Personal Finance

Judge orders protections for defrauded students to go into effect 

Key Points
  • A judge ruled on Tuesday that an Obama-era rule aimed at cancelling the debt of students defrauded by for-profit schools would go into effect immediately. 
  • The Trump administration and the for-profit college sector fought to delay that regulation. 
  • Many defrauded students could finally get their federal debt cancelled. 
A student outside ITT Technical Institute after it abruptly closed, in Vista, California, Sept. 6, 2016. It seems only right that victims of predatory for-profit education companies should have their student loans forgiven.
Sandy Huffaker | The New York Times

A judge ruled on Tuesday that an Obama-era set of consumer protections for defrauded students will go into effect immediately, after repeated attempts by the Trump administration and the for-profit college sector to delay the regulation.

"Today's decision is a huge win for defrauded borrowers around the country," said Julie Murray, an attorney at Public Citizen Litigation Group. "The rule is finally in effect. No more excuses. No more delays."

Judge Randolph D. Moss, a federal judge in Washington, D.C., denied on Tuesday an industry group's request to postpone the rule. That comes after Moss ruled last month that Education Secretary Betsy DeVos's delays of the regulation were unlawful.


Now that the Obama-era regulation, known as borrower defense, is in effect, there is a clear process through which defrauded students can have their federal student loans cancelled. Certain students whose schools closed while they were enrolled will be entitled to an automatic discharge of their debt.

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In addition, schools that receive federal funding can't force their students into arbitration or require them to forgo class actions.

More than 160,000 people have claimed to the government that their school defrauded them, and new applications continue to pour in. Almost all of these complaints come from for-profit schools, of which there are some 7,000 around the country.

Many of these borrowers have found themselves waiting without answers.

In 2016, the Obama administration announced the regulation aimed at canceling the debt of those with degrees from schools that misled or deceived them.

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Before the regulation could go into effect in July 2017, an industry group of the for-profit college sector, the California Association of Private Postsecondary Schools, filed a lawsuit with the Education Department, arguing the regulation was outside the government's authority.

Soon after, the Department announced it was postponing certain provisions of the regulation. Speaking at a conference, DeVos said that under the current rule, "all one had to do was raise his or her hands to be entitled to so-called free money."

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Eileen Connor, director of litigation at Harvard's Project on Predatory Student Lending, said the Education Department had no legal right to delay the rule in the first place.

"Now they have no choice but to cede the fight and implement the 2016 borrower defense rule as they should have done a long time ago," Connor said.

The Trump administration has proposed to rewrite the regulation, but the Obama-era rule will be in effect for at least the next two years.