More than 200,000 borrowers in Tennessee and around the country could soon see their student loans discharged. On March 29, the U.S. Court of Appeals for the Ninth Circuit paved the way for about $6 billion in student loans to be forgiven when it denied a request from three colleges to block a class action lawsuit settlement. The lawsuit was brought against the U.S. Department of Education by former students who claimed that they were misled by colleges. The case was settled in 2022.
Borrower defense to repayment
Borrower defense to repayment gives people debt relief if they were lied to or misled before taking out federal student loans. The program is administered by the U.S. Department of Education, but the former students who filed the class action lawsuit claimed that the agency had delayed or arbitrarily rejected their applications. When applications are approved, the program allows federal student loans to be forgiven and may refund payments that have already been made.
Class action lawsuit
The class action lawsuit that was settled in 2022 involved dozens of schools. Most of these schools accepted the outcome, but Lincoln Educational Services, American National University and Everglades College Inc. challenged the settlement. These three schools appealed to the U.S. Court of Appeals for the Ninth Circuit after a federal district court rejected their arguments. The March 29 appeals court ruling puts an end to the challenge, which means that the plaintiffs can expect their student loans to be forgiven within the next 12 months. The lawsuit and appeals court ruling are not connected to the Biden administration’s student loan forgiveness plan. That proposal is currently being reviewed by the U.S. Supreme Court.
These students are being granted relief because they were the victims of misrepresentation. To prevent similar cases in the future, schools that mislead their students should be held accountable and face sanctions. Lawmakers should also consider revising the nation’s bankruptcy code to once again allow student debt to be dischargeable. If that were to happen, misrepresentation would be rarer because lenders that provide student loans would be more cautious.