Consumer Fraud

18 States Sue DeVos, DOE Over Student Loan Rule

Piggy Bank Drowning in Debt 315x210 18 States Sue DeVos, DOE Over Student Loan RuleEighteen states and the District of Columbia are suing Education Secretary Betsy DeVos and the Department of Education over their plans to rescind a rule that would make it easier for students of predatory for-profit colleges to have their loans forgiven.

The Borrower Defense Rule was adopted by the DOE in November and was set to take effect this month. Under the rule, students could have their loans erased if their for-profit college misrepresented the quality of its programs or broke a “contractual promise” with its students.

The rule also would also allow the DOE to seek recovery of loan funds from for-profit colleges where student loans were forgiven.

DeVos claims that the rule is “overly burdensome and confusing.” She delayed the rule from taking effect and planned new public hearings on it for this month.

The states that filed suit allege that DeVos’ delay of the federal rule is unlawful and called for its immediate implementation. According to NPR, “the states (also) say they have pursued ‘numerous costly and time-intensive investigations and enforcement actions against proprietary and for-profit schools’ that violated consumer protection laws.”

“Since Day 1, Secretary DeVos has sided with for-profit school executives against students and families drowning in unaffordable student loans,” Massachusetts Attorney General Maura Healey said about Thursday’s court filing. “Her decision to cancel vital protections for students and taxpayers is a betrayal of her office’s responsibility and a violation of federal law. We call on Secretary DeVos and the U.S. Department of Education to restore these rules immediately.”

New York Attorney General Eric Schneiderman chimed in, “These rules served as critical protections against predatory for-profit schools that exploit hardworking students — students who are simply trying to invest in their own education and future.”

“When Washington abdicates its responsibility to protect New Yorkers, we won’t hesitate to step in,” Schneiderman added.

The lawsuit was filed by the attorneys general of California, Connecticut, Delaware, Hawaii, Iowa, Illinois, Maryland, Massachusetts, Minnesota, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, and the District of Columbia.

According to the complaint, since 2012, the states involved in the lawsuit have initiated investigations and taken enforcement actions against the following colleges for “predatory” and “abusive” practices:

  • Career Education Corporation (including the Sanford Brown Schools)
  • The Career Institute LLC
  • Corinthian Colleges Inc.
  • DeVry University
  • Education Management Corporation
  • ITT Educational Services Inc.
  • Kaplan Higher Education Inc.
  • Lincoln Technical Institute
  • MalMil Ventures LLC, d/b/a Associated National Medical Academy
  • Minnesota School of Business Inc. and Globe University
  • The Salter School
  • Sullivan & Cogliano Training Centers Inc.
  • Westwood College Inc.

“For-profit schools receive the vast majority of their revenue from the federal government in the form of federal student loans and grants,” the complaint notes. “In 2009, the fifteen publicly traded for-profit education companies received 86 percent of their revenues from taxpayer-funded loans. Taxpayers invested $32 billion in for-profit schools in the 2009-10 academic year, more than the annual budget of the U.S. Department of Justice and the U.S. Department of State during that time period.”