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Federal Appeals Court Blocks ED’s New Borrower Defense Rules

By Maria Carrasco, NASFAA Staff Reporter

A federal appeals court on Monday blocked the Department of Education’s (ED) new borrower defense to repayment rules from taking effect after a Texas for-profit college group filed a complaint. 

The 5th U.S. Circuit Court of Appeals granted a complaint filed by Career Colleges and Schools of Texas (CCST), blocking ED’s borrower defense rules from taking effect nationwide. ED released its final rules on borrower defense to repayment in November 2022, seeking to create an easier path for borrowers defrauded by their institutions to receive student debt relief. The rules went into effect on July 1, 2023. 

CCST argued in its complaint that ED’s final borrower defense rules were an “overreach in violation of the Department’s statutory authority and the separation of powers.” 

“The apparent goals of this new framework are to accomplish massive loan forgiveness for borrowers and to reallocate the correspondingly massive financial liability to institutions of higher education,” the complaint states. “The Final Rule will cause financial and reputational harm to schools, educational harm to students, and budgetary harm to the public fisc.”

While the decision didn’t go into detail about the reasoning behind the appeals court’s decision, it does state the case will be heard on Nov. 6, 2023. 

Last month, the 5th U.S. Circuit Court of Appeals partially blocked ED’s final borrower defense rules from taking effect for members of the institutions involved in the lawsuit. At the time, the panel declined to issue a broader nationwide injunction. 

ED responded to the ruling, saying it is reviewing the court's order. 

"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," an ED spokesperson said. "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.”

Career Education Colleges and Universities (CECU), a trade association that represents for-profit colleges nationwide, applauded the ruling, saying ED’s new borrower defense rules are “detrimental to career schools in Texas and across the country.”

“CCST’s legal case against the Department of Education’s unlawful BDR rule is strong and we are confident that when the case is brought forward the facts will show the new rule to be an agency overreach in violation of the Department’s authority, the Administrative Procedure Act, and the Constitution,” said CECU’s President and CEO Jason Altmire in a statement. “Knowing that this rule has a strong chance to be struck down during the upcoming legal process, it is unjustifiable to allow its implementation while the court proceedings continue. We are pleased that today’s ruling upholds this view.” 

 

Publication Date: 8/8/2023


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