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Colleges ask Supreme Court to halt $6B student loan debt settlement

A judge has approved a class-action settlement that could lead more than 200,000 loans to be canceled based on claims that colleges misled students.
People take part in a student debt cancellation rally outside the Supreme Court in Washington, D.C.
A student debt cancellation rally outside the Supreme Court in Washington on Feb. 28.Francis Chung / Politico via AP file

WASHINGTON — Colleges challenging a class-action settlement that could lead to student loans' being canceled for hundreds of thousands of borrowers asked the Supreme Court to put the case on hold Wednesday.

The case is unrelated to President Joe Biden's broader effort to forgive student loan debt, which is also before the justices, with a ruling due in the next two months.

The new application concerns a settlement California-based U.S. District Judge William Alsup approved in November in a case brought by borrowers who claim their federal student loans should be canceled because their schools, many of which are for-profit, are alleged to have engaged in misconduct.

The class-action settlement could be worth more than $6 billion if it is allowed to go into effect, the challengers say.

The application at the Supreme Court was filed by Everglades College, Lincoln Educational Services Corp. and American National University. Lincoln and American National are for-profit enterprises, while Everglades is not-for-profit. All three operate colleges the federal government placed on a list of more than 150 institutions that it said are linked with claims of "substantial misconduct."

The colleges object to that characterization.

The federal Higher Education Act allows debt cancellations in specific circumstances, but the challengers say Education Secretary Miguel Cardona has exceeded his authority.

"The secretary's claimed authority amounts to nothing less than the power to cancel, en masse, every student loan in the country," the challengers said in court papers.

They asked the Supreme Court to put Alsup's ruling on hold and consider hearing the case on an accelerated basis.

Alsup refused the colleges' request to delay his ruling from going into effect, saying their inclusion on the list of colleges did not affect their rights or have any legally binding impact on them.

The lawsuit was filed in 2019, four years after the collapse of Corinthian Colleges, a for-profit organization, which led thousands of borrowers to file claims seeking to discharge their debt.

In the separates cases involving Biden's debt relief plan, the Supreme Court in February appeared skeptical that it was lawful.

The program, which would allow eligible borrowers to cancel up to $20,000 in debt, has been blocked since the 8th U.S. Circuit Court of Appeals issued a temporary hold in October, and there are major doubts it will ever go into effect.

That plan, which would cost more than $400 billion and affect upwards of 40 million borrowers, is significantly broader than the class-action settlement.