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U.S. Supreme Court won’t halt $6 billion student debt settlement

FILE PHOTO: The U.S. Supreme Court building is seen in Washington, U.S., April 6, 2023. REUTERS/Elizabeth Frantz/File Photo   A +2.11% Add to/Remove from Watchlist Add to Watchlist Add Position

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By John Kruzel

WASHINGTON (Reuters) -The U.S. Supreme Court on Thursday refused to halt a legal settlement that would erase more than $6 billion in debt owed by former students of colleges – many of them for-profit institutions – who have said they were misled by schools about academics and job prospects.

The justices turned away a request from three colleges that are challenging a settlement between the U.S. Education Department and borrowers that linked the colleges to claims of “substantial misconduct,” an allegation they dispute.

Three of the schools identified in the settlement – for-profit Lincoln Educational Services Corp and American National University Inc as well as nonprofit Everglades College Inc – challenged the agreement after it was approved by a federal judge in California last November. Around 3,500 borrowers entitled to automatic loan discharge under the settlement attended one of the three schools.

The decision was 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 latest dispute stemmed from a class-action settlement under which the Education Department would automatically cancel the debt of nearly 200,000 borrowers who attended 151 schools.

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, according to Eileen Connor, director of litigation at the Project on Predatory Student Lending, a group that represents borrowers involved in the settlement.

“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. The message is clear: the rights of student borrowers will not falter, even in the face of well-funded, overblown political attacks masquerading as legal argument,” Connor told Reuters.

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.” They also argued the Biden administration lacked the legal authority to cancel the debt.

The settlement arose from what initially was a legal effort by borrowers in 2019 to force then-Education Secretary Betsy DeVos, who served under President Donald Trump, to resume the Education Department’s adjudication of their misconduct claims against the schools. After three years of litigation and a change in presidential administrations, the parties reached a settlement in June 2022.

California-based U.S. District Judge William Alsup approved the settlement last year and in February rejected the objections raised by the three colleges. The San Francisco-based 9th U.S. Circuit Court of Appeals in March denied the bid by the three schools to block the settlement from taking effect while their appeal proceeds.

Twenty conservative-leaning U.S. states, led by Ohio, had asked the Supreme Court to grant the request by the schools to pause further loan discharges under the settlement.

Around 78,000 borrowers had already received loan discharges by April 11, the Biden administration told the justices in a court filing.

The administration declined comment and an attorney for the schools did not immediately respond to a request for comment.

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