Having recently ruled that the Department of Education acted illegally in delaying a 2016 regulation aimed at making it easier for students defrauded by their colleges to receive loan forgiveness, District Court Judge Randolph Moss on Tuesday ordered the regulation to take effect immediately. Activists on the left hailed the ruling as a massive victory for student borrowers, and much of the news coverage echoed this sentiment. But in reality, the implications of the judge’s order are much narrower than they appear.
The case concerns a series of regulations known as “borrower defense to repayment,” which essentially stipulate that student borrowers can apply to have their federal loans discharged if their college committed fraud. It seems straightforward enough. But defining what constitutes “fraud” and when it’s appropriate to cancel student loans due to fraud is a tricky business. In 1994, the Department of Education issued a borrower defense policy which essentially kicked those decisions to the states. Borrower defense claims since then have been processed according to applicable state laws, rather than a standardized federal procedure.