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$6 Billion Student Loan Debt Settlement Approved by Supreme Court, Bringing Relief to Borrowers

$6 Billion Student Loan Debt Settlement Approved by Supreme Court, Bringing Relief to Borrowers
The Supreme Court quickly issued a decision dismissing a petition by academic institutions that had challenged the student loan debt settlement. (Photo: Getty Images)

The Supreme Court on Thursday did not intervene in a deal that will allow thousands of borrowers to have their student loan debt settlement.

$6 Billion Student Loan Debt Settlement Approved by Supreme Court, Bringing Relief to Borrowers

On Thursday, the Supreme Court did not block a student loan debt settlement that will help thousands of borrowers get a handle on their student loan debt. (Photo: The New York Times)

Supreme Court Rejects Cancellation of Student Loan Debt Settlement

In a brief order, the Supreme Court denied a petition filed by universities challenging the student loan debt settlement. Many students at for-profit universities are part of a class action lawsuit claiming that they were misled into taking out student loan debt settlement by the schools. The value of the student loan debt settlement may exceed $6 billion. This case stems from a November settlement that Borrowers Court U.S. District Judge William Alsup in California approved. The federal government has already begun carrying out the terms of the agreement.

Everglades College, Lincoln Educational Services Corp., and American National University all submitted the application to the Supreme Court. Everglades is a non-profit organization, while Lincoln and American National are businesses. All three of them run colleges that the US government has included among the more than 150 it has linked to allegations of “substantial misconduct.”

The universities take offense at being labeled as such. According to the Justice Department, nearly 400 of the 3,800 impacted student loan have already been dismissed. The opponents argue that Education Secretary Miguel Cardona has overstepped his authority by canceling student loan without following the procedures outlined in the federal Higher Education Act. They urged the Supreme Court to halt Alsup’s decision and give expedited consideration to hearing the matter.

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Settlement Only Involves Borrowers and the Education Department

In court documents, the Justice Department’s representation of Cardona claimed that the student loan debt settlement only applies to borrowers and the Department of Education. The government’s lawyers contended that this meant that “it neither adjudicates any rights nor imposes any duties or liabilities upon the relevant schools” and that there was no proof that the schools had been harmed. Alsup denied the institutions’ plea to stay his verdict, explaining that the schools’ inclusion on the list did not give rise to any binding legal obligations.

In 2019, four years after the demise of the for-profit Corinthian Colleges, hundreds of borrowers filed claims seeking debt cancellation, prompting the filing of the case. The Supreme Court cast doubt on the legality of Biden’s massive debt reduction plan in two separate instances in February.

The 8th U.S. Circuit Court of Appeals imposed a temporary hold on the program in October, and it is highly unlikely that it will ever go into force. The program would allow eligible debtors to cancel up to $20,000 in debt. When compared to the class action settlement, this proposal’s scope is much bigger, as it would cost more than $400 billion and touch more than 40 million borrowers.

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