The Trump administration is delaying new rules that would erase the federal loan debt of student borrowers cheated by for-profit colleges.
The announcement by the Education Department on Wednesday came just weeks before the rules, finalized during the Obama administration, were to take effect on July 1.
The new rules stood to benefit students from failed for-profit colleges already seeking to have their loans forgiven, as well as others who might be eligible to do so. They also established tougher standards intended to check the flow of further federal funds to rogue for-profit operators.
“My first priority is to protect students,” Education Secretary Betsy DeVos said in a statement issued by the department. “Fraud, especially fraud committed by a school, is simply unacceptable. Unfortunately, last year’s rulemaking effort missed an opportunity to get it right. The result is a muddled process that’s unfair to students and schools, and puts taxpayers on the hook for significant costs.”
The department said it would “develop fair, effective and improved regulations to protect individual borrowers from fraud, ensure accountability across institutions of higher education and protect taxpayers.”
In the interim, the department said it would continue to process nearly 16,000 claims for debt relief being made under existing rules, and said some borrowers could expect loans to be discharged within the next several weeks.
The latest moves come amid complaints from veterans’ groups, consumer advocates and state prosecutors that the Education Department is backing off its clampdown on abusive practices within the for-profit sector.
The Obama administration pushed through sweeping regulatory changes after hundreds of affiliated for-profit schools were accused of widespread fraud and collapsed, leaving enrolled students with huge debts and no degrees. The failure of two mammoth chains, Corinthian Colleges and ITT Technical Institutes, capped years of complaints that some career training schools took advantage of veterans and other strivers, using deceptive marketing and illegal recruitment practices.
Few higher-education institutions could survive without federal student aid, which includes billions of dollars in guaranteed loans. Yet the money kept streaming despite warning signs at some schools like surging defaults, failed standards, and numerous government investigations and lawsuits. When students default on federally backed loans, often because high-wage jobs for graduates fail to materialize as promised, taxpayers are left to pick up the bill.
For-profit colleges have vehemently opposed the regulations, known as “borrower defense,” saying they endanger the schools’ viability. They complain that the entire industry is being unfairly singled out.
Industry executives are particularly riled by automatic loan discharges for broad groups of defrauded students; more rigorous financial-risk standards; and a new ban on forced-arbitration agreements, which prevent students from bringing lawsuits.
Under the rules frozen on Wednesday, education officials could, for example, take into account lawsuits, accrediting agency reports, and graduates’ job placement and wage records in deciding whether an institution remains eligible for federal student aid. The goal was to hold violators financially responsible for soured loans instead of dumping the burden on taxpayers.
In its announcement, the department cited as reason for the delay a federal lawsuit to block the new rules filed on May 24 by an association of for-profit colleges in California.
But the justification for the postponement seemed to shift, according to draft Department of Education memos obtained by The New York Times. One memo dated last month showed the department was initially examining whether it could delay implementation in order to assess the budget impact. Another draft dated June 6 cited continuing litigation as the reason.
Critics including Senators Elizabeth Warren of Massachusetts and Patty Murray of Washington, both Democrats, argue that the department cannot unilaterally suspend negotiated rules, which go through a long process intended to ensure that the viewpoints of the public and stakeholders are taken into account.
“They can’t delay the rule before undertaking a similar process,” said Toby Merrill, founder and director of the Project on Predatory Student Lending at Harvard Law School, which represents borrowers.
On Wednesday, eight state attorneys general announced they were seeking to intervene in the California association’s lawsuit in order to protect the rules from being delayed or dismantled. The decision was made “following recent statements by Education Secretary Betsy DeVos that cast serious doubt on the department’s commitment to defend the regulations,” Maura Healey, the Massachusetts attorney general, said in a news release.
A coalition of 31 military and veterans groups also sent a letter to Congress and Ms. DeVos this week stating that “veterans’ applications for relief remain stalled,” and condemning any delay in implementation.