Universities lose appeal to stop debt relief

A group of colleges that challenged a legal settlement that canceled $6 billion in student loans lost its appeal to prevent that agreement from coming into force.

A divided three-judge panel of the United States Court of Appeals for the Ninth Circuit ruled Tuesday that the colleges did not have the necessary standing to challenge the settlement was approved in November 2022, ending a long-running lawsuit over the Department of Education’s handling of debt relief applications under a process known as borrower defense to repayment. Under borrower defense, borrowers can apply for loan forgiveness if they have been defrauded or misled by their university.

The settlement forgave loans for more than 200,000 borrowers who attended one of more than 150 institutions identified by the Department of Education, including those that appealed. Most of the institutions on the department’s list, known as Exhibit C, are for-profit colleges or universities.

Lincoln Educational Services Corporation, Everglades College Inc. and American National University argued on appeal that the department did not have the authority to cancel loans and that the settlement violated the due process rights of the listed colleges. Additionally, they argued that the department damaged their reputation by including them in Exhibit C. A district court judge dismissed the colleges’ challenge in February 2023. They appealed to the Ninth Circuit.

Judge Jennifer Sung, joined by her appeals court colleague Danielle J. Forrest, wrote that while the department’s actions could cause reputational damage, nothing in the settlement prevented the colleges from filing a lawsuit “to resolve the to remedy alleged damage to reputation in a separate lawsuit.”

“The schools do not identify any provision in the settlement agreement or consent order that formally relieves them of any legal claim or defense, or any contractual right,” Sung wrote. “The settlement does not jeopardize any rights of the schools and does not impose any obligations or liabilities on them.”

Judge Daniel P. Collins wrote a dissenting opinion, arguing that the lower court judge erred in approving the settlement.

“First, the government lacks the necessary statutory authority to grant the relief contained in the settlement,” Collins wrote. “Given that the relief provided by the Department in the settlement exceeds its statutory authority, the settlement is unlawful and should not have been approved.”