Supreme Court refuses to block $6 billion student loan settlement

WASHINGTON - The Supreme Court on Thursday refused a request by a group of colleges to block a $6 billion settlement that will cancel the student loans of about 200,000 borrowers who say they were defrauded by their schools.

The court denied the application for an emergency stay of the settlement without comment or dissent.

The case is unrelated to President Biden’s broader effort to forgive up to $20,000 in student debt for tens of millions of borrowers, which the justices are set to rule on in the coming months. But opponents of that sweeping policy had hoped a successful challenge to the $6 billion settlement could undermine an alternate route for Biden to cancel other debt if the court shuts down the relief plan.

The settlement resolves a class-action lawsuit filed in 2018 by people who accused the Education Department of ignoring their applications for loan forgiveness through the “borrower defense to loan repayment program.” Under the deal, the department will grant full loan forgiveness to applicants who attended one of the 151 institutions, many for-profit colleges, that the agency accused of “substantial misconduct . . . whether credibly alleged or in some instances proven.”

U.S. District Judge William Alsup of the Northern District of California approved the settlement in November. But the judgment was appealed by Everglades College, American National University and Lincoln Educational Services, the parent company of Lincoln Technical Institutes, arguing that the deal did not assess the validity of the borrowers’ claims and would damage their reputations. They also claim the Education Department is violating federal procedures by circumventing its own rules for resolving borrower defense claims.

The U.S. Court of Appeals for the 9th Circuit denied a motion to place the deal on hold while the court considered the case, leading the institutions to seek relief from the Supreme Court.

A coalition of 20 Republican attorneys general urged the high court to weigh in on the settlement case, arguing that the department overstepped its authority to push Biden’s debt relief agenda.

“For years, the (Education) Secretary defended against these class-action claims. But once the President decided to forgive student debt by executive fiat, the Secretary had a change of heart,” the attorneys general wrote in their amicus brief. “By strategically surrendering the case, the Secretary seized immense power that Congress had never given him. This ill-gotten power enabled the Secretary to pursue the mass forgiveness of student loans.”

Conservatives suspect that if the Supreme Court strikes down Biden’s larger debt relief plan, the administration would then turn to the Higher Education Act - the same statute underpinning the $6 billion settlement - to offer forgiveness to other borrowers. They hoped a court ruling in the three colleges’ favor would deprive the administration of any options.

Attorneys for the borrowers who filed the class-action lawsuit criticized Republicans for using their clients as political pawns and thanked the Supreme Court for siding with defrauded students.

“Today’s swift and decisive action from the highest court should end, once and for all, any ongoing debate about the legitimacy of this settlement,” said Eileen Connor, director of litigation for the Project on Predatory Student Lending. “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.”

The settlement provides automatic relief, including refunds of money paid to the federal agency and credit repair, to some 200,000 people who attended the 151 institutions cited by the Education Department. Another group of about 64,000 borrowers who attended other schools is entitled to receive decisions on their relief applications on rolling deadlines.

The Education Department told the Supreme Court that 78,000 borrowers have already had their loans discharged under the settlement.

A spokesman for Everglades College, the parent entity of Keiser University and Everglades University, said the school is disappointed in the high court’s decision but will forge ahead.

“We believe strongly in the merits of our case and indeed 20 state attorneys general filed a brief agreeing with our position,” Everglades College wrote in a statement Thursday. “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.”