US Supreme Court Allows $6 Billion Student Loan Settlement to Proceed

The U.S. Supreme Court has allowed a $6 billion legal settlement to proceed that will cancel student loans for hundreds of thousands of borrowers who claim they were misled by their schools. The settlement was approved in late 2022 by U.S. District Judge William Alsup in San Francisco in response to complaints that more than 150 schools had made false recruiting claims and left many students unable to find jobs.

The settlement would automatically cancel the debt of nearly 200,000 borrowers who attended 151 schools, including Lincoln Educational Services Corp, American National University, and Everglades College. Roughly 3,800 borrowers who are part of the settlement attended the three schools. Around 78,000 borrowers had already received loan discharges by April 11, the Biden administration told the justices in a court filing.

The three schools had challenged the agreement after it was approved, arguing that they were unfairly included on a list of institutions linked with alleged misconduct. They also claimed that the Biden administration lacked the legal authority to cancel the debt. The Supreme Court rejected their emergency plea to halt the settlement, stating that they would not comment on the matter.

This decision is separate from a case pending before the high court over the legality of President Joe Biden’s plan to cancel $430 billion in student debt for about 40 million borrowers. A ruling, in that case, is expected by the end of June.

The schools have been accused of boosting enrollment through aggressive sales tactics, as well as misrepresentations about the quality of their academic offerings, graduates’ career prospects, and networking opportunities. The settlement arose from a legal effort by borrowers in 2019 to force then-Education Secretary Betsy DeVos to resume the Education Department’s adjudication of their misconduct claims against the schools.

The Justice Department has already begun implementing the agreement and stated in court that the schools’ legal challenges have some similarities but that the administration is relying on different laws in the two programs. Eileen Connor, director of litigation at the Project on Predatory Student Lending, a group that represents borrowers involved in the settlement, stated, “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.”

In February, U.S. District Judge William Alsup rejected the objections raised by the three colleges, and in March, the San Francisco-based 9th U.S. Circuit Court of Appeals denied the bid by the three schools to block the settlement from taking effect while their appeal proceeds. The three schools argued in court filings they had suffered reputational harm, comparing their inclusion on the settlement’s list of schools to being “branded with [a] scarlet letter.”

The legal challenges against the settlement have caused some concern regarding the legality of President Biden’s plan to cancel $430 billion in student debt for about 40 million borrowers. However, a decision on that plan is expected by late June.

The settlement is a major win for student borrowers who have been seeking relief from mounting student loan debt. With the Justice Department already implementing the agreement, borrowers can expect to have their debts automatically canceled without any further legal challenges.