CAREER COLLEGES AND SCHOOLS OF TEXAS, Plaintiff—Appellant, versus UNITED STATES DEPARTMENT OF EDUCATION; MIGUEL CARDONA, Secretary, U.S. Department of Education, in his official capacity as the Secretary of Education, Defendants—Appellees.
No. 23-50491
United States Court of Appeals for the Fifth Circuit
April 4, 2024
Before JONES, DUNCAN, and WILSON, Circuit Judges.
EDITH H. JONES, Circuit Judge:
An association of Texas career colleges and schools challenges the Department of Education’s new regulations that will significantly facilitate certain student loan discharges while creating uncertainty, complexity and potentially huge liability for the association’s members. The Rule overturns recent regulations issued by the previous Administration and upends thirty years of regulatory practice. The district court declined to issue a preliminary injunction against the Rule solely on the basis that the plaintiffs had not shown irreparable harm. Not only do we disagree with that finding, but we assess a strong likelihood that the plaintiffs will succeed on the merits in demonstrating the Rule’s numerous statutory and regulatory shortcomings.1
Therefore, we REVERSE the district court’s order denying a preliminary injunction and REMAND with instructions to enjoin and postpone the effective date of the challenged provisions pending final judgment. Our stay pending appeal remains in effect until the district court imposes a preliminary injunction consistent herewith.
A. The 2022 Rule
On November 1, 2022, the Department promulgated a final rule that revamped various aspects of the federal student loan program, including provisions governing student loan discharges based on the acts, omissions, or closures of higher education institutions. See Institutional Eligibility Under the Higher Education Act of 1965, 87 Fed. Reg. 65,904 (Nov. 1., 2022) (final rule) (“Rule“). Appellant Career Colleges and Schools of Texas (“CCST“), an association of private postsecondary career schools in Texas, sued the Department and Secretary Miguel Cardona, challenging various provisions of the rule, including those relating to borrower defenses against repayment and closed school loan discharges.
1. Borrower-Defense Provision
Under the borrower-defense provision of the Rule, student loan borrowers can apply to the Department for a full discharge of their student debt2 when they meet certain criteria. Borrowers with a balance due on their loans are eligible for full discharge if the Department concludes “by a preponderance of the evidence that the institution committed an actionable act or omission and, as a result, the borrower suffered detriment of a nature and degree warranting” full discharge.
The Rule identifies various categories of “actionable act[s] or omission[s]” that give rise to borrower discharge claims:
- A school’s “substantial misrepresentation . . . that misled the borrower in connection with the borrower’s decision to attend, or to continue attending, the institution or the borrower’s decision to take out a covered loan,” or a “substantial omission of fact” by the school that had the same misleading effect on the borrower and was also connected “with the student’s decision to attend or continue attending the school, or to take out a covered loan.”
34 C.F.R. § 685.401(b)(1–2) .3 - A school’s “fail[ure] to perform its obligations under the terms of a contract with the student [if] such obligation was undertaken as consideration or in exchange for the borrower’s decision to attend, or to continue attending, the institution, for the borrower’s decision to take out a covered loan, or for funds disbursed in connection with a covered loan.” Id.
§ 685.401(b)(3) . - A school’s “engage[ment] in aggressive or deceptive recruitment conduct or tactics as defined in [34 C.F.R. §§ 668.500, .501] in connection with the borrower’s decision to attend, or continue attending, the institution or the borrower’s decision to take out a covered loan.” Id.
§ 685.401(b)(4) . -
A governmental agency’s or the borrower’s (as an individual or a member of a class) obtainment of a favorable judgment against the school on a state or federal law claim for an act or omission related to the borrower’s loan or the еducational services for which it was disbursed. Id. § 685.401(b)(5)(i) . - The Department’s denial of the school’s Title IV recertification or revocation of the school’s program participation agreement due to “acts or omissions that could give rise to a borrower defense claim,” for misrepresentation, omission, aggressive and deceptive recruitment tactics, or breach of contract. Id.
§ 685.401(b)(5)(ii) .
If a borrower’s discharge claim is successful in the administrative adjudication process established by the Rule (a process discussed at further length below), then the Department can seek recoupment from the school of the full amount discharged. Id.
- Materials submitted to the Department during the process of adjudicating claims by borrowers relating to alleged acts or omissions of the institution, including materials submitted by the borrowers, the institution or any third parties;
- Any material on which the Department relied in adjudicating claims by borrowers relating to alleged acts or omissions of the institution and provided by the Department to the institution; and
- The institution may submit any other relevant documentary evidence that relates to the bases cited by the Department in approving the borrower defense claims and pursuing recoupment from the institution.
Id.
The Rule also establishes an adjudication process for addressing borrower discharge claims, which can be brought by borrowers individually or as members of a group. Id.
2. Closed School Provision
The Rule also ushers in multiple changes to the closed-school discharge provision of existing regulations, under which the Department will either cancel a Direct Loan or pay a federally insured loan on a borrower’s behalf if the student was unable to complete his or her course of study
First, the new closed-school discharge provision redefines a location’s “closure date“:
[T]he school’s closure date is the earlier of: the date, determined by the Secretary, that the school ceased to provide educational instruction in programs in which most students at the school were enrolled, or a date determined by the Secretary that reflects when the school ceased to provide educational instruction for all of its students[.]
Id.
Second, the Rule’s new closed-school discharge provision substantially enlarges the scope of automatic discharges by expanding the types of borrowers who would be eligible for a closed school discharge without applying to the Department for such relief. Under the 2022 Rule, borrowers are eligible for an automatic discharge one year after either (1) the newly defined closure date if the student did not complete a program at another branch or location of the school or through a teach-out agreement at another school with the same accreditation and state authorization, or (2) the student’s last date of attendance at that continuation program if he failed to complete the program for any reason. Id.
Third, the Rule’s closed-school discharge provision allows automatic discharges of all loans disbursed to students who withdrew up to 180 days before the newly defined “closure date,” regardless of when the loans were disbursed. Id.
Fourth, the Rule also substantially narrows the class of borrowers ineligible for a closed school discharge. The 2022 Rule only renders a borrower ineligible only if he completes a program “at another branch or location of the school or through a teach-out agreement at another school, approved by the state’s accrediting agency, and if applicable, the school’s State authorizing agency.” Id.
B. Statutory and Regulatory History
To examine CCST’s arguments properly, it is necessary to begin at the beginning of the regulatory structure governing federally assisted student loans.
The Department asserts its authority to promulgate the challenged provisions of the Rule under several sections of the Higher Education Act:
In 1994, the Department promulgated initial implementing regulations for borrower-defenses under Section 455(h), which are consistent with the circumscribed statutory authorization of borrower defenses in collection proceedings:
Borrower defenses.
(1) In any proceeding to collect on a Direct Loan, the borrower may assert as a defense against repayment, any act or omission of the school attended by the student that would give rise to a cause of action against the school under applicable State law. These proceedings include, but are not limited to, the following:
- Tax refund offset proceedings under
34 CFR 30.33 .- Wage garnishment proceedings under section 488A of the Act.
- Salary offset proceedings for Federal employees under
34 CFR Part 31 .- Credit bureau reporting proceedings under
31 U.S.C. 3711(f) .
William D. Ford Federal Direct Loan Program, 59 Fed. Reg. 61,664, 61,696 (Dec. 1, 1994) (final rule) (emphasis added). The Clinton Administration’s subsequent Notice of Interpretation confirmed that the borrower defense provision of the 1994 Rule “does not provide a private right of action for a borrower and is not intended to create new Federal rights in this area.” Office of Postsecondary Education, 60 Fed. Reg. 37,768, 37,769 (July 21, 1995).
The regulations governing borrower defense claims were “rarely used” from the 1990s until the mid-2010s. 87 Fed. Reg. at 65,979. In that era, the Department of Education played a limited role in student lending, principally by subsidizing and insuring student loans issued by other lenders. Things changed in 2010. That year, Congress completed the transition from loan insurance to the Direct Loan program and thus transformed the Department into the primary issuer of student loans in the United States. See Health Care and Reconciliation Act of 2010, Pub. L. 111-152, §§ 2201-13, 124 Stat. 1029, 1074-81.
The 2015 collapse of Corinthian Colleges (a proprietary institution) led to an influx of discharge claims from borrowers. See Student Assistance General Provisions, 81 Fed. Reg. 75,926, 76,047 (Nov. 1, 2016) (final rule). In response, the Obama Administration promulgated a new federal standard governing borrower defense and school closure claims, and it established a new adjudication regime for addressing borrower-defense claims. Id. at 75,927 (2016 Rule). Following protracted litigation brought by various borrowers, the Trump Administration promulgated its own version of the Rule in 2019. See Student Assistance
While several Administrations evolved new regulations addressing borrower defenses, the Department’s backlog of pending student loan discharge requests continued to mount. Eventually, in 2022, the Biden Administration’s Department of Education agreed to a class action settlement affecting hundreds of thousands of pending borrower discharge claims. See Sweet v. Cardona, 641 F. Supp. 3d 814 (N.D. Cal. 2022) (approving settlement between borrowers and the Biden Administration and denying objections of intervenor schools); Sweet v. Cardona, 657 F. Supp. 3d 1260 (N.D. Cal. 2023) (denying intervenor schools a stay pending appeal). CCST asserts that according to a statistical analysis, it is virtually certain that at least one of its 54 participating schools is among the 4,000 schools (about 65 percent of the 6,200 Title IV participating institutions) that are subject to the 206,000 borrower defense claims filed between the Sweet settlement’s execution and its approval.7 See Sweet, 657 F. Supp. 3d at 1265. While the Sweet settlement agreement requires the Department to apply the 2016 “standard” to those 206,000 claims, CCST argues that the adjudication procedures promulgated by the 2022 Rule would still apply to those claims, as those claims are “pending with the Secretary on July 1, 2023.”
The Department’s current version of the Rule, provisions of which have been briefly described above, became effective July 1, 2023. 87 Fed. Reg. at 65,904. As implied at the outset of this discussion, the new Rule dramatically alters the borrower discharge and closed school provisions that had been promulgated only three years previously. In contrast to the 2019 regulations, the 2022 Rule eliminates the Department’s authority to issue partial loan discharges in favor of granting full discharge of entire loan balances. See 87 Fed. Reg. at 65,946. Additionally, under the 2022 Rule, there is no time limit within which borrowers must file an affirmative discharge claim so long as they maintain оutstanding loans related to attendance at a school. Id. at 65,935. Indeed, the Department’s final Rule explicitly rejected a bright-line three-year limitation that was consistent with the 2019 regulations and proposed by some commentators. Id.; see
The 2022 Rule also worked a sea change in the treatment of closed school discharges. First, the 2019 Rule offered a more
C. Procedural History
CCST attacks the 2022 Rule’s borrower defense provision, including its adjudication procedures, and the closed school provisions on multiple grounds, but it does not seek to postpone other provisions of the Rule.
As to the borrower-defense provision, CCST contends that Section 455(h) does not authorize the Department to create affirmative borrower “claims” against the United States or recoupment actions against schools and that the Rule’s strict liability and full-discharge standards are unlawful under the Higher Education Act and the APA. CCST also challenges the Department’s newly promulgated adjudication process and procedures because Congress did not authorize the Department to adjudicate borrower defense or recoupment claims against schools.
CCST also charges that the closed school provisions are inconsistent with the Higher Education Act to the extent they allow a student to obtain a full loan discharge even if the school closure was not the reason the student failed to complete its program. See id.
In the district court, CCST sought a preliminary injunction to postpone the effective date of the challenged portions of the Rule under Section 705 of the Administrative Procedure Act (“APA“).
On appeal, this court granted a temporary administrative injunction limited to CCST and its members, and later approved a motion to postpone the Rule’s effective date pending appeal without party limitation.
II. DISCUSSION
This court reviews the denial of a preliminary injunction for abuse of discretion; underlying legal determinations are reviewed de novo and factual findings for clear error. Topletz v. Skinner, 7 F.4th 284, 293 (5th Cir. 2021) (citation omitted). “A district court by definition abuses its discretion when it makes an error of law.” Def. Distributed v. Bruck, 30 F.4th 414, 427 (5th Cir. 2022) (quoting Koon v. United States, 518 U.S. 81, 100, 116 S. Ct. 2035, 2047 (1996)). In deciding a motion for a preliminary injunction, a court must consider four factors: (1) a substantial threat of irreparable harm to the movant absent the injunction, (2) the likelihood of the movant’s ultimate success on the merits, (3) the balance of harms to the parties, and (4) the public interest. Rest. L. Ctr. v. U.S. Dep’t of Lab., 66 F.4th 593, 597 (5th Cir. 2023). The “first two factors of the traditional standard are the most critical.” Nken v. Holder, 556 U.S. 418, 434, 129 S. Ct. 1749, 1761 (2009). And “[t]here is authority” that “likelihood of success on the merits . . . is the most important of the preliminary injunction factors.” Mock v. Garland, 75 F.4th 563, 587 n.60 (5th Cir. 2023); see also Tesfamichael v. Gonzales, 411 F.3d 169, 176 (5th Cir. 2005).
The APA also provides two relevant standards of review. Under Section 705, “the reviewing court, including the court to which a case may be taken on appeal . . . , may issue all necessary and appropriate process to postpone the effective date of an agency action.”
A. CCST Has Standing
“A preliminary injunction, like final relief, cannot be requested by a plaintiff who lacks standing to sue . . . . At the preliminary injunction stage, the movant must clearly show only that each element of standing is likely to obtain in the case at hand.” Speech First, Inc. v. Fenves, 979 F.3d 319, 329–30 (5th Cir. 2020), as revised (Oct. 30, 2020). One way CCST can demonstrate standing is as a representative of its members (“associational standing“). See Ctr. for Bio. Diversity v. EPA, 937 F.3d 533, 536 (5th Cir. 2019). “Associational
The district court had no trouble determining that CCST satisfied the requirements of Article III associational standing. Career Colleges & Sch. of Texas v. United States Dep’t of Educ., No. 1:23-CV-433-RP, 2023 WL 4291992, at *4–*5 (W.D. Tex. June 30, 2023). The Department, curiously, disagrees, and devotes nearly one third of its argument to insisting that the plaintiffs lack standing. This contention is more bewildering than persuasive.
“An increased regulatory burden typically satisfies the injury in fact requirement.” Texas v. EEOC, 933 F.3d 433, 446 (5th Cir. 2019) (quoting Contender Farms, L.L.P. v. U.S. Dep’t of Agric., 779 F.3d 258, 266 (5th Cir. 2015)). Notwithstanding the Department’s view, the challenged provisions of the Rule impose an immediate increase in regulatory burden on the plaintiffs, which is neither speculative nor contingent nor dependent on the independent actions of third parties. The district court correctly found that CCST had proven through evidence in the record that the Rule broadened the kinds of actions that can give rise to a borrower defense claim against a school, and the new Rule requires “at least some degree of preparatory analysis, staff training, and reviews of existing compliance protocols.” Career Colleges, 2023 WL 4291992, at *5. These are precisely the types of concrete injuries that this court has consistently deemed adequate to provide standing in regulatory challenges. Texas v. EEOC, 933 F.3d at 446.9 CCST has standing to sue.
B. CCST Demonstrated Irreparable Harm
We move to consider the requirements for a preliminary injunction. Although the district court correctly determined that CCST showed real injuries in fact for purposes of Article III standing, it erred in concluding that CCST failed to show sufficient irreparable harm to justify a preliminary injunction. The record demonstrates that CCST’s members would face irreparable harm stemming from the Rule’s borrower defense and school closure provisions in the absence of preliminary relief delaying the Rule’s effective date.
The district court characterized CCST’s proof of financial and reputational injuries as “too remote,” “speculation built upon further speculation,” and “too conjectural to support preliminary injunctive relief.” Career Colleges, 2023 WL 4291992, at *6–7. But read in toto, the causal chain created by the Rule is not conjectural, but is highly integrated. For instance, borrowers who
Three specific, immediate, and irreparable injuries developed by CCST’s evidence satisfy the standard for a preliminary injunction. These include the increased costs of compliance, necessary alterations in operating procedures, and immediate threats of costly and unlawful adjudications of liability all inflicted by the Rule’s new provisions.
1. Compelled Compliance and Compliance Costs
The Rule’s new borrower-defense regulations expand the category of actionable misrepresentations, adopt strict liability, and remove any limitations period, leading to heightened compliance costs for CCST’s member schools. The schools will be required to scale-up and redesign their defensive recordkeeping dramatically in order to protect against future borrower defense and recoupment proceedings. Contrary to the district court’s finding, these harms are far from speculative.
a. Expanded Recordkeeping Requirements
This circuit recently held that enhanced recordkeeping requirements inflict a kind of irreparable harm that warrants the issuance of a preliminary injunction. Rest. L. Ctr., 66 F.4th at 598–99. The Rule’s broad definitions of actionable misrepresentations and omissions apply to all communications between schools and their representatives with current or prospective students. Under the Rule, schools are liable for “false, erroneous, or misleading statements” about their “size, location, facilities, equipment, or institutionally-provided equipment, software technology, books, or supplies,” the “number, availability, and qualifications, including the training and experience, of [their] faculty, instructors, and other personnel,” and whether a former student’s testimonial was unsolicited.
The Rule also imposes strict liability on “aggressive and deceptive recruitment standards or conduct,” by schools, their representatives, and contractors. However, its list of such conduct is deliberately non-exhaustive and specifies no limitations period for enforcement actions by the Department. Id.
Specific evidence in the record underscores the enormous burdens imposed by enhanced recordkeeping made necessary for self-preservation under the Rule. One affidavit was filed by Jeff Arthur, Vice President of Regulatory Affairs and Chief Information Officer at ECPI University, a member of CCST. Arthur stated that in anticipation of the Rule’s July 1, 2023 effective date, ECPI “has already taken and continues to undertake significant efforts to comply with the Rule’s requirements,” including “[i]mplementing new record-keeping policies” and “[i]mplementing and dramatically expanding systems that monitor representations made by hundreds of staff both in recruiting processes and to our tens of thousands of students, including verbal and digital communications, including engaging in extensive legal reviews of the monitored content.” Similarly, ECPI’s President, Mark Dreyfus, testified that as a result of the Rule, ECPI had to make “sure that [its employees] are aware of every communication and know[] that they have to retain this information even for some kind of inadvertent claim—or statement . . . and these claims from my opinion are existential because the bar is so much lower and we do have this oppоrtunity of a group claim.”10
As Restaurant Law Center holds, it was error to discount these affidavits and continuing costs for purposes of establishing irreparable harm. 66 F.4th at 600. To the extent that the district court also categorized these
descriptions of harms as “nebulous and conclusory,” its analysis also conflicts with Restaurant Law Center, where the court advised that plaintiffs need not “convert each allegation of harm into a specific dollar amount.” Id. Alleged compliance costs need only be “more than de minimis.” Id. (quoting Louisiana v. Biden, 55 F.4th 1017, 1035 (5th Cir. 2022) and Enter. Int‘l. Inc v. Corporacion Estatal Petrolera Ecuatoriana, 762 F.2d 464, 472 (5th Cir. 1985)). Moreover, the ongoing costs of preserving and organizing virtually all communications between CCST‘s member institutions and students, which is amply substantiated and is traceable to the borrower defense provision, readily satisfy the requirement that irreparable harms be “future or continuing.” Aransas Project v. Shaw, 775 F.3d 641, 648 (5th Cir. 2014); In re Stewart, 647 F.3d 553, 557 (5th Cir. 2011).
b. Expanded Staff Training
CCST has also provided specific evidence that its members have had to expend more time and resources to train their staff due to the Rule. Specifically, ECPI‘s President testified that his institution has had to “significantly ramp[] up” training for its staff by “a magnitude of . . . two to three times.” This training, according to ECPI‘s Vice President of Regulatory Affairs, is ongoing for hundreds of ECPI‘s employees, including approximately 60 staff members responsible for compliance, 95 staff members responsible for assisting students with obtaining
The Department‘s retort, like the district court opinion, is built on a mischaracterization of the record and relevant precedent. The fact that some of the compliance costs borne by CCST‘s members have already been realized does not change the fact that some of those costs are ongoing, and as such, are financially burdensome, irrecoverable and more than de minimis. For instance, every current and new staff member involved in compliance, new student engagement, or loan assistance will require substantially more training under the 2022 Rule than under the 2019 regulations. Thоse costs are ongoing, built on more than just “unfounded fear,” and more than sufficient to satisfy the irreparable harm standard in this circuit. Louisiana v. Biden, 55 F.4th at 1034 (quoting Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 997 (5th Cir. 1985)).
ECPI‘s President also testified that ECPI planned to hire additional compliance staff following the effective date of the Rule. That is a purely prospective financial injury of the type this court has previously recognized as an irreparable harm in the regulatory context. See Rest. L. Ctr., 66 F.4th at 599-600 (holding that the need to hire additional managers constituted an ongoing irreparable harm).
The fact that CCST members, including ECPI, already devoted significant resources to compliance under previous iterations of borrower-defense regulations does not undermine their ability to obtain a preliminary injunction to delay the effective date of a new Rule that dramatically increases their regulatory burden. Parties who have made substantial efforts to comply with existing regulations and who operate in highly regulated industries do not face a heightened burden of showing irreparable harm compared to entities operating in previously unregulated fields and those that have previously under-resourced their compliance efforts.
2. Altered Business Operations and Missed Opportunities
By the Department‘s own admission, the closed-school provision of the Rule “will increase the number of borrowers who receive forgiveness.”
3. Imminent Threats of Costly and Unlawful Adjudications
The new borrower-defense adjudication process applies to all applications received or pending with the Secretary on July 1, 2023, and as such includes the 206,000 applications pending with the Secretary from the Sweet settlement—which arise from 4,000 different schools. These new adjudication procedures are most likely substantively and procedurally unlawful.
As noted above, CCST‘s uncontroverted statistical evidence makes it virtually certain, to a probability of 99.999%, see fn. 7 supra, that at least one of its 545 member schools has discharge claims currently pending with the Department. Thus, at least one of its members will be subjected to the new adjudication procedures. The Department would dismiss this evidence as “probabilistic,” and it went unacknowledged by the district court. A simple records search by the Department would have ascertained whether any of CCST‘s members is in fact caught in the aftermath of the Sweet settlement. But we conclude that, barring any challenge to the statistical accuracy, CCST has sufficiently proven at this stage the involvement of one or more members in upcoming adjudications under the challenged procedures. This evidence is far more probative than the vague and general assertions by the Sierra Club in Summers v. Earth Island Inst., 555 U.S. 488, 498-501 (2009). In Summers, there was no certainty that any of the club members would actually encounter the challengеd foresting activities in hundreds of national parks managed by the U.S. Forest Service. Id. Here, the settlement of over 200,000 student claims across 4,000 schools makes it virtually inevitable that at least one or more CCST members will have to abide by the new procedures.
If CCST‘s members have “an independent right to adjudication in a constitutionally proper forum,” Thomas v. Union Carbide Agric. Prod. Co., 473 U.S. 568, 579-80 (1985), then subjecting them to costly and dubiously authorized administrative adjudications amounts to irreparable harm. See Texas v. EPA, 829 F.3d 405, 433 (5th Cir. 2016) (“[C]omplying with a regulation later held invalid almost always produces the irreparable harm of nonrecoverable compliance costs.“) (quoting Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 220-21 (1994) (Scalia, J., concurring in part and in the judgment)). “When determining whether injury is irreparable, it is not so much the magnitude but the irreparability that counts.” Id. at 433-34 (internal quotation marks and citation omitted). The Department‘s counterarguments dwelling on notice and opportunity to respond cannot cure defects inherent in the Rule‘s adjudication procedures, nor do they ameliorate the underlying injury from the threat of being subjected to such unauthorized procedures.
Finally, CCST members are likely to face substantial financial costs associated with unlawful adjudication procedures. The Department itself posits that defending each group claim will cost each school $17,611.02.12 The Department argues that
The district court erred as a matter of law by ignoring the irreparable injury CCST‘s members will likely suffer from merely being subjected to such unlawful proceedings.
In all these respects, CCST has met its burden of showing irreparable harm from the failure to delay the effective date of the Rule.
C. Likelihood of Success on the Merits
Although the district court did not examine the remaining faсtors required for injunctive relief, they are all based primarily on legal analysis, and we have no hesitation in concluding that CCST met its burden. The likelihood of success on the merits “is arguably the most important” of the remaining equitable factors required for injunctive relief. Tesfamichael, 411 F.3d at 176. We turn to that factor.
CCST‘s challenges to the merits are posed in three parts, each with subparts. First, we consider whether the Department lacked authority under Section 455(h) to promulgate affirmative borrower rights against repayment; second, whether the Department had authority to adjudicate claims against lenders; and third, the scope of the new closed-school regulation.
1. Borrower-Defense Provision
Section 455(h) of the Higher Education Act authorizes the Department to promulgate defenses to repayment of student loans as follows:
(h) Borrower defenses
Notwithstanding any other provision of State or Federal law, the Secretary shall specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan made under this part, except that in no event may a borrower recover from the Secretary, in any action arising from or relating to a loan made under this part, an amount in excess of the amount such borrower has repaid on such loan.
a. “Affirmative” Borrower Claims for Full Discharge
As outlined more fully above, the 2022 Rule authorizes several types of affirmative
In deciding whether Section 455(h) authorized the Department to recognize these affirmative borrower claims, “[w]e start where we always do: with the text of the statute.” Bartenwerfer v. Buckley, 598 U.S. 69, 74 (2023) (quoting Van Buren v. United States, 593 U.S. 374, 381 (2021)). Other sources that are helpful in determining what Congress meant when it passed Section 455(h) in 199313 include contemporaneous dictionaries, related statutes, and past statements of the Department. We must also be conscious of separation of powers issues raised by the Department‘s interpretation of the Rule, to the extent it may run afoul of the constitutional principle that “[o]nly Congress may create privately enforceable rights, and agencies are empowered only to enforce the rights Congress creates.” Chamber of Commerce v. Dep‘t of Labor, 885 F.3d 360, 384 (5th Cir. 2018). The issue here is whether the Department could expand “defenses” to repayment of student loans into affirmative “claims” for relief.
To begin, the Higher Education Act does not define the word “defense,” but it has a well-established common law meaning. This “triggers the settled principle of interpretation that, absent other indication, ‘Congress intends to incorporate the well-settled meaning of the common-law terms it uses.‘” Id. at 369-70 (quoting United States v. Castleman, 572 U.S. 157, 162 (2014) and Sekhar v. United States, 570 U.S. 729, 732 (2013)). See also ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 320 (2012) (“A statute that uses a common-law term, without defining it, adopts its common law meaning.“) Dictionaries are aids in ascertaining the common law meaning of “defense” as used in the statute. United States v. Hildenbrand, 527 F.3d 466, 476 (5th Cir. 2008). The leading definition in the contemporaneous edition of BLACK‘S LAW DICTIONARY states: “[t]hat which is offered and alleged by the party proceeded against in an action or suit, as a reason in law or fact why the plaintiff should not recover or establish what he seeks. That which is put forward to diminish plaintiff‘s cause of action or defeat recovery.” (6th ed. 1990). Concurrently, BALLENTINE‘S LAW DICTIONARY defines “defense” as “protection against attack; a matter pleaded by a defendant in an action either to delay the action without destroying the cause or right of action or to defeat the action for all time.” (3d ed. 1969).
Both dictionary definitions are consistent with the interpretation proffered by CCST: that Section 455(h) authorizes the Department to set out regulations governing borrower defenses to repayment after collection proceedings have been instituted—i.e., when the borrower has stopped making his or her required payments. It does not authorize the Department to draft regulations spelling out affirmative “claims” that borrowers can assert against schools to avoid their obligations. A “defense”
This reactive definition is also consistent with the language of other consumer protection statutes, in which Congress routinely distinguishes between the assertion of claims and defenses. See, e.g.,
Even more probative is the contrast between other provisions of the Higher Education Act and Section 455(h)‘s relatively modest statutory language about “defense[s] to repayment.” Congress, after all, unambiguously authorized the Department to “cancel” or “discharge” student debt obligations in limited circumstances. See, e.g.,
The Department, in contrast to CCST and the Department‘s amici, makes no attempt to engage the plain text arguments urged by CCST. Instead, the Department rests entirely on how the Department has interpreted the statute over the last three decades. But although an agency‘s “longstanding practice . . . in implementing the relevant statutory authorities” is relevant to ascertaining the meaning of those relevant statutory authorities, it cannot be the only evidence used to evaluate an agency‘s power to act under a statute. Biden v. Missouri, 595 U.S. 87, 94 (2022). To hold otherwise would greenlight the aggregation of Executive power “through adverse possession by engaging in a consistent and unchallenged practice over a long period of time.” N.L.R.B. v. Noel Canning, 573 U.S. 513, 613-14 (2014) (Scalia, J., concurring in judgment). The Department‘s near-exclusive reliance on agency custom is irreconcilable with the judicial obligation to interpret the statute that Congress actually enacted.
Regardless, the history of borrower defense regulations is more favorable to CCST than it is to the Department. Before 2016, the Department authorized borrowers to assert affirmative claims only in very limited circumstances, and it never previously asserted the broad statutory authority under Section 455(h) that it now claims it has always possessed.
Before promulgating the 2016 Rule, the Department had recognized borrower claims covering fewer than 100 persons between 1998 and 2009. These involved highly unusual circumstances including unpaid refunds, litigation settlements, or factual stipulations in judgments that established a defense.14 In the 2019 Rule, while acknowledging these outliers from before 2015, the Department explained that its “interpretation of the existing regulation has been that it was
The Department and its amici seek to turn this limited assertion of authority in the 1990s into a justification for the far-reaching scope of the 2022 Rule. That argument fails. The 1994 Rule confined the recognition of borrower defenses to the four delineated “proceedings,” and in all of them, the student would be in a reactive or defensive posture. Tax refund offset proceedings under Section 30.33 of Title 34 of the Code of Federal Regulations are only initiated after a debt is past due.
For these reasons, the promulgation of broad affirmative defenses to repayment in the Rule likely violate Section 455(h).
b. Full Discharge of Outstanding Loan
In connection with the broadened affirmative borrower claims, the Rule‘s authorization of full discharge also likely violates Section 455(h). In providing that borrowers
The Department does not dispute that the Rule allows borrowers to consolidate all preexisting debt when obtaining a full discharge. Instead, it merely recites the Rule‘s purported requirement of a causal link between the new affirmative claims and remedial discharge. The Department ignores, however, that loan consolidation often will eliminate the need to show a causal link between the entirety of the debt and a discrete misrepresentation or omission that occurred at a discrete time during the student‘s enrollment. See
In the end, the Rule‘s transformation of borrower defenses into affirmative borrower claims raises separation of powers concerns because it establishes new federal causes of action without clear congressional authorization. “[I]t is most certainly incorrect to say that language in a regulation can conjure up a private cause of action that has not been authorized by Congress. Agencies may play the sorcerer‘s apprentice but not the sorcerer himself.” Alexander v. Sandoval, 532 U.S. 275, 291 (2001). See also Chamber of Commerce, 885 F.3d at 384 (“Only Congress may create privately enforceable rights, and agencies are empowered only to enforce the rights Congress creates.“) After all, “[a]gencies have only those powers given to them by Congress and enabling legislation is generally not an open book to which the agency may add pages and change the plot line.” West Virginia v. EPA, 597 U.S. 697, 723 (2022) (internal quotation marks and citation omitted). By transforming defenses that may be asserted against student loan repayment into affirmative claims, and enabling full discharges and consolidated loan discharges that expand into a damages remedy, the Rule likely violates the limits placed on the Department in Section 455(h).
c. Insufficiently Specific Strict Liability Standards
Even if the creation of new affirmative borrower-defense claims survives scrutiny when tested against the statute, another problem arises from the Rule‘s language articulating those claims. Section 455(h) requires the Department to “specify in regulations which acts or omissions an institution of higher education” can bе asserted as borrower defenses to repayment. See
The Rule‘s extremely broad definitions of actionable acts or omissions are deliberately nonspecific. The definitional defects are magnified because the Rule affixes strict liability on schools for undefined misconduct. As a result, CCST contends that these standards are contrary to law and arbitrary and capricious in violation of the APA. CCST is likely to succeed on the merits of its contentions.
The Rule defines actionable conduct as misrepresentations or omissions by any employee, representative or contractor of a school “in connection with the borrower‘s decision to attend, or continuing to attend . . . [or] to take out a covered loan.”
We hold that the Rule‘s standards for actionable misrepresentations or omissions or аggressive or deceptive recruiting tactics most likely do not comply with the specificity requirement of Section 455(h). The statute does not permit the Department to promulgate vague standards full of non-exclusive examples and undefined terms. The unbridled scope of these prohibitions enables the Department to hold schools liable for conduct that it defines only with future “guidance” documents or in the course of adjudication. Simply put, the statute does not permit the Department to terrify first and clarify later. The vagueness of the Rule‘s liability standards is contrary to Section 455(h) and thus likely violates the APA.
Further exacerbating the consequences of vague liability standards based on a promiscuously broad definition of covered personnel is the absence of any requirement of scienter or even negligence associated with the newly actionable violations. The Department acknowledges that “this rule removes the requirement that [it] conclude that the act or omission was made with knowledge of its false, misleading or deceptive nature, or with reckless disregard for the truth.” See
For several reasons, the strict liability standard established by the Rule almost surely cannot survive review under the APA. Obviously, imposing liability without any level of intent is in tension with the Section 455(h) requirement of specificity in the definition of actionable acts or omissions. If the Department were to “specify” which acts or omissions were actionable, there would rarely be an occasion for inadvertent misconduct, and there would be no ground to hold schools liable for wholly innocent but actionable misconduct. Imposing strict liability mаy well conflict with the statute.
In addition, although the standard for setting aside agency actions as arbitrary and capricious may be “narrow and highly deferential,” it is not toothless. Huawei Techs. USA, Inc. v. FCC, 2 F.4th 421, 449 (5th Cir. 2021) (quotation marks and citation omitted). The strict liability standards, encompassing even inadvertent misrepresentations by a school‘s contractors not subject to its day-to-day supervision, open the door to arbitrary and inconsistent enforcement by agency officials unable or unwilling to distinguish between close calls and deranged ones. See Angel Bros. Enters. v. Walsh, 18 F.4th 827, 834 (5th Cir. 2021) (Jones, J., dissenting).
The Department argues that “harmless and inadvertent errors” are “unlikely” to lead to the full discharge of a borrower‘s debt. See
Also arbitrary and capricious is the Department‘s inadequate explanation of its decision to eliminate an intent requirement that existed in previous regulations. The APA requires an agency to reach “reasonable and reasonably explained” decisions. See
The Department‘s further rationale, that “if the action resulted in detriment to the borrower that warrants relief,” then knowledge or intent are irrelevant, is equally unsatisfactory.
2. Agency Adjudication of Loan Discharge Claims
The Rule claims to authorize the Department to adjudicate (a) borrower claims for loan discharges and (b) recoupment claims against schools. The Department is the “party against which borrowers assert a defense to repayment.”
CCST protests that these procedures are ultra vires and violate due process. The organization is substantially likely to prevail.
a. Administrative Adjudications for Borrowers and Recoupment
CCST is likely to succeed on the merits of its argument that the Higher Education Act does not allow the Department to adjudicate borrower defense claims or recoupment
Indeed,
Regarding recoupment adjudications against schools based on borrower defense claim adjudications, the Department asserts authority under a provision requiring schools to accept “responsibility and financial liability” for breaching participation agreements with the Department,
The Department attempts to rely on the “broader context” of the Higher Education Act in support of its newly crafted authority. See
The Department’s “broader context” argument is far from compelling. Nothing in the text of
b. Constitutional Problems Surrounding Administrative Adjudications
Accepted principles of judicial restraint counsel against our deciding constitutional issues where, as here, the absence of statutory authority for the Department’s assumption of adjudicatory authority and its violation of the APA are mоst likely to succeed. We note, however, inherent tension between the adjudication of “borrower defenses” to their loans insofar as a borrower’s success will regularly lead to a de facto transfer from the school to the borrower following recoupment proceedings. The adjudication process resembles administrative decisions involving “private rights” rather than “public rights.” The Supreme Court, however, has made clear that Congress may not withdraw adjudication of “private rights” cases from Article III courts. See Stern v. Marshall, 564 U.S. 462, 482–95, 131 S. Ct. 2594, 2608–2615 (2011); Murray’s Lessee v. Hoboken Land & Improvement Co., 59 U.S. 272 (1855). Yet, especially where “borrower defense[s]” under the Rule include breaches of state law and contract rights, these are the very paradigm of private rights. See
To be sure, the Department seeks to disaggregate the integrated process of borrower-defense and recoupment, and it focuses on recoupment against the school in favor of the Department as a quintessential “public right.” But its adjudication procedures render the two proceedings dependent on each other, because the legal claims and facts that authorize the Department to discharge the borrower’s debt under the Rule are the same as those underpinning the Department’s authority to pursue recoupment against the school. See
The Department also contends that the loan discharge derives from the relationship between the borrower and the federal government, and a grant of administrative relief through its adjudicative process will not dispose of or otherwise affect any related claims or defenses that the borrower or the borrower’s institution might assert in collateral litigation. We take no position on whether these propositions are correct,21 but even so, they do not necessarily trump the Article III concerns by embracing the possibility of non-final administrative outcomes or duplicative proceedings.
c. Rebuttable Presumptions and Group Claims Adjudications
For group claims, the Rule establishes a rebuttable presumption that “the act or omission giving rise to the borrower defense affected each member of the group in deciding to attend, or continue attending, the institution, and that such reliance was reasonable.” Id.
CCST is likely to prevail in its contentions that the Department has no statutory authority to create evidentiary requirements, that the presumptions are effectively unrebuttable, and that the Department cannot use evidentiary devices to achieve substantive results. The first argument concerning statutory authority would seem to follow as a necessary implication from our earlier conclusion that the Department lacks рower to adjudicate claims. Further, we agree with CCST that it is unreasonable to presume that every borrower involved in a group claim is likely to satisfy all three presumptions. It suffices to take just one of them, that a challenged act or omission affected a student’s decision to attend or continue attending an institution.
The Rule’s group claims process involves applying presumptions to matters requiring individualized proof and extrapolating them collectively. Thus, formulating a group under the Rule is far easier than the process required by
The Department’s defense of the rebuttable presumptions and the group claims process primarily reflects the Department’s determination to resolve what it discretionarily decides are “virtually identical claims” on an aggregate basis. But the Department’s explanation of its “reasonable” policy conclusions in the Federal Register commentary does not remedy the incompatibility of its procedures with standard civil litigation practice. As CCST notes, presumptions in the law result when “proof of one fact renders the existence of another fact so probable that it is sensible and timesaving to assume the truth of the inferred fact. . . until the adversary disproves it.” Chem. Mfrs. Ass’n. v. Dep’t. of Transp., 105 F.3d 702, 705 (D.C. Cir. 1997) (quotation marks and citation omitted). The Department’s attempt to substitute its unexplained “experience” regarding “widespread and pervasive” misstatements for proof justifying the presumptions is arbitrary
Further evidence of incompatibility lies in the Rule’s liability standard for both individual and group claims: totality of the circumstances.
The Department also contends that none of the presumptions change the burden of persuasion, which will still require proof by a preponderance of the evidence. 87 Fed. Reg. at 65,922. First, as just noted, the liability standard in the Rule is “totality of the circumstances,” not “preponderance of the evidence.” Second, that an affected school would still have a “full opportunity” to rebut a presumption, showing it to be “inappropriate” under the circumstances, does not remedy the harm associated with the erroneous requirement of any presumption. By its terms, a rebuttable presumption displaces the ordinary burden of proof and meаns that if the evidence is of equal weight between the parties, the school will lose because it has failed to rebut the presumption. Third, contrary to the Department’s attempt to cabin presumptions for the sake of this approach, there is nothing in the text of the Rule to suggest that group claims involving minor misrepresentations are “unlikely” to be brought or that the rebuttable presumptions would be applied differently in those proceedings. Again, the Department urges this court to defer to commentary rather than the unlimited text of the Rule.
Ultimately, the evidentiary presumptions and group-claim procedures built into the Rule are not designed to further the truth-seeking process. Instead, these are policy-driven mechanisms designed to selectively target proprietary schools, as the Department expects that 75 percent of all borrower claims associated with proprietary schools will be group claims. Id. at 65,993. The Department has stated outright that it sees driving enrollment away from these schools to be a “benefit.” Id. at. 65,996.
In sum, CCST is likely to succeed in challenging the rebuttable presumptions and group claims procedures as arbitrary and capricious. “Only the untaught layman or the charlatan lawyer can answer that procedures matter not. Procedural fairness and regularity are of the indispensable essence of liberty.” Shaughnessy v. United States ex rel. Mezei, 345 U.S. 206, 224, 73 S. Ct. 625, 635 (1953) (Jackson, J., joined by Frankfurter, J., dissenting).
3. Closed-School Provision
Not least in this pantheon of legal problems associated with the Rule is its closed-school provision, which is likely unlawful on several grounds. First, the closed-school provision exceeds the Department’s statutory authority by re-defining a school closure to contradict the clear text of the statute. Second, the closed-school provision arbitrarily authorizes automatic, full discharges of debt without proof of causation (a) for students who withdrew from their programs up to 180 days prior to the Department’s newly invented closure date, and (b) for borrowers who did not accept or complete “a program at another branch or location of the school
a. Redefinition of School “Closure”
The authority for discharging student debt associated with school closures derives from
(c) Discharge
(1) In general
If . . . the student borrower, or the student on whose behalf a parent borrowed, is unable to complete the program in which such student is enrolled due to the closure of the institution . . . then the Secretary shall discharge the borrower’s liability on the loan (including interest and collection fees) by repaying the amount owed on the loan and shall subsequently pursue any claim available to such borrower against the institution and its affiliates and principals or settle the loan obligation . . . .
(2) Assignment
A borrower whose loan has been discharged pursuant to this subsection shall be deemed to have assigned to the United States the right to a loan refund up to the amount discharged against the institution and its affiliates and principals.
(emphases added).
The Rule is a striking contrast, as it redefines a school or institutional “closure” as follows:
the school’s closure date is the earlier of: the date, determined by the Secretary, that the school ceased to provide educational instruction in programs in which most students at the school were enrolled, or a date determined by the Secretary that reflects when the school ceased to provide educational instruction for all of its students[.]
“We start with the key statutory term: [“closure”]. As usual, our job is to interpret the words consistent with their ordinary meaning . . . at the time Congress enacted the statute.” Wisconsin Cent. Ltd. v. United States, 585 U.S. 274, 277, 138 S. Ct. 2067, 2070 (2018) (internal quotation marks and citation omitted). There is nothing in the text or context of the statute to indicate that the word “closure” bears anything other than its ordinary meaning, which in relevant part provides that a closure is “a bringing of some activity to a stop: cessation of operations.” Closure, WEBSTER’S NEW INTERNATIONAL DICTIONARY 428 (3d ed. 1981).23
Under the Rule’s definition of “closure,” the commonsense and dictionary meaning is at best an afterthought in the regulatory language. The most significant part of the Rule confers discretion on the Secretary to “determine” when the school “ceased to provide” “programs” in which “most students” were enrolled. Each of the additional terms is vague, subject to arbitrary and unequal enforcement, and potentially sweeping.
In defense of this expanded definition of “closure,” the Department argues first that the сhange is necessary to protect borrowers from a situation where they would be denied discharge after the school ceased to provide most programming but “intentionally ke[pt] a single, small program open long enough to avoid the [lookback] window.” See 87 Fed. Reg. at 65,966. This argument, however, impermissibly substitutes a global presumption of dischargeability (again) for the statute’s explicit requirement of proof that the student’s inability to complete a program was “due to” the closure.
For the same reasons that “[a] roof is not a floor,” a school that is “open” is not “closed.” Diamond Roofing Co v. Occupational Safety & Health Rev. Comm’n, 528 F.2d 645, 647 (5th Cir. 1976). We conclude that any challenge to the Department’s statutory authority to promulgate
b. A School’s Closure Must Be the Actual Reason for Withdrawal
The closed-school provision of the Rule provides for automatic discharges for students who “withdrew from the school not more than 180 calendar days before the school closed.” Id.
This substantial expansion in the number of borrowers eligible for discharge еxceeds the agency’s statutory authority because it eliminates the causation requirement Congress included in the statute in favor of an arbitrary temporal presumption. The closed-school provision provides automatic discharge to borrowers despite personal or financial or educational reasons completely unrelated to the school’s decision to shut down or suspend instruction in certain locations or programs. Id.
The closed-school provision also automatically discharges the debt held by borrowers who did not complete a “program at another branch or location of the school or through a teach-out agreement” at another comparable school, or one year after their last day of attendance at a continuation program.
This adds yet another reason why CCST is likely to succeed on the merits of its challenge to the closed-school provisions.
D. The Balance of Harms and the Public Interest
The balance-of-harms and public-interest factors merge when the government opposes an injunction. See Nken, 556 U.S. at 435, 129 S. Ct. at 1762; U.S. Navy Seals 1-26 v. Biden, 27 F.4th 336, 353 (5th Cir. 2022).
First, the harms CCST and its members face by the failure to maintain the status quo are substantially more severe than those faced by the Department and borrowers with pending discharge claims. We are not convinced by the Department’s arguments that the 2019 Rule рrovides an inadequate framework for its work administering and reviewing pending claims, or that borrowers with pending claims would be unfairly prejudiced or financially injured by the granting of a preliminary injunction pending final judgment.
The burden imposed on the public favors a stay as well. A failure to stay the borrower-defense and closed-school provisions of the Rule would immediately hit CCST’s members (and other schools) with enormous and unrecoverable compliance costs—which would inevitably be passed on to students. Evidence CCST points to in the record shows that a failure to stay the Rule would significantly constrain schools’ operations and prevent them from devoting resources to educating their students,
We thus conclude that all the equitable factors favor the granting of a preliminary injunction.
E. Relief Should Not Be Party Restricted
Section 705 of the APA authorizes a reviewing court to “issue all necessary and appropriate process to postpone the effective date of an agency action” that is pending review.
The almost certainly unlawful provisions of the Rule that CCST challenges apply to all Title IV participants and are thus almost certainly unlawful as to all Title IV participants. Thus, the stay provided here mirrors the relief granted by the Supreme Court in 2016, when it stayed the Clean Power Plan without party limitation, West Virginia v. EPA, 577 U.S. 1126, 136 S. Ct. 1000 (2016), and by this court in 2021, when it stayed OSHA’s vaccine mandate without party limitation, BST Holdings, L.L.C. v. OSHA, 17 F.4th 604 (5th Cir. 2021). The Department’s protests against nationwide relief are incoherent in light of its use of the Rule to prescribe uniform federal standards. “When a reviewing court determines that agency regulations are unlawful, the ordinary result is that the rules are vacated—not that their application to the individual petitioners is proscribed.” Harmon v. Thornburgh, 878 F.2d 484, 495 n.21 (D.C. Cir. 1989).
Against this backdrop of specific statutory text and longstanding administrative law principles, the Department’s arguments that general equitable and constitutional principles require the panel to limit any relief to the named parties do not hold water. “Necessary and appropriate process” does not mean that the relief awarded under
III. CONCLUSION
CCST has met the criteria to satisfy a preliminary injunction, and the district court erred by concluding that CCST faced no irreparable harm. We REVERSE the district court’s judgment, REMAND, and instruct the district court to postpone the effective date of the borrower-defense and closed-school discharge provisions of the Rule pending final judgment as specified above. The stay pending appeal remains in effect until the district court enters the preliminary injunction.
STAY PENDING APPEAL MAINTAINED PENDING ENTRY OF PRELIMINARY INJUNCTION, CASE REVERSED AND REMANDED.