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Supreme Court upholds Biden administration’s $6B settlement with scammed students whose claims were part of ‘Kafkaesque’ mishandling by Betsy DeVos


Former U.S. Secretary of Education Betsy DeVos testifies during a hearing before House Education and Labor Committee December 12, 2019 on Capitol Hill in Washington, DC. The committee held a hearing on “Examining the Education Department’s Implementation of Borrower Defense.” (Photo by Alex Wong/Getty Images)

The U.S. Supreme Court has refused to block the Biden administration’s $6 billion settlement with scammed student borrowers Thursday in a ruling that closes the loop on at least some of the diploma mill fraud claims that were found to have been mishandled by embattled Donald Trump education secretary Betsy DeVos.

Three for-profit colleges — Everglades College, Lincoln Educational Services Corp., and American National University — had asked the high court to step in and halt a settlement between nearly 200,000 borrowers whose debt was discharged as part of the “borrower defense rule.” In a two-line order issued Thursday, the Court denied the request to stay the payout.

The original Obama-era rule was adopted by the federal Department of Education (DOE) in 2016 after several high-profile for-profit schools — including Trump University, DeVry University, Corinthian Colleges, and University of Phoenix — came under scrutiny for the mass defrauding of students through a potent combination of predatory lending and sham education. Under the rule, student debtors swindled by for-profit colleges can have their loans forgiven by the federal government via borrower defense claims; the government can thereafter seek reimbursement of those unpaid loans directly from the offending school.

Things changed, however, after Trump’s ascent to the presidency and the controversial appointment of DeVos as Secretary of Education.

DeVos’ relationship with the borrower defense rule was fraught from the start. During the former secretary’s confirmation hearing, for example, Sen. Elizabeth Warren (D-Mass.) skewered DeVos for refusing to commit to enforcing the borrower defense and other anti-fraud rules. When DeVos eventually took office, she replaced the DOE’s entire Borrower Defense Unit with a for-profit insider who was himself a top dean at DeVry University —an institution with one of the worst records of defrauding students.

DeVos later changed the borrower defense rule to make it significantly harder for student fraud victims to get loan forgiveness. When litigation ultimately came before a court, a federal judge found that DeVos had systematically buried students’ claims, even over the advice of her own department in a manner one judge would later call “disturbingly Kafkaesque.”

After years of litigation — and after Joe Biden was elected president in 2020 — the defrauded student borrowers entered into a class action settlement of their claims in 2023, only to have that settlement challenged by the three for-profit college plaintiffs. The schools argued that the Biden Administration had no authority to enter into the settlement with students, and that its attempt to cancel billions in student loans “amounts to nothing less than the power to cancel, en masse, every student loan in the country.”

The schools also urged the justices to consider what they said was the irreparable reputation harm that they would suffer as a result of the massive settlement.

The justices, all of whom attended elite not-for-profit universities, were unsympathetic, and rejecting the schools’ request and presumably allowing the settlements to proceed.

The Biden administration’s enormous settlement with defrauded students of for-profit colleges is unrelated to the ongoing controversy over the administration’s quest to cancel $400 billion in student loans under the general umbrella of COVID-19 relief. Biden’s program, the fate of which is currently pending before the Supreme Court and expected to be announced by June, forgives up to $20,000 in federal student loans.

The federal government relied on the Higher Education Relief Opportunities for Students Act of 2003 (the “HEROES Act”), to cancel student debt as mitigation of a “national emergency,” and the measure affects qualified borrowers regardless of whether their loans were tied to payments to for-profit or traditional not-for-profit institutions of higher education.

A spokesperson for Keiser University said in an emailed statement Monday that the institution was “disappointed” with the Supreme Court’s ruling and said the appeal will next proceed to the U.S. Court of Appeals for the Ninth Circuit where full arguments will be presented.

“We believe strongly in the merits of our case and indeed 20 state attorneys general filed a brief agreeing with our position,” said the spokesperson.

A Department of Education representative said the following in an email to Law&Crime Monday:

We are confident that the settlement is lawful and pleased that the Supreme Court has rejected this effort by non-party schools to block it. The settlement will deliver billions of dollars of relief to approximately 200,000 borrowers and fairly and equitably resolve this long-running litigation. The Department will continue to implement the settlement, and we will keep working hard to strengthen oversight and enforcement.

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Editor’s Note: This piece was updated from its original version to include comment from the parties.

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Elura is a columnist and trial analyst for Law & Crime. Elura is also a former civil prosecutor for NYC's Administration for Children's Services, the CEO of Lawyer Up, and the author of How To Talk To Your Lawyer and the Legalese-to-English series. Follow Elura on Twitter @elurananos