It will likely be several weeks before we know the Supreme Court justices’ view on mass student debt cancellation. But last week, the court allowed at least $6 billion in student-debt relief for roughly 290,000 borrowers to move forward.
The court declined a petition Thursday from three schools to stop a settlement between a class of student loan borrowers, who say they were scammed by their schools, and the Department of Education. The borrowers had sued the Department of Education in San Francisco’s federal court in 2019, alleging the agency was improperly ignoring the borrowers’ applications for relief.
Under Department of Education regulations, borrowers can have their federal debt discharged if they’ve been scammed by their school. The borrowers in the 2019 San Francisco case ultimately reached an agreement in 2022 with the Department over their claims, which a federal judge, William Alsup, approved.
But in November, three colleges moved in court to block the deal and asked Alsup, who serves in San Francisco’s federal court, to stop the settlement from moving forward while the Ninth Circuit Court of Appeals considered the case. Alsup refused the colleges’ motion, and the Ninth Circuit refused to slow the settlement down while it considers the case. The schools then asked the Supreme Court to stop the settlement.
The court’s decision, which at least five justices approved, means that the Department can continue to process discharges for the 290,000 borrowers under the settlement while the Ninth Circuit considers the schools’ appeal. By declining to intervene in the case, the court also resisted the schools’ attempt to tie this settlement to the broader debate over student-debt cancellation.
Eileen Connor, president and director of the Project on Predatory Student Lending, which represents the borrowers in the case, called the Supreme Court’s decision “decisive and swift.”
“The schools tried really hard to create an equivalence or somehow connect this case with the broad based debt cancellation that is under review at the court,” she said. “It was clearly unconvincing.”
Back up plan?
The Supreme Court’s decision last week has some relevance to the debate over mass student-debt relief. In the brief asking the Supreme Court to stop, or stay, the settlement, attorneys for the schools wrote that the authority the Secretary of Education was claiming in the settlement “amounts to nothing less than the power to cancel, en masse, every student loan in the country.”
“The Secretary contends that his exercise of this authority is not judicially reviewable,” they wrote. “If the Secretary is correct, the pending decisions in Nebraska and Brown could be rendered potentially irrelevant,” referring to the broader debt relief cases currently before the court.
In those cases, the Biden administration has rooted its authority to cancel up to $20,000 in student loan debt for a wide swath of borrowers in the HEROES Act. That law, passed in 2003, gives the Secretary of Education the power to take steps to ensure that a national emergency doesn’t leave student loan borrowers worse off. But if the Supreme Court knocks down student-debt relief tied to the HEROES ACT, some cancellation advocates are urging the Biden administration to try again using a different law, the Higher Education Act.
In a video program hosted by the conservative Federalist Society, one of the attorneys representing the schools, Jesse Panuccio, argued the student-debt case in San Francisco gives those monitoring this issue a window into the Biden administration’s “backup plan,” if the Supreme Court knocks down the debt relief program under the HEROES Act.
“As soon as the Supreme Court says you can’t do this under the HEROES Act, the Department of Education is going to pivot and say ‘no problem we can do this under the [Higher Education Act],’” Panuccio said in the video, which Politico reported on earlier this month.
“If you care about this issue, if you think the Secretary of Education and the President of the United States do not have unilateral authority to cancel $1.7 trillion of federal debt with a stroke of pen and that Congress should have some kind of say in that or the courts should be some kind of check on that then you need to be following this case too,” said Panuccio, who was high level Justice Department official in the Trump administration.
White House officials have said there isn’t a back up plan if the Supreme Court justices knock down the debt relief initiative. Activists and advocates have for years wanted the Department of Education to broadly cancel student debt using its authority under the Higher Education Act to “compromise, waive, or release any right” to collect on student loans. Some are pushing for the administration to use that authority if the court says the current debt relief plan isn’t justified by the HEROES Act.
The Supreme Court’s decision in the San Francisco case, “keeps open a channel that might have been closed off,” Luke Herrine, an assistant professor of law at the University of Alabama, said of the Department of Education’s ability to use its authority under the Higher Education Act to cancel student debt. If the justices had allowed the question of the stay to be litigated, the process — even if the schools lost — could have created a more narrow reading of the agency’s settlement and compromise authority.
“It’s like a dodged bullet,” said Herrine, who has pushed the Department of Education to cancel student debt using that authority.
Both the government and attorneys representing the student-loan borrowers in the San Francisco case argued in briefs that the legality of the settlement is based in the Secretary of Education’s authority to cancel debt in cases where borrowers were scammed by their schools, the Secretary’s authority to settle legal claims against the agency and the Attorney General’s authority to settle litigation against the federal government.
The attorneys representing the schools noted in their brief that the district court “emphasized” that the San Francisco settlement “has nothing to do with” the Biden administration’s broader debt-relief plan.
“They want to avoid accountability at all costs,” Connor said of the schools. “That was to the advantage of the schools that they could latch on to those bigger forces,” she said, referring to the politics around student debt cancellation. Roughly 20 Republican-led states signed on to a friend of the court brief supporting the schools’ position. “I’m just really relieved that the students in this class weren’t penalized.”
A spokesperson for Everglades College Inc., one of the organizations challenging the settlement, wrote in an emailed statement they are “disappointed” in the Supreme Court’s decision.
“We believe strongly in the merits of our case,” the spokesperson wrote. “While the Supreme Court did not stay the settlement, the appeal will proceed in the Ninth Circuit, where we will present our arguments in full.”
Latest in a years-long battle
The brief fight at the Supreme Court represents the latest in a years-long battle over how to make borrowers who were scammed by their schools whole. Since the 1990s, borrowers have had the right under the law to have their federal student loans canceled if their school misled them. But that right, called borrower defense to repayment, was rarely used until 2015 when Corinthian Colleges, a major for-profit college chain collapsed.
At that time, former Corinthian and other for-profit college students, organized by activists, submitted a crush of applications to the Department to have their debt canceled under borrower defense. Towards the end of the Obama Administration, officials created a streamlined process students who were scammed could use to raise their hand to have their debt discharged.
Actually getting relief often took effort from borrowers and their representatives. When the Trump Administration came into office, the Betsy DeVos-led Department of Education made new rules cutting down on the amount of relief borrowers could receive. The agency also allegedly stalled in deciding borrowers’ claims, which prompted some of them to sue in 2019.
Under the settlement, any borrower who submitted a borrower defense claim before June 22, 2022 and attended one of roughly 150 schools on this list will have their debt discharged automatically on or before January 28, 2024. Those borrowers are entitled to automatic relief because the Department determined that there is a “strong indicia regarding substantial misconduct,” at those institutions.
The schools’ objection to the settlement centers around this list. They allege if the settlement is allowed to proceed schools included on the list would suffer reputational harm without giving them the chance to plead their case.
Borrowers who submitted their claim after June 22, 2022, but didn’t attend a school on the list will have their application decided through a streamlined process. Borrowers who submitted an application after June 22, 2022, but before November 16, 2022 will receive a decision on their borrower defense claim by January 28, 2026 under the settlement.
Getting from efforts in 2015 to push the Department to recognize scammed students’ right to have their debt canceled to today when hundreds of thousands will have their loans wiped out was in part the result of activism, said Herrine, who was instrumental in those efforts.
But “tireless litigation is really what drove this home,” he said, referring to efforts by Connor and her organization to push the government to provide the relief borrowers are entitled to under the law.
Both the activism and the litigation that ultimately won debt cancellation for many former for-profit college students also helped expand the conversation surrounding student debt cancellation more broadly, Herrine said.
“Most people in the mainstream Democratic Party,” believe “some student debt cancellation is good through various authorities,” Herrine said. “And then it’s a matter of how much and how aggressively to interpret the authorities.”
Read the full article here
