The deal that will let thousands of people get rid of their student loan debts will go into effect after the Supreme Court didn’t stop it on Thursday.
In a short order, the Supreme Court turned down a request from schools that questioned the settlement.
The case has nothing to do with President Joe Biden’s larger plan to wipe out student loan debt. That plan is also before the judges, and a decision is due in two months.
The class-action deal is about loans that the people who took them out say should be canceled because their schools, many of which are for-profit, lied to them about them. The total amount of the deal could be more than $6 billion.
The case grew out of a settlement that U.S. District Judge William Alsup in California accepted in November. The settlement was reached in a case brought by borrowers. The deal has already been put into action by the government.
Everglades College, Lincoln Educational Services Corp., and American National University filed the case with the Supreme Court. Lincoln and American National are businesses that make money, but Everglades is a charity. All three run colleges that are on a list of more than 150 schools that the federal government said are linked to “substantial misconduct.”
The schools don’t agree with that description. The Justice Department says that the three schools are responsible for about 3,800 of the loans in question, and that about 400 of those loans have already been forgiven.
Under the federal Higher Education Act, debts can be forgiven in certain situations, but the people who are suing say Education Secretary Miguel Cardona has gone too far.
“The secretary’s claimed authority amounts to nothing less than the power to cancel, en masse, every student loan in the country,” the challengers wrote in court papers.
They asked the Supreme Court to stop Alsup’s decision and think about how quickly the case could be heard.
In court papers, the Justice Department, which is defending Cardona, said that only borrowers and the Education Department are part of the settlement.
So, the government’s lawyers said, “it neither decides any rights nor imposes any duties or liabilities on the relevant schools,” and there is no proof that the schools have been hurt.
Alsup turned down the colleges’ request to put off his decision, saying that putting them on the list of colleges did not change their rights or have any other effect on them that was legally binding.
The case was filed in 2019, which is four years after Corinthian Colleges, a for-profit company, went bankrupt. After that happened, thousands of borrowers filed claims to get out of their debt.
In February, the Supreme Court seemed doubtful that Biden’s much bigger plan to help people get out of debt was legal.
The program, which would let qualified people get rid of up to $20,000 in debt, has been stopped since the 8th U.S. Circuit Court of Appeals put a temporary hold on it in October, and it’s highly unlikely that it will ever be used.
This plan is a lot bigger than the class-action settlement. It would cost more than $400 billion and touch up to 40 million borrowers.
