In a decision that could have significant implications for the future of for-profit education, the Supreme Court has declined to block a $6 billion class-action settlement that forgave federal loans for students at certain types of schools. The ruling came after three schools challenged the settlement, arguing that it was unfair and violated their due process rights.
The case centers on a federal program known as “borrower defense,” which allows students who were defrauded or misled by their schools to have their federal student loans forgiven. In 2015, the Obama administration expanded this program to include students who attended Corinthian Colleges, one of the largest for-profit college chains in the country. Corinthian had been accused of widespread fraud and misrepresentations about its job placement rates and other aspects of its programs.
Under the expansion, thousands of former Corinthian students were eligible to have their loans discharged. However, many also faced aggressive debt collection efforts from private lenders hired by the government to manage these loans. In response, several groups filed lawsuits against these lenders and demanded broader loan forgiveness relief.
In 2019, Betsy DeVos’ Department of Education reached a landmark settlement with these groups: it agreed to forgive $1 billion in federal student loans held by former Corinthian students and expand borrower defense eligibility to all students who attended certain types of for-profit colleges or vocational programs between 2010-2018.
This settlement was met with mixed reactions from various stakeholders in higher education: some praised it as a long-overdue reform that would help protect vulnerable borrowers from predatory practices; others criticized it as an overreach and argued that it would unfairly burden taxpayers with billions in losses.
The three schools challenging this settlement – ITT Technical Institute, Career Education Corp., and ECMC Group – argued that they were not given adequate notice or opportunity to comment on this new policy before they were forced to pay millions in loan discharges. They also claimed that allowing all students who attended for-profit colleges during this time period to receive loan forgiveness was arbitrary and violated their due process rights.
The Supreme Court’s decision not to block the settlement is a victory for borrowers and consumer advocates who have long argued that the federal government has failed to hold for-profit schools accountable for deceptive practices. It also reflects a broader shift in public opinion toward greater scrutiny of the for-profit higher education sector, which has been criticized for saddling students with high levels of debt and low job prospects.
However, some experts caution that forgiving loans without addressing underlying issues in the industry could create moral hazard problems and incentivize more fraud in the future. They argue that policymakers should focus on improving transparency, accountability, and outcomes data at all types of institutions – not just targeting certain sectors or programs.
Moreover, while this settlement provides relief to many former Corinthian students and others who were defrauded by their schools, it does not address larger structural issues in student loan policy. The rising costs of college tuition and stagnant wages have left millions of Americans struggling with unmanageable levels of student debt. Many advocates are calling for broader reforms such as free college tuition or income-driven repayment plans to address these systemic challenges.
Overall, this case highlights the complex legal and ethical debates surrounding higher education policy in America today. As students continue to face mounting debts and uncertain job prospects amid ongoing economic uncertainty, policymakers will need to grapple with these questions if they hope to create a fairer system that works for everyone.