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Massachusetts sues Betsy DeVos over student loan protections

Education Secretary Betsy DeVos testifies before a subcommittee of the House Appropriations Committee on Capitol Hill, in Washington, June 6, 2017.
Doug Mills | The New York Times
Education Secretary Betsy DeVos testifies before a subcommittee of the House Appropriations Committee on Capitol Hill, in Washington, June 6, 2017.

The Massachusetts attorney general filed a lawsuit on Thursday against the Education Department and its secretary, Betsy DeVos, challenging the department's move last month to freeze new rules for erasing the federal loan debt of student borrowers who were cheated by colleges that acted fraudulently.

The rules, known as borrower defense, were finalized in October by the Obama administration after years of negotiation and review, and they had been scheduled to take effect on July 1. But after President Trump took office, Ms. DeVos paused the planned changes, citing a federal lawsuit filed in May by an association of for-profit colleges in California that is seeking to block the rules.

Ms. DeVos also criticized the rules, calling them "a muddled process that's unfair to students and schools," and she said she would establish a new rule-making committee to reconsider the matter from scratch.

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In its lawsuit, filed in Federal District Court in Washington, Massachusetts called the agency's rationale for the delay — the California lawsuit — a "mere pretext" for repealing and replacing rules that had already been finalized. The state is seeking to have the rules restored.

"Since day one, Secretary DeVos has sided with for-profit school executives against students and families drowning in unaffordable student loans," said Maura Healey, the state's attorney general. "Her decision to cancel vital protections for students and taxpayers is a betrayal of her office's responsibility and a violation of federal law."

Seventeen other states and the District of Columbia are backing Ms. Healey's challenge. The Education Department did not immediately respond to a request for comment.

The Obama administration's push to streamline and expand the borrower defense process came after hundreds of for-profit colleges were accused of widespread fraud and collapsed, leaving their enrolled students with huge debts and no degrees. The failure of two mammoth chains, Corinthian Colleges and ITT Technical Institute, gave the issue added urgency.

An existing federal law allows borrowers to apply for loan forgiveness if they attended a school that misled them or broke state consumer protection laws. Once rarely used, the system was overwhelmed by applicants after the wave of for-profit failures. Corinthian's collapse alone led to more than 15,000 loan discharges, with a balance of $247 million.

Taxpayers get stuck with those losses. The rules that Ms. DeVos froze would have shifted some of that risk back to the industry by requiring schools at risk of closing to put up financial collateral. They would also ban mandatory arbitration agreements, which have prevented many aggrieved students from suing schools that they believe have defrauded them.