Addressing the Education Department’s Authority to Discharge Student Loan Debt

Petition: Department of Education v. Career Colleges & Schools of Texas, No. 24-413 (January 10, 2025)

Decision Below: 98 F.4th 220 (5th Cir. 2024)

Issue: Whether the U.S. Court of Appeals erred in holding that the Higher Education Act of 1965 does not permit the assessment of borrower defenses to repayment before default, in administrative proceedings, or on a group basis.

In 1993, Congress passed the Student Loan Reform Act, which amended the Higher Education Act of 1965 (Education Act) and specified how the Education Secretary may cancel or reduce loans in certain limited circumstances. Congress gave the Secretary the power to specify what acts or omissions made by an institution of higher education qualify a borrower for loan reduction or cancellation. Borrowers thus gained the ability to avoid paying either a portion or all of their loans if their school misled them, breached their contract, or engaged in aggressive recruitment. The Secretary also must discharge loans from borrowers who cannot complete their program because their school closed and may pursue any claims available to a borrower against the institution or settle a borrower’s loans.

The Education Department issued rules in 2016 and 2019 that governed borrower defense claims. To resolve operational difficulties arising out of mounting borrower discharge requests, the Department released another rule in 2022, which implemented a uniform standard describing what a borrower may assert as a defense to repayment regardless of when their loans were initially disbursed. This 2022 Rule requires the Department to conclude, by a preponderance of the evidence, that the borrower meets the defined elements in the rule to show an institution’s fraud. The 2022 Rule also reinstated a group-based defense claim process and allowed the Department to initiate proceedings against a school to recoup funds when a discharged loan resulted from the school’s misconduct.

Respondent Career Colleges & Schools of Texas (CCST), a trade association comprised of postsecondary schools, sued the Education Department in response to the 2022 Rule, alleging that § 455(h) of the Education Act did not authorize the Department to create borrower defense claims or initiate recoupment proceedings against schools. CCST also argued that the 2022 Rule’s strict liability and full-discharge criteria were unlawful and requested a preliminary injunction postponing the 2022 Rule’s effective date. The district court denied CCST’s motion for a preliminary injunction. Career Colls. & Schs. Of Tex. V. Dep’t of Educ., 681 F. Supp. 3d 647, 650 (W.D. Tex. 2023). On appeal, the Fifth Circuit reversed, holding that the Department transformed the 2022 Rule’s defenses into affirmative claims borrowers can pursue outside of default judgement proceedings, which likely violated the Department’s authority under § 455(h). Career Colls. & Schs. Of Tex. v. Dep’t of Educ., 98 F.4th 220, 256 (5th Cir. 2024). The Fifth Circuit also found that the Department lacked the authority to adjudicate borrower defense claims under the Education Act. Id.

The Education Department claims that, under the Education Act, the Secretary is authorized to “compromise, waive, or release any … claim

… however acquired” in administering the Department’s collection of loans. CCST, on the other hand, argues that the 2022 Rule exceeds the Department’s statutory authority under the Education Act.

What's at Stake

Seventy-three percent of borrowers over age 60 are still paying their own student loans. As the second-largest component of household debt, student loans exacerbate senior poverty levels and impair older borrowers’ retirements. By the end of 2024, nearly 25% of federal student loan holders were 50 and older, amounting to approximately nine million Americans who owe $391 billion in student loan debt. Older adults today shoulder a greater amount of student loan debt as well. In 1989, 3.1% of families headed by someone age 50 or older owed an average of $10,073 in student loans. But by 2016, 9.6% of those families carried an average of $33,053 in student loan debt, more than tripling the earlier amount. Consequently, many older borrowers run the risk of having their wages garnished or their Social Security benefits offset due to unpaid loans. The federal government can garnish up to 15% of a recipient’s monthly Social Security checks, which, in 2015 alone, led to the government’s seizure of benefits owed to nearly 114,000 borrowers 50 and older. Half of these borrowers were also receiving Social Security disability payments.

If the Supreme Court rules in favor of the universities, older borrowers will face greater difficulties in cancelling or reducing their loans against schools that committed misconduct. Borrowers would be subject to unnecessarily burdensome and costly loan default proceedings. However, if the Court agrees with the Education Department, the 2022 Rule will remain in place, which would allow the Department to provide individual and mass student loan forgiveness to borrowers who were defrauded or otherwise harmed by their schools.

Sam Wehrle, SWehrle@aarp.org

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