You're listening to Bloomberg law. A few months before Barack Obama left office, his Education Department issued new rules governing student debt and claims by borrowers that they were defrauded by the school. The rules were the product of two years of negotiation, and they were set to take effect this last July the first, but Donald Trump's Education Secretary Bessie de Vos last month blocked implementation of the rules and said the department would would rewrite them. Now she
is facing a lawsuit by nineteen state attorneys general. Seventeen state attorneys general excuse me who say that that the vas would leave students at risk. It all has important implications for colleges, student borrowers, and taxpayers. And with with us to help sort it all out is Catherine Lee Carey, special counsel at the law firm Cooley Kate. Thanks for joining us, um. These are complicated rules are a lot of different aspects to them, including standards that apply when
students who say they were defrauded. I want to get out of having to pay the debts. What are the attorneys generals seem most focused on in their lawsuit? Well, thanks for having me and you're right, very complicated. The ages are focused on two primary issues, one being what they considered to be deprivation of rights and benefits for their enforcement actions, and the other being um what they consider to be harmed to students if the regulations are
rolled back. Specifically, as part of the new rules, the Department of Ed would have considered as part of their process for determining whether or not student claims had a basis or if a group claim could be created, would be using an AG's successful enforcement action against the school. So, by virtue of incorporating the a G action specifically into the rule, it more uh directly connected the AG's work
to protect students into the actual regularly. And then the other piece of it is the idea of deterring what they consider to be predatory behavior of schools with the
financial responsibility requirements that are in the rule. And then on the student side, they they are primarily focused on the idea of students having the personal um rights of action against the school through litigation as opposed to arbitration or class action that has that would would have been essentially barred by the July one rule, where schools could not force a student to enter into an arbitration agreement or a class action waiver prior to UM an actual
dispute coming up, So those are sort of the primary focuses of the a G suit. Kate. This lawsuit came three days after the d C. Appeals Court reviewed the e p A for unilaterally delaying Obama era methane regulations. Did Divace do the same thing here by not engaging in the legal process for changing or rescinding regulations? There does seemed to be some correlation between the arguments that are being made on both sides the There are a
couple of things that seemed to distinguish the two. One is that the e p A rule was already in effect and it was just a certain provision of the rule that was to go and effect in June that they were trying to roll back, as opposed to the borrow defense rule, which had not become effective yet at the time that they are trying to stay the rule.
But I do think that there are some similar legal issues that will likely come up UM in this a G case that's similar to the case that came up with the a p A in relation to their authority to delay a rule that already went through the negotiated rulemaking process without having a new negotiate rulemaking process. So there's a lot of the same questions I think in
both situations. One of the things that Petsy Divas is saying in response, or the Education Department of saying in response, is that she she took this action in prep because there is a lawsuit filed by for profit college is against the Education Department challenging this new rule. Is that, in your mind a legitimate defense by devas in the Education Department or is that that kind of a figli for the for for defending what they did. That's a
great question. Uh. The lawsuit that's brought by um TAPS the California Association of Private post Secondary Schools is first of all, not all for profit schools, just to put that out there. There There mostly for profit, but there's some nonprofits in there too. UM. The underlying claims in the
CAPS lawsuit are focused on, Uh. The essentially what their argument is that that that it wasn't appropriately drawn regulations to begin with, that it violates the h A goes beyond the scope of the statutory authority, and so what they're claiming is that the rule itself is arbitrary and capricious and should never have been UM sort of published period.
So it is something that I think that an agency like the Department of Ed UM would have to obviously look at and consider and determine whether or not they think there's merit there or there's the chance that they might lose UM, which I think was part of the argument that that the Secretary is making. UM. But it is similar arguments that the a G is making to the e p A case, which is that the idea that this CAP's lawsuit as the basis for the delay
is somehow pretextual. UM. I think that it's a very similar argument. I frankly, I'm not I'm no way claimed to be an Administrative Procedures Act ex person, but UM, I can tell you that there is there's some UM potential underlying UM similarity there that that I'm sure that the ages will bring into their arguments. UM. I frankly don't know what the Department of Ed was, you know, sort of pondering at the time, and they're they're making
this decision UM. But obviously the CAP's lawsuit was I think it was filed more than a month before the rule, so it obviously was part of the consideration whether or not it was, um, we're gonna have to I'm afraid we're gonna have to leave it there. Thank you. Catherinely Carey talking about this new lawsuit by actually nineteen, not seventeen, state attorneys general challenging action by the Education Department.