Student loan borrowers suffered a defeat this week after a federal court dismissed an appeal challenging new regulations that impose stricter standards on discharging student loans through Borrower Defense to Repayment, a program that provides for student loan forgiveness for those who were defrauded by their school. The court concluded that in light of recent legislation passed by Congress last year that codified the regulations, the restrictions cannot be challenged, at least not via the legal route that the lawsuit had relied on.
“This decision is a setback for borrowers challenging the Trump-era 2019 borrower defense rules,” said the Project on Predatory Student Lending, one of the legal organizations that had led the challenge, in a statement on X on Thursday. “But it is NOT the end of borrower defense.”
Here’s what the latest ruling means for borrowers who are trying to discharge their federal student loans, and what the implications are for the Borrower Defense to Repayment program more broadly.
Borrower Defense Program Can Discharge Federal Student Loans
The Borrower Defense to Repayment program allows borrowers to request a discharge of their federal student loans if their school engaged in certain forms of misconduct, such as by misrepresenting admissions statistics or lying about job prospects to lure in potential students and convince them to enroll.
“Borrower defense to repayment is a legal ground for discharging federal Direct Loans,” says the Education Department on its Borrower Defense website. “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 warranting a full discharge of your applicable federal Direct Loans. If the U.S. Department of Education (ED) approves your application for borrower defense, we will discharge any remaining balance on the federal student loans you took out to attend the school and may also refund loan payments you already made.”
There are several grounds that can form the basis of a viable Borrower Defense claim and ultimately allow federal student loans to be discharged. These include substantial misrepresentations, such as when a school “lies to you or misleads you about its educational services, financial charges, or the employability of its graduates, and that information is central to your decision to enroll, stay enrolled, or take out loans,” says the department. It can also include certain types omissions of fact, breaches of contract, and aggressive or deceptive recruitment.
Different Borrower Defense Rules Can Impact Eligibility For Discharging Student Loans
The Borrower Defense to Repayment program has been subjected to political, regulatory, and legal battles for a decade. Every presidential administration since the Obama administration has tried to revamp the program with new Education Department rules and regulations, which ultimately govern which borrowers would be eligible to have their federal student loans discharged.
In 2019, during the first Trump administration, the department created new Borrower Defense regulations that imposed significant new restrictions on the ability for borrowers to qualify for relief under the program. These 2019 rules added additional burdens of proof for borrowers seeking student loan forgiveness, including by requiring borrowers to demonstrate that the school had knowledge of the alleged misrepresentations. Borrowers also would have to show that they suffered financial harm as a result of the school’s misrepresentations, and the student loans themselves cannot be evidence of that harm. Borrowers also would have to provide corroborating documentary evidence of their allegations.
Another important restriction included in the 2019 Borrower Defense rules is that borrowers must submit their application for relief within three years of the date they ceased their enrollment at the institution. This statute of limitations can effectively block student loan forgiveness for borrowers who seek Borrower Defense relief too long after withdrawing or graduating. While the 2019 Borrower Defense rules only apply to student loans issued on or after July 1, 2020, many borrowers consolidated their federal student loans after this date to take advantage of Biden-era student loan relief programs, and there is still some legal uncertainty as to whether a Direct consolidation loan made after July 1, 2020 would subject a borrower to the three-year statute of limitations period and other restrictive provisions associated with the 2019 rules.
The 2019 Borrower Defense rules were subject to a legal challenge, and a federal district court had blocked implementation of the three-year statute of limitations provision.
Court Dismisses Appeal Over 2019 Borrower Defense Rules, Which Could Make Discharging Student Loans Harder
On Wednesday, the U.S. Court of Appeals for the Second Circuit dismissed an ongoing legal challenge over the 2019 Borrower Defense rules. The challengers had argued that the rules violated the Administrative Procedures Act, a federal statute that governs how federal agencies can draft and enact new rules and regulations.
The Second Circuited noted that last year, Congress passed the One Big, Beautiful Bill Act, which was signed by President Trump. Among other things, this legislation effectively codified the 2019 Borrower Defense regulations that were created during the first Trump administration. The legislation also makes substantial changes to federal student loan repayment and other student loan forgiveness programs, as well. But the court concluded that because this legislation essentially created new statutory authority for the 2019 Borrower Defense to Repayment standards, the Administrative Procedures Act is no longer a vehicle for challenging the associated restrictions on discharging student loans through the program.
“Section 85001(b) ‘restored and revived’ the version of the 2019 Rule that went into effect on July 1, 2020,” noted the Second Circuit in its ruling. “Thus, the Act restored the 2019 Rule, as it was on July 1, 2020, including the three-year limitation period that the district court severed and vacated.”
Noting that the “APA does not apply to actions of Congress,” the court concluded that, “Congress demonstrated an intent to ratify or codify the 2019 Rule as it existed before any legal challenges, which would include the district court’s partial vacatur of the 2019 Rule. In other words, by implementing and restoring the 2019 Rule through the Act, Congress immunized the 2019 Rule from a challenge by NYLAG of the 2019 Rule as arbitrary and capricious under the APA.”
“The Second Circuit held that the case had become moot as result of 2025’s One Big Beautiful Bill Act,” explained the Project on Predatory Student Lending. “The Second Circuit stated that, because the 2019 BD regulations had been put back into effect by statute, the Court no longer had authority to consider challenges to those regulations under normal administrative law procedures.”
What The Court Ruling Means For Borrowers Trying To Discharge Student Loans Under Borrower Defense
Student loan borrower advocacy organizations noted that the Second Circuit’s ruling was a loss for borrowers, and will make it harder for people to get their student loans discharged under the program. But the ruling does not kill the Borrower Defense program, nor does it constitute a determination on any individual Borrower Defense application.
“The court did not rule on the validity of BD or BD claims,” said the Project on Predatory Student Lending on a statement on its website. “It simply ruled that since Congress has now re-instituted the 2019 borrower defense rules, we can no longer challenge them under the Administrative Procedure Act. As a result, the stricter 2019 borrower defense standards will remain in place for loans disbursed on or after July 1, 2020, including the rule’s three-year statute of limitations.”
PPSL noted for borrowers whose student loans were disbursed prior to July 1, 2020, there will be no changes in the standards applied to their Borrower Defense to Repayment claims. And borrowers associated with the Sweet v. McMahon case, including both class and post-class members, should not be impacted and will continue to qualify for full settlement relief where applicable, including student loan forgiveness and refunds of past payments. PPSL encouraged federal student loan borrowers to continue applying for Borrower Defense relief if they believe they qualify.
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