AG Grewal Sues U.S. Department of Education over New Limits on Protections for Student Loan Borrowers

TRENTON – Attorney General Gurbir S. Grewal today joined a coalition of Attorneys General in suing the U.S. Department of Education over changes to its “borrower defense” rule that will limit financial protections for student loan borrowers. The lawsuit also names U.S. Secretary of Education Betsy DeVos as a defendant.

Adopted in September 2019, the challenged rule makes it harder for students to dispute their obligations to make student loan payments based on wrong-doing by their postsecondary schools. Among other things, the rule limits the types of institutional misconduct that can excuse borrowers from paying their loans; places unnecessary procedural and evidentiary burdens on students seeking relief; eliminates automatic discharges for students at schools that close down; and makes it easier for schools to avoid class actions by students.

Earlier this year, Congress passed a joint resolution to reverse the Department of Education’s changes to the borrower defense rule, but President Trump vetoed the bipartisan joint resolution in May. Although every member of New Jersey’s congressional delegation voted against the rule, Congress was unable to override President Trump’s veto.

In today’s lawsuit, Attorney General Grewal and the other coalition Attorneys General ask the court to set aside the September 2019 rule under the Administrative Procedures Act.

“We are in the midst of an economic recession prompted by an unprecedented pandemic and people are rightfully reassessing their future plans, including whether or not to borrow money to pursue education to advance their careers,” said Attorney General Grewal. “Unfortunately, many of them will be duped into taking out student loans to enroll at predatory schools that don’t deliver what’s promised. Secretary DeVos adopted a rule that will leave those students on the hook for loans they can’t pay. That’s not right, and that’s why we’re filing today’s lawsuit.”

New Jersey residents owe a median of $18,633 in student loan debt — well above the national average — and 10 percent of New Jersey’s student borrowers are in default.

The federal Higher Education Act requires the Secretary of Education to issue regulations that provide for a meaningful process for students to obtain federal student loan relief where their schools have engaged in misconduct.

The longstanding regulations were updated in 2016 to build on lessons learned from the collapse of Corinthian Colleges – a predatory, for-profit chain of colleges that left tens of thousands of students across the nation in need of relief. (Through its Division of Consumer Affairs, the New Jersey Attorney General’s Office worked collaboratively with federal education officials on the Corinthian Colleges matter. In 2017, approximately 2,200 New Jersey residents became eligible for student loan cancellations related to the Corinthian College closures and subsequent findings of fraud against Corinthian.)

Specifically, the 2016 rule provided misled and defrauded borrowers access to a consistent, clear, fair, and transparent process to seek debt relief. The rule also required that financially troubled schools provide financial protection to the government to ensure that, if they failed, taxpayers would not be left holding the bag.

Filed in the U.S. District Court for the Northern District of California, today’s lawsuit argues that the repeal and replacement of the 2016 borrower defense rule violates the Administrative Procedure Act because the reasoning underlying the new policy is arbitrary and capricious and the new rule is inconsistent with the statutory requirement that the Department of Education put in place a meaningful process for borrowers to obtain relief. Instead, it establishes an illusory process that makes it practically impossible for students to qualify for relief.

Joining Attorney General Grewal in filing today’s lawsuit are the Attorneys General of California, Colorado, Connecticut, Delaware, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, Virginia, and the District of Columbia. California Attorney General Xavier Becerra and Massachusetts Attorney General Maura Healey are leading the litigation.

Deputy Attorneys General Elspeth Faiman Hans and Melissa Medoway and Assistant Attorney General Mayur P. Saxena are representing the State of New Jersey in the matter.