Federal Court Halts Biden's Plan to Provide Debt Relief to Students Victimized by Fraud

Federal Appeals Court Blocks Biden Administration’s Revised Student Debt Relief Rules

In a recent development, a federal appeals court has taken action to halt the implementation of the Biden administration’s newly proposed rules designed to provide debt forgiveness to student borrowers who have been misled or affected by sudden closures of educational institutions.

The U.S. Court of Appeals for the 5th Circuit, composed of judges appointed by Republican presidents, issued this decision following a request from the Career Colleges and Schools of Texas (CCST) for a nationwide injunction against the updated borrower defense rules. The Biden administration’s revised rules aimed to simplify and clarify the process for obtaining debt relief, granting students the ability to submit claims if they believe their educational institution deceived them.

CCST represents private career-focused and trade schools within Texas, including many for-profit colleges. Individuals who attend for-profit institutions often face a higher likelihood of accumulating and defaulting on student loan debt due to promises of favorable outcomes that these colleges often fail to deliver. Over the years, federal policies have been established in an attempt to alleviate the burden of such debt for affected borrowers.

Under the leadership of President Joe Biden, the U.S. Department of Education has actively expanded its array of policies, which notably includes its unique rendition of the borrower defense to repayment regulation. This rule, often abbreviated as borrower defense, essentially facilitates the loan discharge process for students who have fallen victim to deceptive practices by their educational institutions.

In a legal action initiated earlier this year, the Career Colleges and Schools of Texas (CCST) lodged a lawsuit representing over 70 educational establishments within Texas. The lawsuit asserted that the Education Department’s rule was deliberately tailored to tilt the balance in favor of approving a greater number of claims, thereby advancing the administration’s overarching agenda of loan forgiveness.

Securing loan forgiveness for borrowers who have fallen victim to deceptive practices has proven to be a challenging endeavor. Existing federal regulations have long permitted the discharge of loans for individuals who have been misled or defrauded by their educational institutions. However, the process of obtaining loan cancellation has been marked by complexity, often necessitating legal actions against the federal government.

President Biden has been progressively utilizing this authority. As an illustration, in the resolution of the Sweet v. Cardona case, which traces back to the Trump administration, Biden committed to forgiving $6 billion in debt relief for nearly 300,000 borrowers. It’s worth noting that this particular relief remains unaffected by the recent injunction. Nevertheless, the coalition that spearheaded this campaign for relief expressed frustration over the halt in the implementation of Biden-era rules.

Eileen Connor, President and Director of the Project on Predatory Student Lending, emphasized the importance of safeguarding students against fraudulent schemes and ensuring that predatory practices are exposed and curtailed before inflicting further harm. She commented, “These orchestrated, well-funded efforts to manipulate the judicial system against the legal rights of borrowers highlight the skewed nature of the system against our clients.” Additionally, in a development from the previous month, the administration announced loan forgiveness for an additional 7,400 defrauded student borrowers in Colorado.

In total, the administration has granted approximately $14.7 billion in loan forgiveness for students who were deceived by their educational institutions. As of January 2023, close to half a million borrowers had submitted claims for borrower defense and were awaiting decisions on their applications.

The recent court ruling has resulted in a postponement of the implementation of President Biden’s regulations, which encompass various measures, including automatic relief for borrowers affected by institution closures.

Supporters of debt relief expressed disappointment with the verdict and underscored the significance of robust borrower defense policies. Aaron Ament, the President of Student Defense, emphasized, “We cannot afford to give the green light for unethical schools to continue victimizing students. Those who have been defrauded have a legal entitlement to relief, and their educational institutions should be held answerable. Until these safeguards are reinstated, numerous students remain vulnerable to exploitation by profit-driven entities within higher education, with limited accountability.”

The decision garnered praise from advocates representing for-profit and career colleges, who viewed the action as a positive step. Jason Altmire, President and CEO of Career Education Colleges and Universities, stated, “Enforcing these stipulations would have had adverse effects on career-oriented institutions not only in Texas but also across the nation. We firmly believe that as the case progresses, the evidence will demonstrate that the new rule constitutes an overreach by the agency.”

In a statement released on Monday evening, the U.S. Department of Education acknowledged the court’s ruling and reaffirmed its dedication to assisting students who have fallen victim to fraudulent practices.

“The Department has introduced a comprehensive set of robust regulations aimed at ensuring that borrowers have a viable avenue for relief in instances where their educational institutions exploit them or leave them in a disadvantaged position due to closures,” the Education Department conveyed to USA TODAY. “Our resolve remains steadfast in combatting predatory colleges, providing redress for borrowers who have been deceived or impacted by school closures, and holding institutions accountable for their deceptive maneuvers.”

Both the Justice Department and CCST opted not to comment on this recent development.