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Department of Education on Last Leg in Student Loan Forgiveness Case

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By Lisa M. Schaffer, Esq. on September 18, 2018 | Last updated on March 21, 2019

Betsy DeVos's Department of Education was dealt a severe blow for its delay in carrying out the Borrower's Defense to Repayment, which was supposed to go into effect on July 1. Attorneys general from 19 states and the District of Columbia filed suit, claiming the delay violated the Administrative Procedures Act because DeVos did not meet the standard for a delay, give proper notice, or afford adequate time for public comment.

The federal court ruled last week that the delay was "arbitrary and capricious," or in other words, not fair and illegal. The judge has given the Department until October 12th to either offer stronger justification for the delay, or else the Repayment rule will take effect immediately.

What Is the Rule?

This rule, ushered in during the Obama Administration in 2015, forgives some, or all, of a student's loan taken out to attend certain colleges that were found to have defrauded its students into believing they were receiving a near guarantee of a well paying job in their field of study upon graduation. Forgiveness depends on a sliding scale of multiple factors examined on the Defense of Repayment application.

The public policy behind the rule is that these individuals were defrauded, and then hit with a double-whammy upon graduation of loan repayment and no higher paying job. The result was falling deeper and deeper into debt. To date, over 130,000 borrowers have applied for debt forgiveness, most attending for-profit colleges.

Why the DeVos Delay?

This system, which has already cost U.S. taxpayers over $550 million since 2015 under a prior act, has been criticized for affording blanket forgiveness without a close examination of each case. Some taxpayers, still irate over the mortgage crisis bailout which cost every American $70,000, feel that the law is another unfair blow to the fiscally responsible subset of America taxpayers, and would prefer to rewrite the law to require more information before forgiving the loan. DeVos had moved to freeze the entire Repayment system until the law could be re-written to raise the bar on federal loan relief claim, including a requirement that borrowers prove intent of the for-profit institutions - that they either knowingly misled students or acted with "reckless disregard for the truth", and result in cutting repayment forgiveness by $13 billion.

Requiring Proof of Intent -- Is That Fair? Or Even Possible?

In criticizing the DeVos requirement, opponents believe that the new "intent" burden placed on those applying for forgiveness is almost insurmountable, since many of the colleges have gone out of business or otherwise hold tight to the key facts and evidence necessary to proving intent. They agree with the ruling of U.S. District Court Judge Randolph Moss that that delay was procedurally invalid, since the Department was basically trying to re-write policy, which is not its mandate and outside of its scope of power. Also, the judge believed the department's rationale for requiring intent lacked any "meaningful analysis." Many, perhaps including the federal judge, believe that this is just a stall tactic while the department attempts to repeal the rule, and replace it with more diluted relief.

There are many different student loan repayment options. If you or someone you love is encumbered by debt from student loans taken out to attend a for-profit or technical institute that promised you an education they didn't deliver, contact a local consumer protection attorney, who can point you in the right direction for possible relief of part, if not all, of your student debt.

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