Dive Brief:
- An appeals court on Monday temporarily blocked the Biden administration’s new regulations governing the borrower defense to repayment program, which clears the debts of students whose colleges defrauded them.
- The blocked regulations, which initially took effect in July, also cover closed-school loan discharges. Consumer advocates had praised the rules, while for-profit college representatives blasted them, saying they deprive institutions of due process rights.
- In Monday's order, the 5th U.S. Circuit Court of Appeals said a three-judge panel would hear the case in early November. Career Colleges and Schools of Texas, an association representing for-profit institutions in the state, brought the legal challenge.
Dive Insight:
The borrower defense program has morphed over the past decade from a little-known rule to a major vehicle for loan forgiveness. Its transformation started in 2015, when the abrupt closure of Corinthian Colleges, a for-profit chain, left thousands of students burdened with debt and no degree to show for it.
Since then, each presidential administration has released its own version of the borrower defense rules.
The Biden administration released its iteration in October. It made several changes to the program, including expanding who was eligible for relief, restoring the ability for borrowers to receive automatic loan discharges, and allowing the Education Department to consider claims brought as a group.
The new rules also included provisions laying out how the Education Department can seek to recover the cost of forgiving student loans directly from colleges.
And the rules made changes to the closed-school discharge program. Under the regulations, borrowers enrolled 180 days before their colleges closed were eligible for automatic loan discharges.
Career Colleges and Schools of Texas challenged the new regulations in February.
The group argues the regulations attempt to carry out massive loan forgiveness while putting colleges on the hook for the bill. It also contends Congress hasn’t given the Education Department the power to seek recoupment from colleges for forgiven student loans.
The Education Department is facing a separate lawsuit from DeVry University, which last year sued the agency after it attempted to recoup $23 million from the for-profit college. The Education Department notified DeVry last year it was seeking the funds to pay for the discharged loans of 649 borrowers who had their debts forgiven under the borrower defense program.
Career Education Colleges and Universities, an association representing for-profit colleges, applauded Monday’s court order.
“Knowing that this rule has a strong chance to be struck down during the upcoming legal process, it is unjustifiable to allow its implementation while the court proceedings continue,” CECU President and CEO Jason Altmire said in a statement Monday. “We are pleased that today’s ruling upholds this view.”
The Education Department did not immediately respond to a request for comment.
