Dive Brief:
- The U.S. Supreme Court agreed Friday to review an appellate court decision that blocked the Biden administration’s rules for granting debt relief to students whose colleges misled them or closed before they could finish their education.
- In April, the 5th U.S. Circuit Court of Appeals issued a preliminary injunction that halted the changes to the borrower defense to repayment regulations, as well as those governing closed school discharges. The ruling came in response to a lawsuit brought by Career Colleges & Schools of Texas, which represents private career institutions in the state.
- The Supreme Court did not set a date to hear oral arguments but if it's this term, a decision would be delivered by the summer. Regardless of the timing, the ruling will come well after President Joe Biden leaves office next week.
Dive Insight:
The U.S. Department of Education released rules governing the two debt relief programs in October 2022. The agency said the changes would make it easier for students to be eligible for and receive loan forgiveness if they were defrauded or their colleges closed.
Consumer advocates hailed the regulations, while for-profit groups argued they would be used to unfairly target their sector. The Biden administration’s borrower defense rule applied to claims pending or received after July 1, 2023. It came after the first Trump administration released its own borrower defense rule that largely raised the bar for students seeking debt relief.
It’s unclear how the incoming Trump administration will handle the case, which the Biden administration asked the Supreme Court to review. Incoming administrations can argue cases differently than their predecessors, or drop their appeals to the Supreme Court altogether.
Jason Altmire, president and CEO of Career Education Colleges and Universities, said in a statement Friday that the Supreme Court’s decision to take up the case does not “validate the Biden administration’s misguided attempt to weaponize the Borrower Defense process against proprietary schools.”
“It remains to be seen how the incoming Trump administration will argue the government’s side of the case, but we strongly believe the facts of the case will show the Department’s onerous BDR regulation went well beyond the agency’s authority,” Altmire said.
Among several changes, the new regulations allowed the Education Department to consider borrower defense claims as a group rather than “instead of only considering individual applications,” according to an agency fact sheet.
The regulations also expanded the types of institutional misconduct that could warrant debt relief. For instance, students for the first time could file borrower defense applications if their colleges used “aggressive and deceptive recruitment” tactics, such as demanding prospective students immediately make decisions about their enrollment.
The rule also stipulated that the Education Department could only grant full relief for borrower defense claims. And it laid out the process for the agency to recoup the cost of discharges from colleges that engaged in misconduct.
The Education Department also made big changes to the closed school loan discharge program, including by restoring its ability to automatically clear debts.
Career Colleges & Schools of Texas filed its lawsuit in early 2023, arguing that the new rules created a process that “all but ensures” borrower defense claims will be approved. The group also said the new rules removed key procedures that colleges could use to defend themselves against false claims.
The rules took effect July 2023. But Career Colleges & Schools of Texas scored its first court victory when the 5th Circuit granted a request in June 2023 to block the rule from taking effect for its members. The 5th Circuit then delayed the effective date of the regulations in August 2023 before formally blocking them in April 2024.
The Biden administration challenged that decision in October, arguing that the appellate court’s decision stripped its ability to address “a substantial and growing backlog of borrower-defense filings” in a timely fashion.
The Education Department did not immediately provide comment Monday. An attorney representing Career Colleges & Schools of Texas declined to comment.
