Supreme Court gives green light to $6 billion student loan debt settlement

[NelsonG]

The U.S. Supreme Court has declined to block a settlement canceling student loan debt for thousands of borrowers, after a group of for-profit and vocational institutions made a bid to halt the proceedings.

On April 5, three colleges — Everglades College, Lincoln Educational Services Corp., and American National University — challenged a nationwide class action settlement that forgives $6 billion in federal loans for students who attended select institutions accused of "misleading" student borrowers.

The case was introduced by borrowers in 2019 and claimed 151 educational institutions engaged in "substantial misconduct", leading to high-figure borrowing and inadequate education. After the Trump Administration issued 128,000 form-letter denial notices for the student borrowers, a California U.S. District judge approved the settlement again in November, with support of the Biden Administration and Department of Education.

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Several of the named colleges were accused of using illegal recruiting tactics, and have since gone out of business. Despite this, the settlement's challengers argued that Education Secretary Miguel Cardona had exceeded his authority to use the Higher Education Act to cancel debt en-masse.

"Being publicly branded a presumptive wrongdoer by one's primary federal regulator based on undisclosed evidence (or no evidence at all) — without any opportunity to defend oneself — seriously damages a school's reputation and good will," the challenge read.

While many of the student borrowers who applied for debt cancellation were long-graduated, for-profit colleges saw a surge in enrollment during the pandemic lockdown, ramping up their bids for students to enroll in fully online degree paths that continued to result in subpar education and highlighting a need for accountability, many students allege.

The Supreme Court's decision will allow cancellations and pay-outs to continue with the terms of the settlement.

Meanwhile, other student borrowers are awaiting the promised debt forgiveness plan by President Joe Biden, which was announced in 2022 to eliminate at least $400 billion in student loans owed by more than 40 million Americans. The Biden Administration's plan was set to go into effect soon, but has since been blocked by courts.

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[tsufadamadev]

This settlement underscores the importance of addressing issues in the education financing system and providing relief to affected borrowers.