August 17, 2023
New Rules on Borrower Defense Blocked by Courts
Last week, a federal appeals court blocked the Biden Administration’s new rules on borrower defense to repayment (BDR) and closed-school discharges, pending the full case being heard on November 6, 2023. This is the latest, and most significant, challenge to the rules that went into effect in July.
Earlier this year, Career Colleges & Schools of Texas (CCST), a group representing for-profit schools, filed a lawsuit against the Department of Education’s new rules that were finalized last year and went into effect this July. CCST lost this challenge but, on appeal, won a nationwide injunction that prevents the BDR and closed-school discharge provisions from being implemented. All other provisions in the final rules, such as the prohibition on pre-dispute arbitration agreements and class action waivers, the elimination of certain interest capitalization events for federal student loans, etc., remain in effect.
CCST’s argument is that the Department’s new rules are overly broad and unfairly seek to provide borrowers with more debt relief while sticking colleges with the bill. Some of the key objections involve procedural aspects of the new rules, such as those that allow the Department, or a third-party group it designates, to batch BDR applications together, and provide a pathway for the agency to recoup the cost of approved BDR claims when it determines that students were misled or defrauded.
For context, these rules are the third major set of regulations enacted by the Department in recent years and are much more expansive than those instituted by the Obama and Trump administrations. This version expands the types of college misconduct that trigger loan forgiveness, provides more generous relief to defrauded borrowers, creates a more streamlined application process, and makes it easier for borrowers to obtain student debt relief if their college closes suddenly.
As of November 2022, the Department had a backlog of about 443,000 BDR claims awaiting decisions – a number that has certainly grown since. Without the ability to group claims together, the agency has little chance of clearing that list in a reasonable timeframe.
Earlier this year, Career Colleges & Schools of Texas (CCST), a group representing for-profit schools, filed a lawsuit against the Department of Education’s new rules that were finalized last year and went into effect this July. CCST lost this challenge but, on appeal, won a nationwide injunction that prevents the BDR and closed-school discharge provisions from being implemented. All other provisions in the final rules, such as the prohibition on pre-dispute arbitration agreements and class action waivers, the elimination of certain interest capitalization events for federal student loans, etc., remain in effect.
CCST’s argument is that the Department’s new rules are overly broad and unfairly seek to provide borrowers with more debt relief while sticking colleges with the bill. Some of the key objections involve procedural aspects of the new rules, such as those that allow the Department, or a third-party group it designates, to batch BDR applications together, and provide a pathway for the agency to recoup the cost of approved BDR claims when it determines that students were misled or defrauded.
For context, these rules are the third major set of regulations enacted by the Department in recent years and are much more expansive than those instituted by the Obama and Trump administrations. This version expands the types of college misconduct that trigger loan forgiveness, provides more generous relief to defrauded borrowers, creates a more streamlined application process, and makes it easier for borrowers to obtain student debt relief if their college closes suddenly.
As of November 2022, the Department had a backlog of about 443,000 BDR claims awaiting decisions – a number that has certainly grown since. Without the ability to group claims together, the agency has little chance of clearing that list in a reasonable timeframe.
For more information, please contact:
Justin Monk