Minnesota, 18 other attorneys general sue DeVos over delay in student loan forgiveness

WASHINGTON – Minnesota has joined 17 states and the District of Columbia in suing U.S. Secretary of Education Betsy DeVos for rescinding a rule that would have let students take for-profit colleges to court and have their education loans forgiven in cases of fraud.

The suit comes a few weeks after DeVos announced plans to delay and renegotiate what was known as a "borrower defense rule."

The states' lawsuit was filed by Democratic attorneys general. It says that the rule "deters institutions from engaging in predatory behavior and restores the rights of students injured by a school's misconduct to seek relief in court." The suit claims that DeVos' actions in delaying the rule's implementation and opening it to renegotiation violates regulatory law.

DeVos, a Republican, has said accelerating the debt cancellation process would put taxpayers on the hook for significant costs, and that a delay is needed while current litigation in California over the rules works its way through the legal system.

"With this ideologically driven suit, the state attorneys general are saying to regulate first, and ask the legal questions later," Education Department press secretary Liz Hill said in a statement, adding the rules were adopted "through a heavily politicized process."

Minnesota Attorney General Lori Swanson said the rule would have protected taxpayers as well as students.

"If regulators filed fraud claims against schools, the Department of Education could require them to put up collateral and assets," to compensate students and federal lending programs, Swanson said.

DeVos' action comes as the Trump administration moves aggressively to apply an anti-regulatory agenda.

Since being confirmed by a tiebreaking vote cast by Vice President Mike Pence in the Senate, DeVos has hired a for-profit college administrator among her assistants and chose not to defend the borrower defense rule against a lawsuit by the California Association of Private Postsecondary Schools.

Other Trump agency heads have indefinitely delayed or pushed back compliance dates for several rules that have already been debated, finalized and set to take effect. These include an indefinite suspension of new nutrition labels on food and beverage packaging and an extension of a deadline to display calorie counts on menus.

The borrower defense rule was finalized in November 2016 and set to take effect July 1 before DeVos intervened.

Among other things, the rule prohibited for-profit colleges from forcing students into mandatory arbitration over grievances. That was a point of emphasis of the California private school group that challenged the rule. "The increased costs and the dramatically escalated threat of meritless claims and litigation, both before the Department [of Education] and in court, will be crippling for many schools," the group claimed.

"It is important for the Department of Education to be on this beat because the majority of people who go to for-profit schools are the first in their families to go to college," Swanson said.

For-profit colleges have long been accused of saddling students with large debts for training that did not prepare them for jobs that pay enough to cover loan payments and living expenses.

The charges gave rise to more government scrutiny under the Obama administration, including the borrower defense rule that DeVos hopes to renegotiate.

The suit against DeVos references legal actions states have been forced to take, including one by Swanson in which she won a judgment against Globe University/Minnesota School of Business for falsely marketing criminal justice degrees. The program failed to qualify graduates to become police or probation officers.

In September 2016, the school announced plans to close several Minnesota locations.

Other for-profit colleges in the state are doing well.

Minneapolis-based Capella University "never engaged in forced arbitration, so this reg hasn't been an issue for us from that perspective," said spokesman Mike Buttry. "More broadly, Capella has been successful by focusing on our learners and how we can innovate to provide them the most direct path between learning and employment."

Reuters contributed to this report.

Jim Spencer • 202-662-7432