5th Circuit blocks new rules aiming to expand student debt relief for defrauded borrowers

The U.S. Court of Appeals for the 5th Circuit on Monday blocked new rules implemented by the Department of Education that aimed to make it easier for defrauded borrowers to get access to student debt relief. 

The conservative three-judge panel granted the injunction in favor of Career Colleges and Schools of Texas (CCST) until the case is heard on appeal in November. 

CCST is a for-profit group that represents trade schools and for-profit colleges in Texas. The group sued the Department of Education after it released new rules that make it easier for students defrauded by their schools to get debt relief. 

The department has long had a borrower defense program available to individuals with student loans who believe they were defrauded by their institutions, which most commonly involves for-profit schools.

The new rules include barring schools from forcing students to sign mandatory arbitration agreements and a provision that gives borrowers automatic student debt relief a year after a school closes. 

“We are reviewing the court’s order. The Department issued a set of new and stronger regulations to ensure that borrowers have a path to relief when their colleges take advantage of them or leave them stranded by closures,” an Education Department spokesperson said.

“And the Department won’t back down in our efforts to take on predatory colleges, provide relief to borrowers who have been cheated or had their school close, and hold institutions accountable for deceptive schemes,” the spokesperson added. 

CCST sued the administration, arguing the new rules were just another way for the administration to give student loan forgiveness and that the standards for fraud were unfair to colleges. A district court originally rejected their plea before it went to the 5th Circuit. 

CCST is not commenting on the matter, but other college organizations are celebrating the move from the 5th Circuit. 

“We are pleased that the 5th Circuit has ruled in favor of delaying the onset of the borrower defense to repayment and closed school discharge regulations. The facts presented by Career Colleges & Schools of Texas are compelling. Imposing these two provisions would have been detrimental to career schools in Texas and across the country,” said Career Education Colleges and Universities President and CEO Jason Altmire.

The website where borrowers can apply for a borrower defense loan discharge says applications can still be submitted, but they will not be processed under the new regulations while the court’s order is in place.

Updated at 9:10 am ET.