Delayed Obama-Era Rule on Student Debt Relief Is to Take Effect

A long-delayed federal rule intended to protect student loan borrowers who were defrauded by their schools went into effect on Tuesday, after a judge rejected an industry challenge and the Education Department ended efforts to stall it any longer.

The new rule, finalized in the last few months of President Barack Obama’s administration, is intended to strengthen a system called borrower defense that allows forgiveness of federal student loans for borrowers who were cheated by schools that lied about their job placement rates or otherwise broke state consumer protection laws.

The new rule could expedite the claims of more than 100,000 borrowers, many of whom attended for-profit schools, including ITT and Corinthian, that went out of business in recent years.

“We’re really gratified,” said Eileen Connor, the director of litigation at Harvard Law School’s Project on Predatory Student Lending, which represented several student borrowers who challenged the department’s delay. “These regulations have a lot of critical protections in them for student borrowers and taxpayers.”

The new rule requires the Education Department to create a “clear, fair, and transparent” process for handling borrowers’ loan discharge requests, many of which have sat for years in the department’s backlog. It also orders the department to automatically forgive the loans of some students at schools that closed, without requiring borrowers to apply for that relief.

The rule was supposed to take effect in July 2017. Shortly before that deadline, the Education secretary, Betsy DeVos, suspended the rule and announced plans to rewrite it. But federal agencies must follow a specific process for adopting or changing rules, and Judge Randolph D. Moss, a federal judge in Washington, ruled last month that the Education Department had failed to meet that standard. The department’s decision to delay the rule was “arbitrary and capricious,” he wrote.