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Judge Rules for Students Fighting for Loan Forgiveness, Against Education Dept.

By William Vogeler, Esq. on September 25, 2018 | Last updated on March 21, 2019

Students saddled with school loans may get a break after a federal judge ruled in a case against the U.S. Department of Education.

Education Secretary Betsy DeVos had delayed a regulation that gave borrowers a defense against lenders if their schools engaged in misconduct. DeVos stalled the regulation, citing the potential for borrowers to abuse the law.

But the students won a ruling that the department decision was "arbitrary and capricious" in Bauer v. DeVos. In a word, the education secretary got schooled.

Borrowers' Defense

The borrowers' defense rule was meant to protect students and to police for-profit colleges. If students were defrauded, their loans could be forgiven.

But DeVos proposed new regulations that would require students to prove their school knowingly misled them. The new regulations also limited loan forgiveness to students in default, while shortening the eligibility period for students who left an institution before it closed.

Judge Randolph Moss said the education department violated the Administrative Procedure Act. At a status conference after the ruling, the judge gave the agency until Oct. 12 to "remedy the deficiencies."

Representing one of 19 states that joined the lawsuit, Massachusetts Attorney General Maura Healy said the decision was "a victory for every family defrauded by a predatory for-profit school."

"Remedy the Deficiencies"

The original regulation, promulgated by the Obama administration, was scheduled to go into effect in July 2017. But DeVos, President Trump's new education secretary, delayed the rule and issued the new regulation.

Rick Hess, director of education policy at the American Enterprise Institute, said the court ruling against DeVos was "substantively an unfortunate decision."

He told the Associated Press that the Obama regulation "gives blanket forgiveness to students who may or may not have been mistreated or defrauded," and "it puts taxpayers on the hook for potentially large payouts for people who were not misled and suffered no harm."

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