Students from For-Profit Schools Sue the Department of Education

Earlier this year, students were left reeling when the Art Institute, a for-profit university chain, was shut down. “I felt like Chicken Little, just like, ‘The sky is falling, the sky is falling,’” Trey Young, 28, told YR Media.  

Across the country, students like Young have been left in turmoil as various for-profit universities have either shut down or been accused of cheating their students out of money by providing inadequate resources, curriculum and support that leave students unprepared for post-college life. On top of wondering when they’ll receive their diplomas, whether they are qualified for jobs, and if their credits are transferable to other schools, many of those students are also concerned about whether they have to repay their federal student loans.

So a group of student federal loan borrowers filed a class-action lawsuit against the Department of Education in late June. The students are accusing the DOE of “intentionally [adopting] a policy of inaction and obfuscation” when it comes to handling their federal student loans.

Here’s a little background.

The plaintiffs are all students who allege that they were misled and defrauded by for-profit universities such as DeVry University, the Brooks Institute of Photography, ITT Technical Institute, the Art Institutes and many more. According to the lawsuit, students enrolled in the universities based on promises of “high-paying jobs, state-of-the-art vocational training, and long and fulfilling careers.” Instead, the lawsuit states that the universities “delivered worthless products that left students with thousands of dollars in debt, damaged credit, and depleted access to further student aid.”

To pay for their tuition, many of these students received federal loans from the DOE. The Higher Education Act of 1965, a sweeping education reform law that regulates colleges and universities, includes a very brief section on “borrower defenses.” The act just says that the DOE can specify situations in which federal loan borrowers do not need to repay their loans.

Due to the vagueness of the Higher Education Act’s borrower defense description, the Obama administration published regulations in 2016 that specify protections for student loan borrowers from universities that mislead or fraud them. Under these regulations, students who were victimized by fraudulent universities could have their federal loans forgiven.

According to a DOE 2017 audit, from July 2016 to January 2017, more than 70,000 students filed borrower defense complaints with the DOE. By the time Obama left office, more than 30,000 of those claims had been processed and approved, meaning that those students had their loans partially or totally forgiven. No claims were denied.

However, after Trump took office in January 2017, the DOE stopped issuing decisions on borrower defense claims, leaving students “in limbo” (as the lawsuit states) as they wait to hear whether they would have to repay their loans or not. The audit conducted by the DOE’s Inspector General revealed that the Trump administration had not approved any borrower defense claims in his first year in office, despite receiving nearly 26,000 applications. In fact, the only two decisions issued by the DOE were denials of two borrower defense claims.

The students argue that the DOE’s delay in issuing decisions on their borrower defense claims is unlawful. The students say that they don’t want the court to decide whether their loans should be forgiven or not. Instead, all they ask is that the court compels the “Department to start granting or denying their borrower defenses.” Plus, because the case is a class-action lawsuit, that means that the ruling will affect all students who filed borrower defense claims with the DOE and are awaiting an answer, not just the ones who are explicitly cited in the lawsuit. 

But student borrowers shouldn’t get their hopes up — even if the Trump administration’s DOE does start issuing decisions, that doesn’t mean they’ll be approvals. So while the DOE  might start sending out decisions soon, they could decide to issue denials of the borrower defense claims. Which means students who feel that they were lied to, defrauded or ripped off by their universities still have to pay back their federal loans.

Meanwhile, the DOE says it wants to rewrite the Obama regulations to be less confusing and broad.

Secretary of Education Betsy DeVos said in a June 2017 press release that the DOE pumped the brakes on decisions because the Obama administration’s rule-making resulted in a “muddled process that’s unfair to students and schools, and puts taxpayers on the hook for significant costs.”

Some organizations agree with DeVos that the Obama administration’s regulations are too confusing and far-reaching. For example, the United Negro College Fund and the National Association for Equal Opportunity in Higher Education, two organizations representing various historically-black colleges and universities, published a letter to DeVos in 2017 supporting her proposal to rewrite the regulations.

While a trial date has yet to be set for the lawsuit, the case will undoubtedly take a long time to litigate, and may even travel through the court system because both sides will likely repeal an unfavorable ruling.