Biden's New Student Loan Forgiveness Plan Blocked by Court

A conservative three-judge panel on Monday blocked new rules enacted by the Department of Education (DOE) to make it easier for student loan borrowers who were defrauded by the school they attended to have their debt eliminated, marking another setback for President Joe Biden's student loan debt relief efforts.

The judges in the 5th U.S. Circuit Court of Appeals—all of whom were appointed by Republican presidents—blocked the new rule with a temporary injunction, pending appeal, after a request by Career Colleges and Schools of Texas (CCST), a state-led organization of 70 assorted private, postsecondary institutions that prepare students for careers in the trades.

The rules, finalized by the department in June, would have allowed borrowers to file a claim for relief if they believed a school misled them about their education or engaged in certain misconduct that was in violation of the law—allowing the department to discharge any debt the student took out to attend the school.

In its original complaint filed in February, CCST claimed that the DOE allegedly stacked the deck in favor of borrowers and against schools, arguing that the way the plan was structured would all but assure every claim would be approved—particularly under language in the rule that allowed for a sort of class-action lawsuit that opens the door for plaintiffs to sign on regardless of whether they attended the school.

"The Rule imposes strict liability upon schools for even unintentional erroneous representations or omissions, and then irrationally presumes that every borrower in the group would not have attended the school but for the school's act or omission, whatever it is," the complaint read.

In a statement late Monday night, the DOE said it would continue its efforts.

"We are reviewing the court's order," a DOE spokesperson told Newsweek. "The department issued a set of new and stronger regulations to ensure that borrowers have a path to relief when their colleges take advantage of them or leave them stranded by closures. And the department won't back down in our efforts to take on predatory colleges, provide relief to borrowers who have been cheated or had their school close, and hold institutions accountable for deceptive schemes."

The legal challenge comes shortly after Biden and DOE officials announced they would cancel the debt for 7,400 student borrowers that they claimed were "lied to, ripped off, and saddled with mountains of debt" by CollegeAmerica, a Utah-based non-profit college that became the subject of a federal lawsuit for its alleged practice of encouraging prospective students to apply for federal financial aid to finance degrees with dubious credibility.

For CCST, however, the program impacting them was less about improving the government's fraud protection programs than about the wholesale forgiveness of federal student loan debt.

"The new processes do not further the fair and accurate adjudication of borrower defense claims," it argued in the complaint. "Instead, they are designed to achieve the non-statutory and impermissible objective of massive student loan forgiveness. Rather than merely facilitate or 'streamline' the resolution of borrower claims, the Department designed its Final Rule with a thumb on the scale to maximize the number and amount of loan discharges with little regard for the merits of the claims or the rights of schools."

CCST's case against the federal government is slated to begin November 6.

Update 8/8/2023, 9:40 a.m. ET: This story has been updated to include comments from a Department of Education spokesperson.