Rule to help federal student loan borrowers finally takes effect

We’ve covered before the Department of Education’s recent attempt to gut a rule adopted under the Obama administration to help student loan borrowers and rein in for-profit colleges. The regulation, commonly referred to as the borrower defense rule, was supposed to take effect on July 1, 2017. The Department issued a series of delays, which a D.C. federal court in September held were unlawful.

This week, that same judge rebuffed an industry request for a preliminary injunction against the rule, paving the way for the rule to take effect on Tuesday. Although the industry challenge remains pending, the agency now has a legal obligation to implement the rule, and because of technical requirements in the Higher Education Act, any replacement rule adopted by Secretary DeVos could not possibly take effect before July 2020.

That means borrowers around the country could benefit from the rule for nearly two years at least. The rule cuts off federal funding to schools that use forced arbitration and class-action waivers with their students. It also adopts a formal process for group-based loan discharges for students who attended predatory schools, and mandates automatic loan discharges for students who attend schools that close while they are enrolled and who do not reenroll in a covered program in the following three years.

The judge’s order is here, and coverage by the Associated Press is here.

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