WASHINGTON — The Supreme Court on Thursday refused to block a settlement that waived $6 billion in federal loans for students attending for-profit or vocational schools.
Court’s brief order gave no reasons, which is typical when the judges are responding to emergency applications. There were no known dissents.
The case is unrelated to the Biden administration’s pandemic-related debt relief program, which involves $400 billion in student loans from 40 million Americans. The judges heard arguments in contestations of that program in February and are expected to rule in June.
The new case stemmed from allegations of fraud against 151 institutions, almost all of them for-profit or vocational schools. A federal law allows the secretary of education to cancel federal loans based on misconduct by the borrower’s school.
The settlement was prompted in part by a huge backlog in the government’s handling of applications for aid under the Act following the collapse of Corinthian Colleges in 2015 following the rise of extensive evidence of illegal recruitment tactics. (Last year, in a separate development, the education department announced it would wipe out $5.8 billion owed by 560,000 borrowers attending Corinthian Colleges.)
The class action at issue in the new case was filed in 2019 and sought to force the government to clear the backlog. An initial settlement collapsed after the Trump administration issued 128,000 denials that a federal judge called “disturbingly Kafkaesque.”
The case was settled for a second time in June 2022, granting automatic debt forgiveness to nearly 200,000 borrowers who had attended the 151 schools and streamlining procedures for about 100,000 others. Still other borrowers who were not part of the first class would have their applications processed in the usual way, but with a three-year deadline.
As of April 11, the government said the Supreme Court78,000 borrowers in the first group had been fired.
Three schools — Everglades College, Lincoln Educational Services Corporation and American National University — disputed the settlement, saying it was a moving target and the product of collusion between the Biden administration and the borrowers’ lawyers.
“Through a surreptitious, nationwide class-action settlement of a lawsuit that only sought to force the department to reboot pronunciation of applications for loan forgiveness,” say the schools’ lawyers told the judges“instead, the department has ignored its regulations, completely refraining from adjudication and plans to foreclose and repay billions in loans for hundreds of thousands of borrowers.”
The schools’ briefing added: ‘The Secretary’s alleged authority amounts to nothing less than the power to cancel, e.g.a massevery student loan in the country.”
The schools argued that they were harmed by the settlement because it damaged their reputation and exposed them to the possibility that the government might try to recover the waived loans from them.
“Being openly labeled as a suspected culprit by someone’s primary federal supervisor based on undisclosed evidence (or no evidence at all) — without any ability to defend themselves — seriously damages a school’s reputation and good will,” the letter said. .
Attorney General Elizabeth B. Prelogar, in a letter from the Supreme Court opposing the schools’ request for suspension, wrote that the schools were bystanders without objecting.
“The settlement does not subject them to any liability, judge their rights or require them to do or refrain from doing anything,” she wrote. “Instead, applicants mainly claim that their reputation is being damaged by their inclusion on the list of schools whose borrowers are entitled to automatic forgiveness. But that alleged reputational damage is speculative and would not be compensated by a stay anyway.”
A briefing for classmates reiterated that point, saying the school’s inclusion in a list of institutions accused of misconduct would not change even if the settlement were suspended.