Each year, thousands of borrowers struggle with repaying their federal student loan debt after they attended predatory schools that lied or withheld important information to get them to enroll, or closed and prevented them from completing their program. These borrowers are often left with debt but without a valuable degree–or often any degree at all. And without relief, many of these borrowers wind up in default.
The Department of Education has two critical programs that can provide much needed relief to these borrowers: borrower defense and closed school discharges. But too few borrowers have been able to get the relief they needed through these programs. As a result, in 2022, the Department of Education revised its rules for these and other relief programs to make them more accessible to more borrowers. However, a federal court has stopped the Department from using its new rules until a lawsuit challenging the rules is resolved. Here’s what borrowers need to know about the court case and information about what it means for borrowers who are applying for relief under these programs.
Background on the Court Challenge
Before the 2022 rules went into effect, a trade organization that represents for-profit colleges, Career Colleges & Schools of Texas (CCST), filed a lawsuit in federal court in Texas that challenged large portions of the rules. CCST asked the court to order that the Department delay when the rules would go into effect. The court denied that request.
However, CCST appealed the decision to the Fifth Circuit Court of Appeals. Immediately after the appeal was filed, the Fifth Circuit ordered that the Department could not use the new rules while the appeal was being decided. On April 4, 2024, the Fifth Circuit reversed the lower court’s decision and ordered that the Department of Education may not use the 2022 borrower defense and closed school discharge rules until the lower court finishes deciding the entirety of CCST’s lawsuit. That means that for now, the Department can only use its old, less borrower-friendly rules to decide new borrower defense and closed school discharge applications for student loan relief. That’s bad news for borrowers, though they can continue to apply for relief.
What Comes Next In The Courts?
The case now goes back to the trial court to consider the for-profit group’s challenge to the borrower defense and closed school discharge rules. It is unclear how the trial court will rule, whether all or portions of the rules will survive the challenge, and whether its decision will be appealed. However, we expect that there will be a final decision in the case sometime within the next year or two.
What Does This Mean For Borrowers?
Although the Department of Education cannot use the 2022 borrower defense and closed school discharge rules, it has said that it will continue accepting applications and will decide those applications using the older rules that were in effect before the 2022 regulations. Although the old rules make it harder for borrowers to get relief, it can still be worthwhile to apply. Borrowers can currently apply for borrower defense online and can continue to submit a paper application for a closed school discharge to their student loan servicer.
Closed School Discharge Applicants
Although the new rules allowed the Department to automatically provide relief to some borrowers that did not complete their program because their school closed, under the old rules, borrowers must apply for relief. The closed school discharge application is relatively straightforward and the Department has typically been able to issue decisions on applications within a few weeks. However, in recent months, borrowers have reported that they have waited for months for a decision on their application.
Borrower Defense Applicants
If you have already applied for a borrower defense discharge, this court opinion will only affect you if you submitted your application after November 16, 2022. Applications submitted before then are covered by the settlement agreement in the Sweet v. Cardona lawsuit. The attorneys representing borrowers in this lawsuit have an FAQ about the settlement agreement here.
If you applied for borrower defense relief before June 22, 2022, you are a class member in the Sweet lawsuit and your application will be handled according to the terms of the settlement.
If you applied for borrower defense between June 22, 2022 and November 16, 2022, you are a post-class member in the settlement agreement for the Sweet v. Cardona lawsuit and your application will be decided according to the terms of the settlement agreement.
If you applied for borrower defense after November 16, 2022, then you are not impacted by the Sweet lawsuit and your application will be decided by the Department of Education under the old borrower defense rules that were in place prior to the 2022 rules. We expect that the Department may be slow to decide on these applications, so borrowers should anticipate lengthy waits.
If your loans were issued before July 1, 2017, your application is subject to the standard in 34 CFR § 685.206(c) and the procedures described in 34 CFR § 685.222.
If your loans were issued between July 1, 2017 and July 1, 2020, your application is subject to the standard and procedures described in 34 CFR § 685.222.
If your loans were issued after July 1, 2020, your application is subject to the standard and procedures described in 34 CFR § 685.206(e).
Tip: Borrowers that apply for borrower defense can put their loans into forbearance while their application is being decided. However, those months in forbearance won’t count as qualifying time toward having your loans forgiven through Public Service Loan Forgiveness (PSLF) or income-driven repayment plans like SAVE or IBR. As a result, borrowers may want to keep their loans in repayment while their applications are decided so that they will be closer to PSLF or income-driven repayment cancellation if their borrower defense application is denied.