student loan borrowers,” Ferguson said. “By choosing to delay their implementation, Secretary DeVos has failed to protect middle class Washingtonians from crushing debt resulting from these predatory practices.”

The Obama Administration approved the borrower defense regulations in November 2016. Under the rules, the Department of Education would automatically discharge the loans of borrowers whose school closed and who have not re-enrolled in another school within three years. This rule applies to any school closed in or after November 2013, including the closed Corinthian Colleges in Washington state, and allows for the discharge of an estimated $381 million in federal student loans.

The protections also require for-profit schools to clearly disclose lawsuits against them and to show that their programs lead to “gainful employment.”

In addition, the protections prohibit schools from forcing students into arbitration or requiring them to waive participation in class action lawsuits.

The Obama Administration developed the rules in response to state and federal investigations into for-profit schools. For example, the investigation of Corinthian Colleges revealed the institution broke state and federal laws addressing advertising, recruiting, enrolling and lending to students.

For-profit schools obtain most of their revenue from federally funded grants and loans. Data from a senate report show that during the 2009-2010 school year, for-profit colleges took in $32 billion in taxpayer-backed student aid, nearly 86 percent of their revenues. They also spent nearly 25 percent of their revenue on marketing and recruiting, exceeding spending on student instruction.

According to the lawsuit, for-profit schools aggressively recruit students who qualify for federal student loans, disproportionally targeting low-income, minority and unemployed students, as well as veterans.

Their high-cost, for-profit programs often offer little value to students and leave them trapped in debt with loans they cannot afford. According to the states’ complaint, about half of students at for-profit institutions default on their loans. Nearly a quarter default within the first three years of graduation.

Assistant Attorney General Jeff Sprung is handling the case for Washington state.

The Attorney General’s Office has prevailed in three cases against the Trump Administration. Every court to have issued a decision has ruled in favor the Washington Attorney General’s Office in cases it brought against the Trump Administration. These cases include:

In January, a federal judge granted the Attorney General’s request to block implementation of President Donald Trump’s first travel ban executive order. A three-judge panel with the U.S. Court of Appeals for the Ninth Circuit unanimously agreed with that decision. The Trump Administration decided not to appeal and agreed to pay the state of Washington’s legal costs.

After the Attorney General’s Office and a multistate coalition asked the U.S. Court of Appeals for the Second Circuit to review the administration’s delay in implementing new energy efficiency rules for ceiling fans, the U.S. Department of Energy conceded and announced that the rules would go into effect.

On July 3, after the Attorney General’s Office intervened in a lawsuit against the EPA challenging delays in implementing a rule regulating emissions from new oil and gas facilities, a federal panel ruled against the EPA.

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The Office of the Attorney General is the chief legal office for the state of Washington with attorneys and staff in 27 divisions across the state providing legal services to roughly 200 state agencies, boards and commissions. Visit www.atg.wa.gov to learn more.

Contacts:

Brionna Aho, Interim Communications Director, (360) 753-2727; brionna.aho@atg.wa.gov