A federal court on Monday put a pause on new Biden administration rules that would forgive the debt of student borrowers who were defrauded by colleges that misled them or closed suddenly.
The order from the U.S. Court of Appeals for the 5th Circuit came in response to a request from Career Colleges and Schools of Texas, which represents private career-oriented or trade schools in the Lone Star state and asked the court to grant an nationwide injunction on the administration’s new rules.
While federal law previously allowed for the cancelation of student loans for borrowers who had been misled or defrauded, the Biden administration’s new borrower defense rules that took effect last month look to make it easier for borrowers to seek relief.
The new policy would allow borrowers to submit claims if they believe they were misled by their college and would offer automatic relief for borrowers whose institutions were closed. The new standards ease limits on when borrowers can file an application and also increase the types of violations that would make them eligible for debt cancellation. The rule include a ban on arbitration agreements that for-profit colleges often include in enrollment contracts.
CCST, which filed its lawsuit on behalf of more than 70 for-profit Texas schools, argues the new rule was created “with a thumb on the scale to maximize the number of approved claims and, ultimately, further the administration’s loan forgiveness agenda.”
The court will hear the case on November 6. The order means the new standards cannot currently be applied to claims pending on or received after July 1.
The Education Department said Monday it was reviewing the order.
“The Department issued a set of new and stronger regulations to ensure that borrowers have a path to relief when their colleges take advantage of them or leave them stranded by closures,” the department said in a statement. “The Department won’t back down in our efforts to take on predatory colleges, provide relief to borrowers who have been cheated or had their school close, and hold institutions accountable for deceptive schemes.”
The Biden administration has approved $13.5 billion in student loan discharges since 2021 for roughly 1 million borrowers who were defrauded by their colleges, the Washington Post reports. Nearly 500,000 borrowers had submitted borrower defense claims that were pending as of January 2023, according to data from the Department of Education.
Biden agreed to forgive $6 billion in debt for nearly 300,000 borrowers in a settlement case Sweet v. Cardona, though that settlement won’t be affected by the new injunction against the Biden administration’s rules.
Career Education Colleges and Universities, CCST’s national counterpart, celebrated the injunction.
“We are confident that when the case is brought forward the facts will show the new rule to be an agency overreach in violation of the Department’s authority, the Administrative Procedure Act, and the Constitution,” said CECU chief executive Jason Altmire. “Knowing that this rule has a strong chance to be struck down during the upcoming legal process, it is unjustifiable to allow its implementation while the court proceedings continue.”