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A long-delayed federal rule aimed at protecting borrowers borrowing students defrauded by their schools came into effect on Tuesday after a judge dismissed a challenge from the industry and that the ministry of the 39 Education has put an end to efforts to block it longer.
The new settlement, developed during the last few months of President Barack Obama's administration, aims to strengthen the borrowers' defense system, which allows the cancellation of federal student loans to borrowers deceived by schools that have lied to about their placement rates or have gone bankrupt consumer protection laws.
The new rule could speed up the claims of more than 100,000 borrowers, many of whom have gone to for-profit schools, including ITT and Corinthian, which have ceased operations in recent years.
"We are really pleased," said Eileen Connor, Litigation Director of the Harvard Law School Student Predatory Loan Project, which represented several student borrowers who challenged the delay. "These regulations include many critical safeguards for student borrowers and taxpayers."
The new rule requires the Department of Education to create a "clear, fair and transparent" process for processing loan applications from borrowers, many of which have been pending for years. It also orders the ministry to automatically cancel the loans of some students in schools that have closed their doors, without requiring the borrowers to seek this remedy.
The rule was to come into effect in July 2017. Shortly before that deadline, Education Secretary Betsy DeVos suspended the rule and announced her intention to rewrite it. But federal agencies must follow a specific process to adopt or change the rules, and Judge Randolph D. Moss, a federal judge in Washington, ruled last month that the education department has not been there. not conform to this standard. The department's decision to delay the rule was "Arbitrary and capricious," he writes.
Judge Moss ordered the rule to take effect, but suspended his decision until he could hear the arguments of a lawsuit brought by the California Association of Private Postsecondary Schools, an industry group. whose members include for-profit colleges.
On Tuesday, Justice Moss rejected the request of the injunction group. This removed the last hurdle blocking the rule and put it into effect immediately.
A spokeswoman for the California trade group declined to comment on Justice Moss's decision.
Liz Hill, a spokesperson for the Education Department, said DeVos "respects the role of the court and accepts her decision." However, Mrs DeVos still hopes to rewrite the rule.
"The secretary continues to believe that the rule promulgated by the previous government is bad policy, and the ministry will continue the work of developing a rule that protects both borrowers and taxpayers," Ms. Hill.
Any new rule drafted by DeVos' department could come into force as soon as possible is July 2020, by which time the Obama era rule will remain in place. Hill said the ministry would provide "more soon" more information on how this would unfold.
Of the 166,000 pardon applications received by June 30, nearly 106,000 were still pending, according to departmental data. The ministry rejected 9,000 applications and approved nearly 48,000, freeing up $ 535 million in student debt. Taxpayers absorb this loss.
The new rule attempts to mitigate the negative consequences for taxpayers by forcing schools at risk of generating fraud claims to provide a financial guarantee. This part of the rule has been fiercely opposed by industry groups.
Legal struggles around the nuances of the rule are likely to continue. In his ruling on Tuesday, Justice Moss said his decision was "not the first (and probably not the last) chapter" of the fight.
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