District Court holds Department of Education stay of student loan regulations is procedurally invalid

Courts Department of Education Student Lending State Attorney General Higher Education Act

On September 12, the U.S. District Court for the District of Columbia granted a motion for summary judgment in favor of a consolidated action brought by a coalition of 19 state Attorneys General and the District of Columbia as well as two student borrowers (collectively, the plaintiffs), holding that the Department of Education’s (Department) decision to delay the enactment of Final Regulations (81 FR 75926) (also known as the “Borrower Defense Regulations” or “regulations”) was “procedurally invalid.” The Borrower Defense Regulations, published November 2016, afford students protections against misleading and predatory practices by postsecondary institutions (see previous InfoBytes coverage here), and were set to take effect July 1, 2017. However, the Department delayed the effective date pending the resolution of a lawsuit challenging certain portions of the regulations filed by the California Association of Private Postsecondary Schools; delayed the effective date further through an interim rule issued in October 2017; and last February, issued a final rule further delaying the effective date until July 1, 2019.

The Department argued it was entitled to a stay under Section 705 of the Administrative Procedure Act because the lawsuit “raised serious questions concerning the validity of certain provisions of the final regulations and ha[d] identified substantial injuries that could result if the final regulations [went] into effect before those questions [were] resolved.” The court disagreed with the Department’s argument, finding that in order to justify a Section 705 stay, “an agency must, in short, do more than simply assert—without elaboration—that the litigation raises unspecified ‘serious questions’ for resolution and that a stay will save regulated parties the cost of compliance.” Moreover, the court concluded that (i) plaintiffs have standing to challenge the Department’s delay actions; (ii) the Department’s 2017 interim final rule “is based on an unlawful construction of the Higher Education Act”; (iii) the February final rule is “procedurally invalid”; and (iv) the Section 705 stay is “judicially reviewable” and “arbitrary and capricious.”