States Line Up Against DeVos to Save Obama’s College Rules

Attorneys general sue over mandatory arbitration as they seek to champion regulations the Trump administration is trying to dismantle.

U.S. Secretary of Education Betsy DeVos.

Photographer: Alex Wong/Getty Images

No entity in America provides more money to colleges than the U.S. Department of Education. More than $120 billion in loans and grants annually flow to students, who then pass that money on to colleges to pay for things like tuition, housing, and books.

What you may not know is that colleges generally keep the money regardless of whether a student graduates, or even if they claim the school misled them.

Last year, the Obama administration tried to change that. Federal officials drafted new rules that would give the government greater authority to demand that financially troubled colleges put up collateral in case the government had to forgo repayment of a loan because a college defrauded a student or unexpectedly shut down. U.S. officials also sought to ban colleges—many of them for-profits—from mandating that aggrieved students use secretive arbitration instead of going to court, on the theory that it’d be easier for regulators to spot wrongdoing and students would be at less of a disadvantage. That rule, put in place by the Obama administration, was set to take effect this year during the Trump administration.

A group of California-based for-profit colleges sued to prevent the measure from going into effect July 1, arguing it would be disastrous given the future litigation costs. Education Secretary Betsy DeVos agreed, and last month blocked what she called a “muddled” rule from taking effect. Instead, she said, she’d rewrite it.

Meanwhile, former students who wish to sue their schools remain bound by the arbitration agreements they signed. On Thursday, a group of 19 state attorneys general, all Democrats, and two former for-profit college students sued DeVos to reverse her decision. The students said in court filings that they had been planning to file a lawsuit against their school, given the rule change.

“Since day one, Secretary DeVos has sided with for-profit school executives against students and families drowning in unaffordable student loans,” Massachusetts Attorney General Maura Healey said. DeVos’s decision was a “betrayal of her office’s responsibility.”

Elizabeth Hill, a DeVos spokeswoman, called the lawsuit by 19 top state law enforcement officers “ideologically driven” and said that the California schools’ lawsuit, which DeVos cited in halting Obama’s reforms, made “serious and credible” allegations that the previous administration exceeded its authority.

The lawsuit by the attorneys general represents the latest effort by states to police an Education Department they view as beholden to colleges and lenders. During her few months in office, DeVos has rolled back Obama-era efforts to require loan firms to help student debtors manage or discharge their loans rather than maximize the amount they pay; reversed another provision that limited loan companies from charging certain fees; and delayed rules meant to deter college misconduct and cut off federal money to colleges that bury students under unaffordable debt.

The DeVos-led Education Department says Obama’s efforts were misguided and ultimately wouldn’t be effective. Her decision to reverse the moves by the previous Democratic administration also reflect her view that households and markets, rather than government agencies, are better positioned to police the higher education sector.

Government really sucks,” DeVos said in a 2015 speech.

Prosecutors from states such as Illinois, North Carolina, and New York have criticized DeVos at every turn by arguing she’s putting students and taxpayers at risk. Thursday’s lawsuit may signal that Democratic attorneys general are likely to intensify their challenges to DeVos, especially if they think public opinion is on their side.

“We’re going to keep a close eye on this industry,” Healey said.

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE