Supreme Court allows $6 billion in payments to continue in student loan relief case
More than 150 schools were accused of fraudulent activity in a $6 billion settlement.
The Supreme Court of the United States (SCOTUS) has ruled to not block a $6 billion student loan settlement involving more than 200,000 borrowers who claimed their schools had misled or defrauded them.
The April ruling stems from Sweet v. Cardona, a 2019 class-action lawsuit that alleged the Department of Education had unreasonably delayed and unlawfully withheld decisions on pending borrower defense claims.
Under the law, the federal government may forgive student loan debt taken on by borrowers who attended educational institutions that misled them or engaged in other misconduct in violation of certain state laws, according to StudentAid.gov. This is known as "borrower defense to loan repayment." Borrowers who believe they’re eligible for this can apply for borrower loan defense discharge.
In 2015, a large sum of students submitted these applications to the Education Department. But in 2019, a backlog of cases triggered the class-action lawsuit, and by the end of 2022, borrowers and the Education Department reached a settlement.
But earlier this year, three schools named in the suit—Lincoln Educational Services Corp., American National University and Everglades Colleges Inc—petitioned SCOTUS for a stay on the relief.
The institutions had argued the settlement scarred their reputation and equated to federal overreach. In April, SCOTUS declined to block the settlement, allowing the Education Department to proceed with payments.
"Today’s swift and decisive action from the highest court should end, once and for all, any ongoing debate about the legitimacy of this settlement," Eileen Connor, president and director of the Project on Predatory Student Lending (PPSL), said in a statement after the high court’s decision.
The PPSL represented borrowers in the suit.
If you weren't involved in the class-action settlement, you may not be eligible for relief stemming from this ruling. But you could save on your monthly payments by refinancing your private student loans at a lower rate. You can visit Credible to get your personalized rate in minutes.
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Who is eligible for relief under the $6 billion student loan settlement?
Borrowers who had submitted borrower defense applications pending as of June 22, 2022, in relation to schools on the "Exhibit C" list would have outstanding student loans fully discharged and would receive refunds for amounts paid toward eligible loans, according to the PPSL. That relief should come on or before January 28, 2024, the PPSL said. In addition, credit tradelines associated with those loans would be deleted from borrowers’ credit reports.
Furthermore, the Department of Education has agreed to rescind borrower defense denials issued between December 2019 and October 2020, the PPSL said. The Education Department would treat these borrowers’ original applications as if they had never been denied and related borrowers would become class members.
The Sweet v. Cardona settlement case is unrelated to President Joe Biden’s student loan forgiveness plan, which is still under review by the Supreme Court. That proposal aims to forgive up to $20,000 in federal student loans for millions of borrowers.
If you’re a private student loan borrower not eligible for any kind of relief, you could still reduce your monthly payments by refinancing your private student loans to a lower interest rate. You can visit Credible to compare multiple options at once, without affecting your credit score.
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Biden’s student loan forgiveness plan: What’s next?
The Supreme Court in February began looking into lawsuits brought against Biden's student loan forgiveness plan. This controversial proposal could wipe out $441 billion in student loan debt for more than 40 million borrowers.
Biden’s initiative aims to forgive up to $10,000 in federal student loans or up to $20,000 for Pell Grant recipients. To be eligible, borrowers need to have individual incomes of less than $125,000 or $250,000 if they’re married couples.
However, SCOTUS is reviewing two lawsuits against the plan.
In one case, the states of Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina said the plan is unlawful and would harm their tax revenues. Moreover, the six states have argued the Biden administration is wrongfully using the Higher Education Relief Opportunities for Students (HEROES) Act of 2003 to justify widespread relief.
The HEROES Act allows Congress to waive restrictions on student loan forgiveness under national emergencies. Biden has claimed COVID-19 qualified as such an emergency. However, in April, the president signed a House bill immediately ending the Covid-19 national emergency.
In another case, two individuals had argued that Biden’s forgiveness plan is unlawful because it would make them partially or completely ineligible for all its benefits. They also claimed the public was not given enough time to weigh in on the matter.
However, the Education Department has argued that vacating debt forgiveness would put plaintiffs' financial situations in unchanged or worsened states.
These cases are ongoing, as is the federal pause on student loan payments. Since 2020, payments due on eligible student loans held by the Department of Education have been paused and interest rates reduced to 0%.
But the White House announced last November that "Payments will resume 60 days after the Department is permitted to implement the program or the litigation is resolved" and "If the program has not been implemented and the litigation has not been resolved by June 30, 2023 – payments will resume 60 days after that."
Regardless of the Supreme Court’s decision in the student loan forgiveness matter, private student loan borrowers won’t be eligible for any federal relief. You can still reduce your private student loan payments each month by refinancing to a lower interest rate. You ca visit Credible to speak to a student loan expert and see if this option is right for you.
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