Supreme Court Won’t Block $6 Billion Student Loan Forgiveness Lawsuit: Who Qualifies?

The student loan forgiveness lawsuit can be confusing, but here is everything you need to know. 

Nearly a quarter million borrowers who attended schools that defrauded or misled them will have their student loan debts completely canceled, the Supreme Court ruled in a landmark decision back on April 13, 2023.

The ruling stems from a 2019 class-action lawsuit, paving the way for the U.S. Department of Education to continue discharging the borrowers’ debts, which has been ongoing since the district court rejected the institutions’ initial challenge in February. The colleges object to that characterization.

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The court’s brief order gave no reasons, which is the norm when the justices act on emergency applications. There were no noted dissents.

KEY TAKEAWAYS:

• The debt settlement applies to Class Members, defined as student loan borrowers who filed a Borrower Defense to Loan Repayment (BDR) application with the federal government on or before June 22, 2022, and attended one of the institutions referenced in the settlement agreement’s approved list.
• The settlement provides automatic debt relief, which encompasses refunds of funds paid to the federal agency and credit repair services.
• Another group of approximately 64,000 borrowers who attended other colleges should expect to receive a decision on their relief applications on rolling deadlines.

Relief Granted As An Outcome Of A Class-Action Student Loan Forgiveness Lawsuit

The $6 billion in debt erased is an outcome of a class action lawsuit known as Sweet v. Cardona filed in 2019 by borrowers who studied in one of the 151 mostly for-profit colleges named in the suit. 

The borrowers initiated the lawsuit while former President Donald Trump was in office, alleging that the Trump administration’s Education Department was either delaying or neglecting to process BDR applications, stalling relief for years, or delivering blanket denials without meaningful factual investigation. 

The BDR program entails the cancellation of federal student loans for borrowers of for-profit colleges who can substantiate that they were deceived by their higher education institution regarding key aspects of their educational program, such as admissions criteria or job placement.

The federal Higher Education Act allows the education secretary to cancel federal loans based on transgression by the borrower’s school.

The borrowers accused their schools of boosting enrollment through deceptive ads and embellishing the quality of their education and future job prospects.

A Timeline Of The Student Loan Forgiveness Lawsuit

• The class lawsuit was filed in 2019 by hundreds of thousands of borrowers seeking to discharge their debt.
• A 2021 settlement collapsed after the Trump administration issued 128k form-letter denial notices that a federal judge termed “disturbingly Kafkaesque.”
• Under President Joe Biden, the Department of Education proceeded with the case. In November 2022, U.S. District Judge William Alsup from the Northern District of California granted approval for a settlement that provides 200,000 borrowers more than $6 billion in debt relief. 
• In January 2023, three institutions named in the debt settlement – American National University, Everglades College, and Lincoln Educational Services – chose to appeal the judgment. Lincoln Educational Services and American National University are for-profit institutions; Everglades College is a not-for-profit. Their argument centered on the assertion that the settlement did not assess the validity of the borrowers’ claims and could harm their reputations and subject them to the possibility that the federal government would seek to recover the forgiven loans from them. Additionally, the institutions contended that the Education Department violated federal procedures by bypassing its own rules for addressing borrower defense claims.
• In February 2023, the federal judge overseeing the case rejected these arguments, remarking that relief for the borrowers had already been unfairly delayed for years. The institutions then appealed to the 9th Circuit Court of Appeals and asked for a stay (or delay) of relief pending that appeal. 
• On March 29, the 9th Circuit Court of Appeals refused to suspend the deal while considering the case, prompting these institutions to seek relief from the Supreme Court.
• In a simple, one-page order on April 13, 2023, the Supreme Court rejected the challengers’ request for a stay.

The settlement was, in part, instigated by a significant backlog in the government’s handling of applications for relief under the law.

This backlog emerged following the 2015 collapse of Corinthian Colleges, which came after the exposure of extensive evidence of unlawful recruiting strategies. 

It’s worth noting that last year, in a separate development, the Department of Education disclosed its intention to forgive $5.8 billion in debt owed by 560,000 borrowers who had attended Corinthian Colleges.

Borrowers Meeting The Eligibility Criteria Will Receive Refunds And Have Their Debt Forgiven

Under the deal, the Department of Education will grant full loan forgiveness to borrowers who attended one of the 151 institutions the agency accused of “substantial misconduct … whether credibly alleged or in some instances proven.”

Some schools named in the suit include Corinthian Colleges,  ITT Technical Institute, the Art Institute, DeVry University, and many others. 

According to the Justice Department, the three institutions that appealed the agreement to the Supreme Court have about 3,800 students eligible for loan relief, and roughly 400 of the students have already had their loans discharged.

Alongside the automatic loan cancellation, borrowers will also be issued refunds for their previous payments and adjustments to their credit scores within one year.

In addition to borrowers whose loans will be canceled, tens of thousands more who filed BDR applications but aren’t on the approved schools’ list will be updated on their applications within a set timeframe. Borrowers in this category can learn more about eligibility via the Project on Predatory Student Lending’s informational website.

Student Loan Forgiveness Lawsuit Not Connected To Biden’s Student Debt Plan

This case is not connected to President Biden’s pandemic-related debt relief program initiative to forgive up to $400B in student debt owed by 40 million low- and middle-income Americans, a matter that the justices are poised to decide upon in the upcoming months. 

The challengers claimed that the Biden administration’s decision to enter into the debt settlement agreement involving $6 billion in student loan forgiveness was related to the administration’s broader effort to forgive student loan debt.

Correspondingly, those opposing Biden’s plan had anticipated that a successful challenge to the $6 billion debt settlement might weaken an alternative pathway for President Biden to cancel other debts in case the relief plan is rejected by the court.

Conclusion About Student Loan Forgiveness Lawsuit

The Supreme Court ruling allows those who attended colleges that misled them or engaged in other predatory behaviors to have their loans wiped out.

If your debt has become unmanageable and you have difficulty making your debt payments each month, then you consider seeking debt relief or negotiating a debt settlement and a payment plan that suits your budget.

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