PPSL Files Amicus Brief to SCOTUS in Support of Department of Education’s Petition

Fifth Circuit decision on borrower defense case threatens existing student borrower protections nationwide

BOSTON — Yesterday, the Project on Predatory Student Lending and Public Citizen filed an amicus brief urging the Supreme Court to grant the Department of Education’s cert petition and overturn a Fifth Circuit decision on existing borrower defense regulations.

The decision threatens the underpinnings of the borrower defense rule, a crucial student borrower protection that has existed for over 30 years, allowing students to nullify their federal student loan obligations if they have experienced school misconduct. On April 4, 2024, the Fifth Circuit enjoined the Department from using its new borrower defense rules, prompting the Department to seek intervention from the Supreme Court.

“The mere fact that a small group of proprietary schools in Texas, whose business model is to profit off student loans, are emboldened to slash borrower protections is simply wrong and requires immediate attention from the country’s highest court,” said Eileen Connor, President and Executive Director of PPSL. “This petition substantiates the fact that borrowers can and will be harmed if the Fifth Circuit ruling is allowed to stand – veterans, single parents, first-generation Americans, and those who have historically been excluded from higher education. This crucial protection is the primary form of recourse for individuals against fraud and misconduct committed by predatory schools.”

Background on the petition

The Department of Education promulgated regulations in November 2022 that strengthened existing borrower defense protections. In February 2023, before the regulations could take effect, Career Colleges & Schools of Texas (CCST) – a trade group of for-profit schools in Texas – filed a lawsuit to block the Department from enforcing them. CCST’s lawsuit is not limited to the 2022 regulation; they seek to eliminate the right of borrowers to bring an affirmative borrower defense claim, challenging the fundamental form of the borrower defense rule as it has been applied across administrations since the 1990s.

While the U.S. District Court for the Western District of Texas denied CCST’s request for an injunction, the Fifth Circuit reversed and enjoined the implementation of the regulations on a universal basis. Its decision concluded that the Department does not have the authority to entertain borrower defense applications. Instead, it held that borrowers can only raise a defense to repayment in court, after default, in response to a collections action brought by the Department.

The Department of Education has filed a petition for certiorari, asking the Supreme Court to take up the case. PPSL and Public Citizen support this petition as amici curiae, filing a brief in which they provide compelling borrower testimony and facts that demonstrate the harm the Fifth Circuit decision will cause.

Key Facts and Student Quotes

The Fifth Circuit’s ruling would require borrowers to choose between making payments even though they may be entitled to debt discharge, or deliberately defaulting and hoping for the initiation of a collection lawsuit in which they can attempt to invoke the defense. PPSL and Public Citizen’s amicus brief highlights cruelty of such a choice and the severe negative consequences of default. As the brief explains, “When a borrower defaults, interest continues to accrue, and the entire balance may become due; collection fees— sometimes exceeding 24% of the outstanding principal and interest—may be charged. At the same time, defaulted borrowers’ wages may be garnished and their income-tax refunds offset, including offsets of refundable tax credits like the Earned Income Tax Credit that are specifically designed to lift children and families out of poverty.”

Sweet class members who were in default while waiting for their borrower defense applications to be decided submitted declarations detailing extreme financial distress. One borrower described how default led to the garnishment of his and his wife’s tax refund, which “caused us great finance[ial] hardship in keeping bills paid on time, as we usually use our tax refund to pay those bills.” Another wrote that seizure of her tax return “harmed me because I was to use the money to pay down my debt to help improve my credit so that I could achieve a security deposit for an apartment that would be less tha[n] $4,000.00. Also, I was to pay for my father’s tombstone after he suddenly passed away.”

The brief also underlines the particularly severe impact of default on servicemembers. It describes the experience of two ITT borrowers who reported that they were forced to resign from the military because their federal loans led to the revocation of their security clearance—loans that have since been discharged because of the Department’s findings that ITT engaged in widespread and pervasive misrepresentations.

Finally, the brief explains that most borrowers will never have the opportunity to raise a defense to repayment if the Fifth Circuit’s decision stands. “After a borrower defaults, collection proceedings may not be initiated for many years; unlike for private student loans, . . . there is no statute of limitations for collections on federal student loans. In the meantime, the borrower is saddled with debt and the consequences of default.” To illustrate the rarity of student loan collection litigation, in 2023 there were approximately 6.8 million Direct Loan and FFEL program borrows in default. In that same year, the Department had 13,165 active debt collection litigation actions—representing less than two tenths of one percent of all defaulted borrowers. Under the Fifth Circuit’s interpretation, only this tiny group of borrowers would be able to invoke the statutory defense.

For more information about borrower defense, visit PPSL’s issue page: www.ppsl.org/borrowerdefense.

About the Project on Predatory Student Lending

The Project on Predatory Student Lending (PPSL) is the leading legal organization representing student borrowers against predatory for-profit colleges and the policies that enable institutions to exploit and cheat students. PPSL uses bold, strategic litigation and advocacy to demand accountability in the higher education space and influence policy solutions to create a more just and affordable education system. PPSL represents more than one million student borrowers and its work has resulted in cancellation of more than $22 billion of fraudulent student loan debt.

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