Colleges Appeal Borrower-Defense Settlement to Supreme Court

After a federal appeals court denied a bid from some colleges to stop a settlement from moving forward in a class action lawsuit against the U.S. Department of Education regarding stalled borrower defense to repayment claims, those colleges are asking the U.S. Supreme Court to intervene.

In an emergency application to Justice Elena Kagan filed Tuesday, Lincoln Educational Services Corporation, Everglades College Inc. and American National University want the court to say whether the Higher Education Act of 1965 allows the education secretary “to cancel and refund federal student loans en masse and outside statutorily defined circumstances.” The colleges also want the court to decide whether the secretary has the authority to provide student loan cancellation and refunds as part of a settlement.

The settlement in the case Sweet v. Cardona, which received final approval in November, canceled $6 billion in student loans for more than 200,000 borrowers who attended one of the more than 150 institutions identified by the Education Department, including those that appealed. Most of the institutions on the department’s list, known as Exhibit C, are for-profit colleges or universities.

Lawyers for the three institutions argued in court documents that the court lacked the jurisdiction to approve the settlement, that Education Secretary Miguel Cardona doesn’t have the authority to discharge debts, that the settlement violates the due process rights of the colleges and that the intervenors will suffer irreparable harm without a stay.

A district judge in February denied the institutions’ motion to stop the department from discharging student loans as outlined in the settlement. Then, late last month, the U.S. Court of Appeals for the Ninth Circuit also denied the colleges’ motion for an injunction while they appealed the settlement.

The institutions are asking the court to stay the Ninth Circuit’s decision.

In the emergency application, the institutions’ lawyers say the settlement is a more sweeping claim of statutory authority than ones in the other two student loan cases before the court this session, which focused on whether the Biden administration could forgive student loans under the Higher Education Relief Opportunities for Students (HEROES) Act of 2003.

“The secretary’s claimed authority amounts to nothing less than the power to cancel, en masse, every student loan in the country,” the application says. “The court should not permit the secretary to proceed under such unprecedented and breathtaking claims of executive authority before this court has had a chance to address its legality.”

Nicholas Kent, chief policy officer at Career Education Colleges and Universities, the association representing for-profit institutions, said in a statement that the three colleges raised significant legal questions about the secretary’s power to cancel student loans.

“Although I do not think Justice Kagan is likely to grant the schools’ emergency application, the justices will likely be asked again to address the department’s claimed authority under the HEA in the foreseeable future,” Kent said. “It is widely expected that the high court’s conservative majority will strike down the administration’s use of the HEROES Act, and then the Department will quickly turn to the HEA in a Hail Mary to save its broad debt-cancellation program.”