Defrauded Student Borrowers Stuck in Limbo: Legal Battles and Delays Plague Borrower Defense Loan Forgiveness Program

Hundreds of thousands of borrowers could be eligible for student loan forgiveness under a program designed to offer relief to those defrauded by their schools. However, due to a mix of legal challenges and persistent administrative issues, many qualifying borrowers remain in limbo, uncertain of when — or if — they’ll receive the relief guaranteed to them under federal law.

Here’s the latest update on the Borrower Defense to Repayment program.

Borrower defense can lead to student loan forgiveness, but it’s complicated

The Borrower Defense to Repayment program can eliminate the federal student loan debt for those whose school engaged in certain kinds of misconduct, such as lying or making false promises about key elements of a degree or certificate program.

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What is the Borrower Defense to Repayment program?

“Borrower defense to repayment is a legal ground for discharging federal Direct Loans. Under the law, you may have a borrower defense to repayment if your school engaged in certain misconduct related to the making of a federal loan or the educational services it provided which caused you harm,” says Education Department guidance on the program. 

“Most borrowers file a borrower defense application because they believe that their school misled them or lied to them about something that was central to their decision to enroll.”

These misrepresentations must typically be about core elements of a degree or certificate program, such as:

• Admissions selectivity
• Career or earnings prospects
• Accreditation
• Transferability of credits to another institution

Related: Should You Apply for Borrower Defense to Repayment?

The evolution of Borrower Defense regulations

The Borrower Defense program has gone through multiple versions of governing regulations as successive presidential administrations have tried to direct student loan forgiveness in accordance with their policy goals:

• In 2016, the Obama administration enacted regulations to formalize an application and review process that had not previously existed. 
• In 2019, the Trump administration released new rules that dramatically scaled back relief under the program and made it harder for borrowers to qualify for a discharge. 
• In 2023, the Biden administration enacted new regulations that are the most expansive and aggressive Borrower Defense rules to date. The new regulations provide six different grounds for student loan forgiveness including substantial misrepresentations, omissions, breaches of contract, “aggressive and deceptive recruitment,” a judgment against the school, or prior actions by the Education Department against the institution. 

New Borrower Defense regulations are tied up in court, delaying student loan forgiveness

The Biden administration’s 2023 Borrower Defense regulations were the subject of an immediate legal challenge filed by a coalition of schools seeking to block the program, in particular, because the new rules allow the Education Department to pursue recoupment against the schools related to Borrower Defense relief.

A federal appeals court has enjoined — or temporarily blocked — the 2023 Borrower Defense rules while the litigation plays out. The court noted in its most recent ruling in April that the regulations are likely to ultimately be overturned. 

Education Department halts processing of Borrower Defense applications

As a result of the court injunction, the Education Department is not currently processing pending Borrower Defense applications. Officials cannot use the 2023 rules, and many borrowers would be denied relief if the department applied the Trump-era Borrower Defense regulations instead.

Thousands of borrowers left in limbo awaiting application decisions

With the 2023 rules blocked and the Education Department unable to process applications under the previous regulations, thousands of borrowers are stuck in limbo awaiting a decision on their Borrower Defense claims. The injunction will remain in effect until there is a final judgment in the case.

“On Aug. 7, 2023, a federal court issued an injunction delaying the effective date of the latest borrower defense regulation that was published by the Department on Nov. 1, 2022,” says department guidance. 

“On April 4, 2024, the court issued further instructions to enjoin the rule and postpone the effective date of the regulation pending final judgment in the case. The injunction is effective until there is a final judgment in the case. The Department will not adjudicate any borrower defense applications under the rule subject to the injunction unless and until the injunction is lifted.”

If the new Borrower Defense rules ultimately get struck down, the Trump and Obama administration rules would go back into effect. Neither regulatory regime is as favorable to borrowers as the 2023 Biden administration regulations. 

Borrower Defense relief delayed under Sweet v. Cardona settlement

A separate legal battle is playing out over a landmark settlement agreement to resolve thousands of Borrower Defense claims. 

Last year, the Education Department began implementing relief under the Sweet v. Cardona settlement, which was reached in 2022 after years of litigation brought by a class of student loan borrowers over stalled or improperly rejected Borrower Defense applications, largely during the Trump administration.

Education Department fails to meet January deadline for loan discharges

Under the settlement terms, nearly a quarter million borrowers who submitted applications for student loan forgiveness under the Borrower Defense program would receive automatic relief totaling $6 billion. 

The Education Department was supposed to have completed implementing the discharges by January of this year. But thousands of Sweet class members have still not received loan forgiveness.  The Education Department has blamed the delays on administrative complications and loan servicing issues.

Related: Art Institutes’ Misconduct Leads to Massive Loan Forgiveness: 6 Things Borrowers Should Know

Project on Predatory Student Lending takes Education Department back to court

The Project on Predatory Student Lending, a nonprofit legal organization that represents Sweet class members, has taken the Education Department back to court to force officials to implement the remaining relief. The court is holding a series of hearings involving all parties to monitor the department’s slow but steady progress.

“We appreciate Judge Alsup’s efforts to hold the Department and its servicers accountable and look forward to more progress as we continue our biweekly meetings to ensure compliance with this legally binding settlement,” said Eileen Connor, President and Executive Director of the Project on Predatory Student Lending, in a statement last week following the most recent court hearing. 

“Our clients have already been waiting far too long for a resolution and the Department is out of time and excuses. It has a legal obligation to deliver full settlement relief to class members and we are going to make sure that every single one gets the relief they are owed.” 

New avenue for student loan forgiveness coming, but may face fresh challenges

Meanwhile, the Biden administration is expected to release a new mass student loan forgiveness plan later this fall. This new initiative will provide several possible pathways to relief for five different groups of borrowers. One of those avenues will be for borrowers who attended “low-financial value” institutions. 

“Borrowers who took out loans associated with institutions or programs that lost their eligibility to participate in the federal student aid program or were denied recertification would be eligible for relief” under the new loan forgiveness plan, says Education Department guidance. 

“Borrowers who attended institutions or programs that closed and failed to provide sufficient financial value would also be eligible for relief. Financial value would be measured based upon indicators like excessive student loan default rates or unaffordable debt burdens relative to income.”

Biden’s new mass student loan forgiveness plan overlaps with Borrower Defense eligibility

While this is a distinct program from Borrower Defense to Repayment, many borrowers who would qualify for Borrower Defense could also qualify for Biden’s new loan forgiveness plan, as there is often an overlap between schools that engage in widespread misrepresentations and those that have poor student outcomes.

More legal challenges to come

However, observers widely expect Biden’s new loan forgiveness plan to be challenged in court once it’s released in the fall — likely leaving borrowers in limbo yet again.

Expert guidance for borrowers seeking forgiveness

Student Loan Planner remains dedicated to assisting borrowers who’ve been defrauded by their schools and are seeking student loan forgiveness. Our team of experts understands the intricacies of programs like Borrower Defense to Repayment and the challenges borrowers face amid legal and administrative hurdles. 

We offer customized guidance and are here to provide the support you need to move forward, whether you're impacted by court delays or exploring new forgiveness pathways.