US Supreme Court Refuses to Halt $6 Billion Student Debt Settlement

The United States Supreme Court has recently refused to halt a legal settlement that would cancel more than $6 billion in debt owed by former students of colleges. These former students, who attended for-profit institutions, have claimed that they were misled by these schools about academics and job prospects. The decision came after a request from three colleges challenging a settlement between the U.S. Education Department and borrowers that linked the colleges to claims of “substantial misconduct,” an allegation they dispute.

The three colleges challenging the settlement were for-profit Lincoln Educational Services Corp (LINC.O) and American National University Inc, as well as nonprofit Everglades College Inc. These schools argued that they had suffered reputational harm as a result of their inclusion on the settlement’s list of schools. They also argued that the Biden administration lacked the legal authority to cancel the debt.

The settlement, which was approved by a federal judge in California last November, would automatically cancel the debt of nearly 200,000 borrowers who attended 151 schools. Around 3,500 borrowers entitled to automatic loan discharge under the settlement attended one of the three schools in question.

The schools have been accused of boosting enrollment through aggressive sales tactics, as well as misrepresentations about the quality of their academic offerings, graduates’ career prospects, and networking opportunities. Eileen Connor, director of litigation at the Project on Predatory Student Lending, a group that represents borrowers involved in the settlement, stated that “the message is clear: the rights of student borrowers will not falter, even in the face of well-funded, overblown political attacks masquerading as legal argument.”

This decision by the Supreme Court is separate from a case pending before the high court over the legality of President Joe Biden’s plan to cancel $430 billion in student debt for about 40 million borrowers. A ruling in that case is expected by the end of June.

The settlement arose from what initially was a legal effort by borrowers in 2019 to force then-Education Secretary Betsy DeVos, who served under President Donald Trump, to resume the Education Department’s adjudication of their misconduct claims against the schools. After three years of litigation and a change in presidential administrations, the parties reached a settlement in June 2022.

California-based U.S. District Judge William Alsup approved the settlement last year and in February rejected the objections raised by the three colleges. The San Francisco-based 9th U.S. Circuit Court of Appeals in March denied the bid by the three schools to block the settlement from taking effect while their appeal proceeds.

Twenty conservative-leaning U.S. states, led by Ohio, had asked the Supreme Court to grant the request by the schools to pause further loan discharges under the settlement. However, the decision by the Supreme Court to refuse to halt the legal settlement means that the remaining borrowers entitled to automatic loan discharge under the settlement will have their debts canceled.

The Biden administration has said that around 78,000 borrowers had already received loan discharges by April 11. The administration declined to comment on the Supreme Court’s decision, and an attorney for the schools did not immediately respond to a request for comment.

This decision by the Supreme Court is a major victory for student borrowers who have been struggling with student loan debt for years. Many student borrowers have been burdened by their debt for years, and this settlement is an important step towards alleviating this burden. While the legal battle over student debt is far from over, this decision is a positive development for student borrowers seeking relief from their student loan debt.