Illinois Sues Education Department, DeVos Over Student Loan Fraud

CHICAGO — Illinois Attorney General Kwame Raoul is suing the U.S. Department of Education and education secretary Betsy DeVos over the repeal of regulations protecting college borrowers from fraud. Joining a coalition of 16 other states' attorneys generals, Raoul argues the department's repeal of those regulations was illegal, calling them "arbitrary and capricious," according to a news release.

The Obama-era regulations were intended to protect student borrowers from predatory lending practices. Under the law, borrowers could apply for debt forgiveness if they were misled by a school or if the school engaged in other misconduct, such as misappropriating state tuition assistance funds, touting fake partnerships with employers, or scamming military veterans with nontransferable credits.

But DeVos argued the rules were unfair to for-profit colleges, saying in 2017, "Under the previous rules, all one had to do was raise his or her hands to be entitled to so-called free money."

Just weeks before the rules were to go into effect, the Trump administration delayed them. In 2018, a federal judge ruled that delay illegal and ordered the department to begin processing thousands of backlogged claims.

The administration soon after rewrote the rules, raising the burden of proof that students must meet to qualify for debt forgiveness, limiting the amount they could recover, and setting a 3-year deadline to file a claim. According to U.S.News, a whistleblower even alleged the department shut down its website because it made applying for debt relief too easy.

While Congress approved bipartisan legislation in June to reinstate the more borrower-friendly regulations, the bill was vetoed by President Trump, and the House fell short of the two-thirds majority necessary to override his veto.

"Students should not have to pay for student loans they obtained to attend fraudulent schools that promised education and training that they did not provide," Raoul said in a statement. "These students deserve a clear and convenient method to discharge their loans from schools that took advantage of them. My office has and will continue to investigate and protect students from institutions that use predatory methods to exploit borrowers."

According to Raoul's lawsuit, in repealing the regulations without explanation, the Trump administration violated the Administrative Procedure Act, which governs agency rulemaking, requiring a public comment period and creating a process for judicial review if a person has been harmed by an agency's rules.

Raoul and the other AGs claim the Department of Education disregarded facts and threw out department determinations going back decades to arrive at the new, stricter rules. And, instead of complying with Congress's requirement that the department implement a meaningful debt relief process for defrauded students, "it establish(ed) an illusory process that makes it practically impossible for students to qualify for borrower defense relief," according to the lawsuit.

Raoul said the borrower defense regulations were built 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," according to the news release.

"Specifically, the 2016 regulations provided misled and defrauded borrowers access to a consistent, clear, fair, and transparent process to seek debt relief, and also protected taxpayers by holding schools that engage in misconduct accountable," he said. "The regulations also ensured that financially troubled schools provide financial protection to the government to ensure that, if they fail, taxpayers would not be left holding the bag."

The attorney generals of California, Colorado, Connecticut, Delaware, the District of Columbia, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, and Virginia joined in the suit.

According to Raoul's office, student borrowers who have questions or are in need of assistance can call the state's helpline at 1-800-455-2456 or file a complaint online.

Read the full lawsuit below: