Oregon AG Joins States Urging Court to Protect Defrauded Student Borrowers

The Fifth Circuit Court of Appeals suit challenges a 2022 congressional rule allowing defrauded borrowers to have loans forgiven or reimbursed.

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Oregon Attorney General Ellen Rosenblum and a bipartisan group of her peers are urging a federal appeals court to protect student borrowers from paying back loans from schools that made bogus claims.

Rosenblum on Wednesday joined attorneys general from 22 other states and the District of Columbia in filing a brief with the Fifth Circuit Court of Appeals in the case Career Colleges and Schools of Texas v. U.S. Department of Education.

The Texas association is challenging a 2022 rule passed by Congress that allows student borrowers to defend themselves against post-secondary institutions that make fraudulent and misleading claims about degree programs. Under the “borrower defense rule,” students can have loans forgiven or reimbursed if an institution has misrepresented or omitted facts about its programs and career options, or breached contracts with students.

The case was first filed in April in a district court in Austin, Texas by Career Colleges and Schools of Texas – a trade association representing more than 70 for-profit higher education institutions in Texas – against the federal education department. The district court denied a motion to suspend the rule, so the group appealed to the Fifth Circuit that has yet to hear the case. The brief was filed in support of the Department of Education.

Though the borrower defense rule has existed for several decades under the Higher Education Act of 1965, the Biden administration in 2022 updated it to allow for the federal education department to recoup the cost of forgiven student loans from the colleges that had lured students with misleading claims. The update also outlined when the rule can be used, including if a school has engaged in“aggressive and deceptive recruitment”; and it allowed for groups to submit claims, rather than just individual students. It also allowed state officials to file claims on behalf of groups of students in their states.

Career Colleges and Schools of Texas argued in the case that Congress did not authorize such a sweeping rule and that it could cause colleges “crippling liability” issues, creating a process in which borrower claims are virtually ensured to be approved while colleges are left unprotected.

In their brief, the attorneys general say the rule protects borrowers from a growing number of predatory, for-profit institutions that prey on vulnerable students.

“States have assisted hundreds of thousands of student borrowers with securing relief under this process,” the attorneys general wrote. “The regulations challenged in this litigation are critical for ensuring that students who experience such institutional abuse are not unfairly saddled with federal student debt.”

Rosenblum said in a news release that ending the borrower defense rule could have “disastrous impacts” on Oregon students.

“Too many for-profit colleges and universities have misled and deceived our vulnerable students, persuading – sometimes coercing – them to take out loans to attend programs that provided them minimal educational value,” she said.

Joining Rosenblum in the brief are the attorneys general in California, Colorado, Connecticut, Delaware, Washington D.C., Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Washington and Wisconsin.

Oregon Capital Chronicle is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Oregon Capital Chronicle maintains editorial independence. Contact Editor Lynne Terry for questions: info@oregoncapitalchronicle.com. Follow Oregon Capital Chronicle on Facebook and Twitter.

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