For-Profit Colleges Sue To Block Protections For Defrauded Students and Taxpayers

The new lawsuit even seeks to block the rule's requirement that for-profit colleges tell students the truth when they have low rates of repayment for college loans.
05/25/2017 07:10 pm ET Updated Jun 13, 2017

A California-based trade group largely comprised of for-profit colleges late Wednesday sued Trump Education Secretary Betsy DeVos to block a 2016 Obama administration regulation, called the borrower defense rule, aimed at protecting students from predatory college practices. The rule they attack (1) implements a law already on the books that permits students who are defrauded by their colleges to have their federal loans cancelled; (2) requires schools that engage in sketchy behavior to put up some money to be available in case the school crashes and burns; and (3) prohibits federally-funded colleges from denying students the right to sue them in the event of fraud, campus rape, or other wrong.

For-profit college trade groups and lobbyists, always fighting for the rights of the worst actors in their industry, aggressively opposed this borrower defense rule, but the Obama Administration stood up to pressure and issued a solid measure aimed at deterring the kind of rampant fraud and abuses that have been heavily documented by government and media investigations, and that have led to scores of federal and state law enforcement probes of for-profit schools.

The rule also will deter irresponsible behavior by another key actor, the Department of Education itself, because if the Department knows that it will have to cancel loans from fraudulent schools, it will work harder as a gatekeeper to prevent money from going to those schools in the first place. Of course, that’s exactly what bad actors in the industry are worried about. They’re also whining, as the new lawsuit does, about the provision requiring shaky schools to post letters of credit, even though students and taxpayers have been left holding the bag after the collapse of scam schools like Corinthian, ITT, Westwood, FastTrain, ATI, and ACI, and many others.

And, with this case, for-profit colleges are acting out the audacious proposition that they can sue the federal government for the right to prevent their students from ever suing THEM, regardless of how bad their behavior is, and regardless of how much taxpayer money they receive. Today, nearly all federally-funded for-profit colleges demand that students agree to small-print forced arbitration clauses that deny injured students the chance to go to court, even though no reputable non-profit or public college does so. Such clauses giving students only the bad option of seeking justice in expensive, secret arbitration proceedings where the odds are stacked against them have allowed predatory schools to act with impunity for decades.

The new lawsuit filed by the California Association of Private Postsecondary Schools (CAPPS) even seeks to block the rule’s requirement that for-profit colleges tell students the truth when they have low rates of repayment for college loans.

The complaint filed Wednesday offers a series of weak claims against the borrower defense rule, rooted in the arrogant assumption that anything that calls itself a college is entitled to federal taxpayer dollars in perpetuity no matter how badly it behaves. The complaint also repeatedly asserts that the new Obama rule will harm “minority” students, a repugnant assertion that assumes that unaccountable for-profit schools are always good for students of color, when the evidence shows just the opposite.

In short, these for-profit schools want free money from the government, with little accountability for bad colleges that rip off students and taxpayers.

Although the borrower defense rule is set to go into effect July 1, the California trade group has not, at least not yet, asked the court to issue a preliminary injunction against the rule to block it pending the outcome of the case. That raises questions about what the industry’s strategy is here, and about what the Trump Administration plans to do.

A different group of for-profit colleges already has sued Devos to strike down a separate Obama rule, called gainful employment, that penalizes colleges that consistently leave graduates with debt they cannot afford to repay ― even though multiple federal courts already upheld the rule against previous industry challenges. Thus far Justice Department lawyers have defended the rule in court, despite growing evidence that the Trump administration is ready to abandon measures that hold predatory colleges accountable and protect students.

But it remains to be seen if the Trump administration, which appears already to have halted the process of granting defrauded students’ claims for debt cancellation, will defend against the new lawsuit. Devos said Wednesday that the rule “is something that we are studying carefully and looking at and we will have something further to say on that within the next few weeks.” There are murmurs that the Trump-Devos Education Department is considering ways to dump both the gainful employment and the borrower defense rule. Donald Trump himself, of course, ran his own fraudulent Trump University, Trump and Devos have numerous ties to the industry, and Devos has hired for-profit college industry executives to work for her at the Department.

The GOP Congress, financially in the pocket of the wealthy for-profit college industry for more than a decade, could cancel both Obama rules through legislative action, but years of revelations about industry abuses have rendered the industry toxic, and perhaps lawmakers fear that voters will notice if they make a public assault on measures that protect veterans, service members, single moms and others harmed by predatory schools. Some may hope that cancelling the rules through the administrative process will allow the pesky measures to be swatted away quietly behind the scenes. Good luck with that; students who were abused by their fraudulent schools are not going to allow themselves to be abused by Trump and Devos without a fight, and they have many allies.

The court battle, however, is aimed only at a small group of federal judges, and the for-profit college industry is always prepared to spend your tax dollars to hire the very best, most expensive legal advocates. The for-profit colleges suing this time are represented by the mega-law firm Skadden Arps, and the lead counsel is Cliff Sloan, who served in key positions in Democratic administrations and was an Iran-contra prosecutor. (He also worked at a division of the Washington Post Company while a separate part of the company ran the predatory Kaplan for-profit college chain.) Sloan hasn’t yet responded to my email seeking comment, although I admit my message was not terribly sympathetic.

UPDATE 06-02-17: Today CAPPS filed a motion for a preliminary injunction, asking U.S. District Judge Randolph Moss to block the borrower defense rule pending a final decision in the case. The CAPPS brief focuses on the rule's provision relating barring federally-supported schools from forcing students to resolve all disputes through arbitration, claiming this provision "will lead to immediate chaos and disruption if it goes into effect on July 1, 2017" and "will immediately and irreparably harm CAPPS schools." The brief offers the misleading assertion that for-profit colleges "have established a record of successful efforts to help" low-income and "minority" students. 

UPDATE 06-06-17: At a scheduling conference today, a bad sign: a lawyer for the Justice Department told Judge Moss that the Department of Eduction is "studying its options with regard to the effective date" of the borrower defense rule and could decide to delay it.  The judge said he wanted to rule by July 1 and asked the government if it could make a decision as soon as possible to avoid wasting the court's time. The Justice lawyer responded that "it's fair to say the [education] department is aware" of the issue. The court set a schedule for the parties to file additional briefs on the preliminary injunction motion, and tentatively scheduled an oral argument for June 21, but the Trump administration, unfortunately for students and taxpayers, may have set the stage for cancelling the rule.

UPDATE 06-13-17: The attorneys general of eight states and the District of Columbia today filed a motion to intervene in the case in order to argue that the court should uphold the borrower defense rule. The AGs argue that statements made publicly by DeVos and by her lawyers in court expressing the view that the rule needs "studying" call into question whether the government will adequately defend the lawsuit.

This article also appears on Republic Report.

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