Texas trade association suing to stop new borrower defense rule because it ‘all but ensures’ claims will be approved

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Dive Brief:

  • A trade association representing more than 70 for-profit higher education institutions in Texas said it will file a lawsuit Tuesday to try to stop new rules governing a federal program that forgives loans for borrowers whose colleges misled them.
  • Career Colleges & Schools of Texas said the new regulations for the U.S. Department of Education’s borrower defense to repayment program risk creating “crippling liability” against its members and other colleges in the state. The overhauled borrower defense program, which is set to take effect July 1, creates a process that “all but ensures” borrowers’ claims will be approved, even as it cuts procedures needed to protect colleges against inaccurate loan discharges, the group said.
  • The group argues the new borrower defense regulations should be set aside for violating the U.S. Constitution and federal law directing how agencies establish new regulations.

Dive Insight:

Legal challenges have been widely expected since the Biden administration published final regulations for the borrower defense program last year.

Borrower defense vaulted into the limelight in recent years amid concerns about colleges’ recruiting behavior and intense pressure on for-profit colleges. The program has been stuck in a regulatory tug-of-war for the last decade as different presidential administrations rewrote its rules.

The Biden administration’s new regulations include provisions for the Education Department to recoup the cost of forgiven loans from colleges. They also outline several reasons a borrower defense claim can be approved: if a college misrepresented or omitted facts, breached contracts, or engaged in “aggressive and deceptive recruitment.”

And the rules call for using a “preponderance of the evidence” standard to determine whether a claim merits relief, which means asking if a violation is more probable than not to have occurred.

Education Secretary Miguel Cardona said when the new rules were released that accountability is needed and “in recent decades too many students have been left worse off for having gone to college.”

Advocates have also debated a provision of the new borrower defense rules that would allow the Education Department to consider claims from groups rather than evaluating individual students’ applications.

Student advocates say group claims protect those who don’t know the intricacies of different federal student loan forgiveness programs. But critics representing for-profit colleges balked at the new regulations, arguing Congress didn’t authorize a program to evaluate thousands of borrower defense claims at one time. They also criticized provisions that would allow state attorneys general and legal assistance organizations to form borrower defense groups.

Career Colleges & Schools of Texas is taking a similar tack with its lawsuit, which it said it is filing in U.S. District Court for the Northern District of Texas.

“The BDR Rule’s ‘group’ consideration process will substantially increase the risk of erroneous discharge, permitting countless meritless claims to be granted simply by virtue of being ‘grouped’ with one or more legitimate claims,” it said in a press release. “Rather than establish a process that is fair and equitable to both schools and borrowers alike, the Department promulgated a BDR Rule with a thumb on the scale to maximize the number of approved claims and, ultimately, further the administration’s loan forgiveness agenda.”

Career Colleges & Schools of Texas is a regional partner of Career Education Colleges and Universities, or CECU, a national lobbying group representing for-profit institutions. CECU supports the lawsuit.

“CECU has led the sector’s response to these unlawful regulations because they irrationally expand the potential acts and omissions of schools that give rise to a borrower defense to loan repayment, while eliminating the procedural protections necessary to protect schools against erroneous loan discharges and presumptions of liability,” CECU president and CEO Jason Altmire said in a statement.

Borrower defense has already been the subject of intense legal wrangling over the last several months that shows how fraught the relationship can be among colleges, students, regulators and lenders.

Several colleges fought to stop the Sweet v. Cardona borrower defense settlement between thousands of people with student loans and the Education Department. That settlement automatically clears student loans for some 200,000 borrowers who attended 151 colleges and say those institutions misled them. It also sets up a timeline for the department to review tens of thousands of additional claims.

The borrowers sued in 2019, alleging the Education Department failed to act on their loan forgiveness applications. A federal judge has largely allowed that settlement to move forward despite several colleges protesting that it harms their reputations. U.S. District Judge William Alsup has reasoned in part that the settlement is between the Education Department and students, that it clears out a large backlog of claims and that it does not represent a finding of wrongdoing that could be used to recoup forgiveness costs from colleges.

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