The Biden administation and a class of student loan borrowers filed legal briefs with the United States Supreme Court this week, urging the justices to reject a challenge to a landmark settlement that would provide $6 billion in student loan forgiveness and other debt relief.
Here’s what borrowers need to know.
Settlement Agreement Provides Billions In Student Loan Forgiveness
The challenge stems from a settlement agreement reached between the Biden administration and a class of student loan borrowers to resolve Sweet v. Cardona, a years-long class action lawsuit over disputed Borrower Defense to Repayment claims. The Borrower Defense program allows borrowers to request student loan forgiveness if their school engaged in certain kinds of misconduct, such as inducing students to enroll based on false promises or misrepresentations. The Sweet class members argued that the Education Department (originally under the Trump administration) improperly delayed tens of thousands of Borrower Defense applications, or issued blanket denials without proper review.
A agreement reached between the Biden administration and the class of student loan borrowers would provide $6 billion in student loan discharges to over 200,000 former students who attended one of several dozen schools (mostly for-profit institutions) listed in the agreement. Borrowers could also receive refunds of past payments and credit repair under the settlement, as well. The Education Department was ready to begin implementing the settlement relief in January.
But then, three schools listed in the settlement agreement sought to intervene in the case and block the debt relief. The schools — American National University, Everglades College, Inc., and Lincoln Educational Services — argued that the settlement agreement and the process to obtain a resolution were unfair, and being listed as covered schools in the agreement unfairly tarnishes their reputations.
A federal district court judge rejected these arguments in February. The intervenor schools then appealed to the Ninth Circuit Court of Appeals, asking that court to stop the settlement relief while their appeal went forward. The appeals court denied the schools’ request earlier this month, finding that the three institutions did not sufficiently demonstrate that they would suffer from “irreparable harm” if the settlement relief proceeds.
Intervenor Schools Appeal Student Loan Settlement To Supreme Court
The intervenor schools are now appealing to the U.S. Supreme Court. The schools are again requesting a stay of settlement relief, as well as a ruling on the merits (effectively allowing the schools to bypass the Ninth Circuit). The schools argue that the Biden administration’s reliance on the Higher Education Act — which contains a key provision that allows the Education Department to “compromise” or “waive” federal student loan obligations in certain circumstances — is misplaced.
The Higher Education Act “in no way grants the limitless and unilateral power” to enact student loan forgiveness, the schools wrote in their Supreme Court brief. The Biden administration’s “claimed authority” is essentially “nothing less than the power to cancel, en masse, every student loan in the country,” they argued.
The Higher Education Act’s compromise provision has been widely viewed as a potential fallback option if the Supreme Court strikes down Biden’s separate — and unrelated — mass student loan forgiveness plan of $10,000 or $20,000 for many borrowers. The Biden administration relied on emergency authority under the HEROES Act of 2003 to establish that program. The Supreme Court heard oral arguments last February on challenges to that initiative, and a decision is expected by June.
Biden Administration And Sweet Class Members Ask Supreme Court To Allow Student Loan Forgiveness To Proceed
This week, the Biden administration filed legal papers urging the Supreme Court to reject the three schools’ challenge.
“Applicants have not shown any basis for a stay from this Court,” Biden administration attorneys wrote in their brief. “The settlement does not subject them to any liability, adjudicate their rights, or require them to do or refrain from doing anything. Instead, applicants principally assert that their reputations are being harmed by their inclusion on the list of schools whose borrowers are entitled to automatic relief. But that purported reputational harm is speculative and would not be redressed by a stay in any event.”
The administration also challenged the schools’ arguments that the settlement relief is improper under the Higher Education Act’s compromise authority, and distinguished the Sweet v. Cardona settlement agreement from the more sweeping student loan forgiveness relief under Biden’s separate initiative that is also before the Court.
“Applicants attempt to equate the settlement at issue here with the pandemic-related debt-relief program this Court is considering,” the administration wrote. “But the cases are entirely distinct. This case involves a settlement of litigation involving affirmative applications for relief under a statute and existing regulations providing for loan discharge, not a new program instituted by the Department… The settlement is amply supported by the Secretary of Education’s statutory authority to discharge loans based on borrower defenses, by the Secretary’s statutory authority to compromise claims against the Department, and by the Attorney General’s broad authority to settle litigation in which the federal government is a party.”
Attorneys representing student loan borrower class members in the case also hit back against the schools’ appeal to the Supreme Court. “These three institutions have never once shown that they have standing in this case or would be harmed by this settlement, and in fact have been denied twice, by two different courts, in their efforts to prevent class members from realizing the benefits of the settlement,” said Eileen Connor, President and Director of the Project on Predatory Student Lending (the organization representing the student loan borrowers in Sweet v. Cardona) in a statement this week. “Their petition to SCOTUS is a desperate attempt to bypass the normal appellate process. The schools set their sails to catch political headwinds by falsely equating the settlement of long-standing and hard-fought litigation with a completely distinct program of broad-based debt cancellation that is currently under review by the Supreme Court. To compare this to a broad-based administrative action under the HEROES Act that would touch 40 million people is an attempt by three schools to distort reality.”
The Project on Predatory Student Lending filed its own brief with the Supreme Court this week on behalf of covered student loan borrowers, also urging a rejection of the schools’ challenge. Their legal arguments are similar to ones made by the Biden administration’s — that the $6 billion in student loan forgiveness and other relief under the settlement is entirely separate from Biden’s mass debt cancellation plan, is allowable under existing statutory authority.
What’s Next For Borrowers Expecting Student Loan Forgiveness Under Settlement
Since no court has yet agreed to the schools’ request for a stay, the Education Department is still implementing the Sweet v. Cardona settlement relief under the agreement. Borrowers will receive the $6 billion in student loan forgiveness under the settlement on a rolling basis through the rest of the year (barring an adverse legal development).
The Education Department “has already begun discharging loans under the terms of the approved settlement and may continue to do so unless and until the Supreme Court directs otherwise,” said the Project on Predatory Student Lending in a tweet on Wednesday.
“Unless and until the Supreme Court decides to issue a stay of settlement, the Department of Education is authorized to move forward with effectuating settlement relief to all class members,” according to an update on the Project’s website. Project attorneys encourage borrowers to check on the website periodically for further updates.
Further Student Loan Forgiveness Reading
Biden’s Student Loan Forgiveness Plans And Payment Pause Face Multiple New Threats
What Happens If The Supreme Court Strikes Down Biden’s Student Loan Forgiveness Plan?
453,000 Borrowers Approved For Student Loan Forgiveness Under Waiver As Processing Continues
Republican Effort To Repeal Biden’s Student Loan Forgiveness Plan Gains Steam
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