23 AGs File Lawsuit Against Betsy DeVos Over Student Loan Forgiveness Rules

A coalition of attorneys general have sued Education Secretary Betsy DeVos over revisions to a federal student loan forgiveness program.

For many years, if your school fraudulently persuaded you to enroll or stay enrolled, you could get your federal student loans discharged relatively easily under the "borrower defense to repayment" rule. But Secretary of Education Betsy DeVos has repeatedly indicated that this Obama-era rule makes it too easy for borrowers to get out of repaying their federal student loans. So, she overhauled the program.

Under DeVos’ new plan, for loans first disbursed on or after July 1, 2020, you’ll have to show the following to get a discharge:

  • The school misrepresented a material fact and you reasonably relied on this misrepresentation when you decided to take out a Direct Loan or a loan repaid by a Direct Consolidation Loan. You’ll also have to prove that the school made deceptive statements knowing their false, misleading, or deceptive nature.
  • The misrepresentation directly and clearly related to your enrollment or continued enrollment at the school.
  • The misrepresentation financially harmed you. (34 C.F.R. § 685.206, 685.222(a)(5)).

This revised rule limits the kind of misconduct that results in loan forgiveness and requires borrowers to provide more paperwork evidencing financial harm. Also, you must assert the defense to repayment within three years from the date that you're no longer enrolled at the institution. (34 C.F.R. § 685.206). Loan forgiveness will be considered on an individual basis, even if extensive evidence of misconduct at a particular school exists.

Earlier this year, Congress voted to overturn these changes to the borrower-defense rule. But President Trump vetoed this legislation. So, on July 15, 2020, a group of 22 states and the District of Columbia filed a lawsuit in San Francisco challenging DeVos’ new policy. The suit alleges that DeVos violated federal rules by issuing the changes without justification and that the new rules fail to create a meaningful process for defrauded students to get forgiveness on their federal student loans.

The 23 attorneys general, all Democrats, that filed the lawsuit represent California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Wisconsin, and the District of Columbia.

We’ll provide updates on this case as developments arise. To learn more about student loan forgiveness based on borrower defense to repayment, go to the U.S. Department of Education’s website.

Effective date: July 15, 2020.