Federal Court Blocks Student Debt Forgiveness for Defrauded Borrowers

• The Department of Education’s new borrower defense rule took effect on July 1.
• That rule made it easier for former students to get federal student loan debt forgiveness if they prove their former institution misled, defrauded, or aggressively recruited them.
• The U.S. Court of Appeals for the Fifth Circuit on Monday issued an injunction pending appeal that prevents the rule from going into effect.
• The ruling stems from a lawsuit filed last February by for-profit colleges and universities.

A federal court has blocked a new rule designed to make it easier for defrauded students to get student loan forgiveness.

The U.S. Court of Appeals for the Fifth Circuit on Monday issued an injunction pending appeal preventing the Biden administration from enforcing its new borrower defense to repayment rule.

That rule, which has been in effect since July 1, makes it easier for former students to qualify for federal student loan debt forgiveness if they prove their former institution misled, defrauded, or aggressively recruited them.

Career Colleges and Schools of Texas (CCST), a trade organization representing 70 for-profit institutions, filed a lawsuit last February seeking to block enforcement of the rule. U.S. District Judge Robert Pitman previously denied a motion for an injunction, but CCST appealed the court’s decision.

The Fifth Circuit's injunction is pending appeal, which blocks the rule until the court can hear the case and issue a decision. The injunction doesn't provide any indication of whether CCST is likely to win or lose its appeal; the court scheduled the next hearing in the case for Nov. 6.

If CCST's lawsuit is successful, the Department of Education (ED) may have to rescind the rule.

The for-profit colleges behind the lawsuit celebrated the injunction.

Imposing these two provisions would have been detrimental to career schools in Texas and across the country, Jason Altmire, CEO and president of Career Education Colleges and Universities, said in a statement. CCST’s legal case against [ED’s] unlawful [borrower defense] rule is strong and we are confident that when the case is brought forward the facts will show the new rule to be an agency overreach in violation of the department’s authority, the Administrative Procedure Act, and the Constitution.

CCST’s suit alleged that the new borrower defense rule is vague, sets the bar for a successful claim too low, and takes away due process rights from institutions. ED’s rule also allows the department to recoup money from accused colleges and universities if the department discharges loans for former students of these schools, so the institutions also argue they could be harmed financially by the new rule.

Borrower advocacy group Student Defense took issue with the court’s injunction.

We cannot afford a green light for dishonest schools to continue harming students, Student Defense President Aaron Ament said in a statement. Until these protections are restored, countless students are at risk of being taken advantage of by higher ed profiteers who are exploiting students with little accountability.