Career Colleges v. EDUC

Case: 23-50491 Document: 86-1 Page: 1 Date Filed: 04/04/2024

United States Court of Appeals

for the Fifth Circuit United States Court of Appeals

Fifth Circuit

____________ FILED

April 4, 2024

No. 23-50491 Lyle W. Cayce

____________ Clerk

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.

______________________________

Appeal from the United States District Court

for the Western District of Texas

USDC No. 1:23-CV-433

______________________________

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

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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.

I. Background

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

_____________________

1

It is not this court’s prerogative to assess regulatory motives. Compare Vill. of

Arlington Heights v. Metro. Hous. Dev. Corp., 429 U.S. 252, 268 n.18, 97 S. Ct. 555, 565

n.18(1977)(judicial inquiries into legislative or executive motives are ordinarily disfavored)

with Dep’t of Com. v. New York, 588 U.S.___, 139 S. Ct. 2551, 2575–76 (2019)(concluding

that there was a “disconnect between the decision made and the explanation given”

because the agency’s purported reasoning “was more of a distraction” and pretextual).

But given the manifest legal shortcomings of the challenged portions of this Rule, it seems

to be of a piece with the Executive Branch’s larger goal to sidestep, to the greatest extent

possible, the Supreme Court decision holding Presidential student loan discharges illegal

in Biden v. Nebraska, 600 U.S. ___, 143 S. Ct. 2355 (2023). See generally Andrew Gillen,

The State of Student Loan Forgiveness: April 2024, CATO Institute (April 1, 2024, 5:34

PM) (cataloguing various recent programs to forgive or significantly reduce billions in

students’ loan obligations).

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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. 34 C.F.R. § 685.401(b).

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

_____________________

2

This includes both a defense to repayment of all outstanding loan amounts owed

to the Secretary as well as a reimbursement of all payments previously made on the Direct

Loan or a loan repaid by the Direct Consolidation Loan. 34 C.F.R. § 685.401(a). Under

the William D. Ford Direct Loan Program, eligible students and eligible parents of such

students borrow funds directly from the U.S. Department of Education to facilitate

enrollment at higher education institutions selected by the Secretary.

See 20 U.S.C. § 1087a, et seq. Federal Direct Consolidation Loans allow borrowers to

consolidate multiple federal student loan into one loan with a single monthly payment.

See id. §§ 1087e(a)(2)(C), 1078–3.

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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 educational 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

_____________________

3

The standards outlining covered “omissions of fact” and “misrepresentations”

are defined in other parts of the Rule. 34 C.F.R. §§ 668.71–668.75.

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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. § 668.125, 685.409. In these proceedings, the

school bears the burden of proof “to demonstrate that the decision to

discharge the loans was incorrect or inconsistent with law and that the

institution is not liable for the loan amounts discharged or reimbursed.” Id.

§ 668.125(e)(2). Further, the only evidence parties may submit during

recoupment proceedings consists of:

(i) 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;

(ii) 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

(iii) 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. § 668.125(e).

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. § 685.402–403. Under the group claims

process, the 2022 Rule establishes “a rebuttable presumption that the act or

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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. § 685.406(b)(2) (emphasis added). Thus, the

Rule presumes damages. Schools are not provided with any discovery or

cross-examination rights in either the borrower-defense or recoupment stage

of the adjudication proceedings established by the Rule despite the fact that

a successful borrower discharge claim would give rise to a presumption of

liability against the schools in subsequent recoupment proceedings. Id.

§§ 668.125(e)(2), 685.405, .406(b)–(c). Nor is there any requirement in the

Rule that the Department official(s) in charge of the borrower defense or

recoupment adjudication proceedings have any legal training. See id.

§ 685.401(a) (defining “Department official”).

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 due to

a school’s shutdown. See id. §§ 685.214 (Direct Loan), 674.33(g) (Federal

Perkins Loan), 682.402(d) (Federal Family Education Loan (“FFEL”)).

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. § 685.214(a)(2)(i) (emphasis added).

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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. § 685.214(c) (emphasis added).

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. § 685.214(d)(1)(i)(B).

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. § 685.214(d)(1)(i)(C). Thus, a student who

completed a comparable but non-identical program, or who transferred

credits outside a formal teach-out agreement approved by state regulators,

would still be eligible for a full discharge under the Rule.

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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:

20 U.S.C. § 1087(c) (authorizing the Secretary to discharge loans for a

student who “is unable to complete the program in which such student is

enrolled due to the closure of the institution”); 20 U.S.C. § 1087e(h)

(Section 455(h) of the Higher Education Act) (specifying that “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”)4; and 20 U.S.C. § 1094(c)(3)(B) (authorizing the Secretary

to impose a civil penalty for an institution that “has engaged in substantial

misrepresentation of the nature of its educational program, its financial

charges, and the employability of its graduates”). 5

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4

Hereafter, we will refer to this provision as Section 455(h)—consistent with its

enumeration in the Higher Education Act. This provision was originally passed as part of

the Student Loan Reform Act of 1993, Pub. L. 103–66, 107 Stat. 351.

5 The Department’s statutory authority to discharge loans for students at closed

schools and promulgate borrower defense regulations is distinct from its authority to

“cancel” loan balances for other classes of borrowers. These include borrowers who are

employed full time “in an area of national need,” 20 U.S.C. § 1078-11(a)(2)(B); borrowers

who are employed in a public service job, id. § 1087e(m)(1); and borrowers employed as

teachers, id. § 1087j(b). Concurrently, Congress specified that loans issued under the

FFEL program are eligible for discharge if the student is “unable to complete the program

in which such student is enrolled due to the closure of the institution.” Id. § 1087(c)(1).

The statute also directs the Secretary to “pursue any claims available to such borrower

against the institution and its affiliates and principals” or settle the loan obligation with

those financially responsible for the school. Id. This statutory language is also applicable

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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:

(i) Tax refund offset proceedings under 34 CFR

30.33.

(ii) Wage garnishment proceedings under

section 488A of the Act.

(iii) Salary offset proceedings for Federal

employees under 34 CFR Part 31.

(iv) 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.”

_____________________

to Direct Loans because Congress provided that such loans shall have the same “terms,

conditions, and benefits” as FFEL loans. Id. §§ 1087a(b)(2), 1087e(a)(1).

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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 General Provisions,

84 Fed. Reg. 49,788 (Sept. 23, 2019) (final rule).6

_____________________

6

Many provisions of the 1994, 2016, and 2019 Rules still apply depending on the

disbursement date of the loan in question, which means that different borrowers seeking

discharge have different remedies currently available to them. See, e.g., 34 C.F.R.

§ 685.206(c) (borrower defense for repayment of loans first disbursed before July 1, 2017);

id. § 685.206(d) (borrower defense for repayment of loans disbursed after July 1, 2017, and

before July 1, 2020); id. § 685.206(e) (borrower defense for repayment of loans first

disbursed after July 1, 2020, and before July 1, 2023).

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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.” 34 C.F.R.

§ 685.401(b). The Department, however, criticizes these estimates as

unfounded “speculation,” because the settlement agreement allegedly

provides both “substantive” and “procedural provisions” relevant to the

settlement of those 206,000 claims.

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

_____________________

7

CCST asserts that the probability that at least one of CCST’s 54 participating

schools is among the 4,000 schools with pending claims in the Sweet settlement is about

99.999 percent, or (1-(1-0.645)54).

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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 outstanding 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

34 C.F.R. § 685.206(e)(6).8

The 2022 Rule also worked a sea change in the treatment of closed

school discharges. First, the 2019 Rule offered a more conventional

definition of “closure date”: “the date that the school ceases to provide

educational instruction in all programs, as determined by the Secretary.”

Id. § 685.214(a)(2)(i) (July 1, 2020). Second, the 2019 Rule authorized

automatic discharges in far more limited circumstances. As a result,

borrowers could receive automatic discharges only three years after a

location’s closure date if (1) the student did not “subsequently re-enroll in

any title IV-eligible institution” during those three years, and (2) if the

closure date lay between November 1, 2013 and July 1, 2020. Id. § 685.214(c)

(July 1, 2020). But 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

_____________________

8

The 2019 Rule’s three-year limitations period for defensive, but not affirmative,

borrower-defense claims was remanded to the Department, though not vacated, by the

Southern District of New York in N.Y. Legal Assistance Grp. v. DeVos, 527 F. Supp. 3d 593,

602–04 (S.D.N.Y. 2021).

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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. § 685.214(c). Third, the 2019 regulations only authorized

closed school discharges for students who withdrew up to 120 days before the

location’s official closure date and had loans disbursed before July 1, 2020,

or who withdrew up to 180 days before closure for loans disbursed after

July 1, 2020. Id. § 685.214(c)(1)(i)(B), (c)(2)(i)(B) (July 1, 2020). Last, the

2019 Rule rendered a much broader class of borrowers ineligible for a closed

school discharge. In essence, borrowers were ineligible for discharge if they

“complete[d] the[ir] program of study through a teach-out agreement at

another school or by transferring academic credits or hours earned at the

closed school to another school” if their loans were disbursed prior to July 1,

2020. Id. § 685.214(c)(1)(i)(C) (July 1, 2020). For loans disbursed after that

date, borrowers were ineligible to receive a closed school discharge if they

completed the program of study “or a comparable program through a teach-

out at another school or by transferring academic credits or hours earned at

the closed school to another school[.]” Id. § 685.214(c)(2)(i)(C) (July 1,

2020) (emphasis added).

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

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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. § 685.214. CCST also argues that it is

arbitrary and capricious for the Department to equate a student’s withdrawal

any time up to 180 days before its newly defined “closure date” with its being

caused by that closure. See id. § 685.214(a)(2)(i). Last, CCST argues that

the statute is violated by the Rule’s allowing automatic discharges for all

borrowers (1) one year after the closure date if the student does not accept

“a program at another branch or location of the school or through a teach-

out agreement” at another comparable school, or (2) one year after the

student’s last attendance at a continuation program, without in either case

requiring proof that the closure actually caused the students not to complete

their program. See id. § 685.214(c).

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”). 5 U.S.C. § 705.

The district court held a hearing and denied the motion without addressing

CCST’s likelihood of success on the merits because it determined that CCST

had not shown a likelihood of irreparable harm if the Rule were allowed to go

into effect.

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.

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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.” 5 U.S.C. § 705. On the

merits, we review final agency actions under Section 706, which allows the

reviewing court to “hold unlawful and set aside agency action . . . found to be

. . . arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law.” Id. § 706(2)(A). “An agency decision” runs afoul of

this provision if it “applies an incorrect legal standard.” Gen. Land Off. v.

United States Dep’t of the Interior, 947 F.3d 309, 320 (5th Cir. 2020) (citing

Koon, 518 U.S. at 100, 116 S. Ct. at 2047).

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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 standing is a three-part test: (1) the association’s members

would independently meet the Article III standing requirements; (2) the

interests the association seeks to protect are germane to the purpose of the

organization; and (3) neither the claim asserted nor the relief requested

requires participation of individual members.” Id. (quoting Tex. Democratic

Party v. Benkiser, 459 F.3d 582, 587 (5th Cir. 2006)). See also Hunt v. Wash.

State Apple Advert. Comm’n, 432 U.S. 333, 343, 97 S. Ct. 2434, 2441 (1977).

An individual member’s standing is determined by the “familiar three-part

test for Article III testing.” Gill v. Whitford, 585 U.S. 48, 65, 138 S. Ct. 1916,

1929 (2018). That member must have “(1) suffered an injury in fact, (2) that

is fairly traceable to the challenged conduct of the defendant, and (3) that is

likely to be redressed by a favorable judicial decision.” Id. (quotation marks

and citation omitted).

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.

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“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.

_____________________

9

Traceability of the injuries to the Rule and redressability through judicial action,

the other two elements of Art. III standing, are not at issue.

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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 receive a closed school discharge of their debt must

“cooperate with the Secretary in any judicial or administrative proceeding

brought by the Secretary to recover amounts discharged or to take other

enforcement action with respect to the conduct on which the discharge was

based.” 34 C.F.R. § 685.214(e)(1). Further, after a borrower’s loan has been

discharged because of a school’s alleged actionable act or omission, the

school must bear the burden to prove in recoupment proceedings that “the

decision to discharge the loans was incorrect or inconsistent with the law and

that the institution is not liable for the loan amounts discharged or

reimbursed.” Id. § 668.125(e)(2). Thus, under both the borrower defense

and school closure provisions, a successful claim leads to full discharge of the

borrower’s loans, which leads to actions for recoupment from the schools.

Combining this series of events with the greatly expanded number of claims

and potential claimants, it is clear that the Rule contemplates the imposition

of significant financial charges on CCST and its members.

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

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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. Law 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. 34 C.F.R.

§§ 668.72(e)(1), (f), (h). Consequently, schools must begin to retain records

of virtually every written or oral communication with a student, lest the

Department later deem it actionable in discharge and recoupment

proceedings. See id. §§ 668.71, 668.72, 668.75, 685.401(b)(1)–(2).

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. §§ 668.500, 668.501. Running afoul of these vague, brand-

new standards that the Department intends to enforce retroactively is

potentially catastrophic for schools, which could lose their Title IV

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certification, their ability to participate in federal student loan programs, and

the majority of their income. See id. § 668.500(b).

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 opportunity

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

_____________________

10

As CCST notes, the expanded recordkeeping requirements and other

compliance measures that its members must take on in order to avoid liability under the

2022 Rule’s misstatements provisions contrast with the limited recordkeeping and

compliance costs imposed by the 2019 Rule. See 34 C.F.R. § 685.206(e)(3). Under that

Rule, schools were liable only for knowing and reckless misstatements and omissions and

only to the extent the misstatement or omission caused the borrower financial harm. Id.

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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 Ecuadoriana, 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, 547 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 Direct Loans, and

100 staff members responsible for new student engagement.

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,

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new student engagement, or loan assistance will require substantially more

training under the 2022 Rule than under the 2019 regulations. Those 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.”

87 Fed. Reg. at 65,962. This, in combination with the Department’s view

that the Higher Education Act requires it to pursue recoupment for discharges

associated with school closures, exposes schools to enormous new liabilities

when they consider straightforward operational decisions about whether to

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consolidate campuses or relocate programs—changes that can often benefit

students. Id. at 65,968. Because the new closed-school provision defines a

school closure as the school’s ceasing instruction in programs in which a

majority of a location’s students are enrolled and provide for automatic

discharge, ECPI’s President testified that his institution was unable to

consolidate campuses in Richmond, Virginia, despite student support for

doing so.11 At the same time, the increased financial liability associated with

the Rule’s school-closure and borrower-defense provisions have forced ECPI

to abandon plans to open a location in Dallas. The district court’s decision

to ignore this specific evidence of injury in the record was clear error. So,

too, was its dismissal of CCST’s arguments about altered business operations

and missed opportunities as too speculative or remote to support irreparable

harm. Career Colleges, 2023 WL 4291992, at *7.

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

_____________________

11

Although ECPI’s San Antonio campus is a member of CCST, ECPI is a single

entity and its San Antonio campus is not a legally separate person. Because ECPI’s

interests in this litigation are represented by CCST, we assume without deciding that for

preliminary injunction purposes, an injury suffered by ECPI through any of its campuses

constitutes an injury of a CCST member.

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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, 129 S.Ct. 1142, 1152-

53 (2009). In Summers, there was no certainty that any of the club members

would actually encounter the challenged 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, 105 S. Ct. 3325, 3332–3333 (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, 114 S. Ct.

771, 783 (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

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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 CCST has not identified any possible or certainly

impending group claims, but the rub is this: the Secretary has sole discretion

to authorize borrowers to adjudicate their claims on a group basis. See

34 C.F.R. § 685.402. The Secretary cannot predict away his/her own

discretion, and in any event, any group claims are also subject to unlawful

adjudication procedures.

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.

_____________________

12

This figure is based on an estimate of 378 hours to “review and respond to the

proposed group claim” with a cost estimate of $46.59 per hour. 87 Fed. Reg. at 66,030–31.

The Department did not provide any estimate for how much each individual claim would

cost to defend, and there is no reason to believe that the costs for responding to an

individual claim would be significantly different. CCST also convincingly argues that this

cost estimate is “wildly low,” as “schools would likely retain counsel, who, in Texas,

charge a median hourly fee of about $300.” State Bar of Texas, 2019 Income and Hourly

Rates 3, available at

https://www.texasbar.com/AM/Template.cfm?Section=Demographic_

and_Economic_Trends&Template=/CM/ContentDisplay.cfm&ContentID=54237 (last

visited April 4, 2024).

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C. Likelihood of Success on the Merits

Although the district court did not examine the remaining factors

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.

20 U.S.C. § 1087e(h) (emphasis added). Three aspects of the Rule are within

the purview of this statutory provision. CCST contends that Section 455(h)

does not authorize the Department to define affirmative borrower defense

“claims” against the United States or enable recoupment actions against

schools. CCST also contends that the Rule does not lawfully permit full

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discharge of a student’s loan if a borrower defense under the Rule is

successfully invoked. Third, CCST argues that the Rule’s prohibitions on

“aggressive and deceptive recruitment tactics or conduct” and on

“actionable omissions of information” are too vague to provide regulated

entities with sufficient notice and inflict strict liability.

a. “Affirmative” Borrower Claims for Full Discharge

As outlined more fully above, the 2022 Rule authorizes several types

of affirmative “claims” for full borrower discharge. Very generally, these

include misrepresentations or omissions in connection with loans or the

decision to attend schools; a school’s default in its contracts with the student;

a school’s use of aggressive or deceptive recruitment tactics; the result of an

adverse judgment against a school; and the school’s loss of Title IV

certification based on the above misconduct. To note that these “defenses”

are vague and broad is to understate their implications.

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;

143 S. Ct. 665, 671 (2023) (quoting Van Buren v. United States, 593 U.S. 374,

381, 141 S. Ct. 1648, 1654 (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

_____________________

13

Student Loan Reform Act of 1993, Pub. L. 103–66, 107 Stat. 351.

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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, 134 S. Ct. 1405, 1410 (2014) and Sekhar v. United States,

570 U.S. 729, 732, 133 S. Ct. 2720, 2724 (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

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to draft regulations spelling out affirmative “claims” that borrowers can

assert against schools to avoid their obligations. A “defense” is a reactive

measure, not a proactive basis for a borrower’s suit.

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., 15 U.S.C. § 1641

(“any person who purchases or is otherwise assigned a mortgage . . . shall be

subject to all claims and defenses with respect to that mortgage . . .”); id.

§ 1666i(b) (“[t]he amount of claims or defenses asserted by the

cardholder . . .”).

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., 20 U.S.C.

§ 1078-11(a)(2)(B) (authorizing the Department to “cancel a qualified loan

amount” for individuals employed full time “in an area of national need”)

(emphasis added); id. § 1087e(m)(1) (stating that the Department “shall

cancel the balance of interest and principal due” for borrowers employed in a

public service job) (emphasis added); id. § 1087j(b) (directing the

Department to “cancel[] the obligation to repay a qualified loan amount” for

teachers) (emphasis added). We construe these comparative provisions as

having distinct meanings, which would be blurred by treating a “defense” to

repayment as a means to “cancel” a student loan.

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

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“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,

142 S. Ct. 647, 652 (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, 134 S. Ct. 2550, 2617 (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 meant to serve primarily as a means for a borrower

to assert a defense to repayment during the course of a collection proceeding.”

84 Fed. Reg. at 49,796 (emphasis added). This admission is consistent with

_____________________

14

See Project on Predatory Student Lending at the Legal Services Center of

Harvard Law School, Comment Letter on Proposed Rule (Aug. 2, 2018), available at

https://www.regulations.gov/comment/ED-2018-OPE-0027-0011 (attachments).

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the Department’s longstanding positions expressed in the 1994 Rule and

1995 Notice of Interpretation. In the 1994 Rule15, the Department outlined

four non-exclusive types of “proceedings” in which borrowers could “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.” 59 Fed. Reg. at 61,696. In 1995, the Department

clarified that this reference to a “a cause of action under applicable State

law” was of “limited scope,” as “[t]he regulation does not provide a private

right of action for a borrower and is not intended to create new Federal rights

in this area.” 60 Fed. Reg. at 37,769. The Notice of Interpretation included

other limiting language, stating that any such state law cause of action must

“directly relate[] to the loan or to the school’s provision of educational

services for which the loan was provided.” Id.

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

_____________________

15

The full text of the relevant provision states:

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:

(i) Tax refund offset proceedings under 34 CFR 30.33.

(ii) Wage garnishment proceedings under section 488A of

the Act.

(iii) Salary offset proceedings for Federal employees

under 34 CFR Part 31.

(iv) Credit bureau reporting proceedings under 31 U.S.C.

3711(f).

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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. 34 C.F.R. § 30.33(b)(1).

Wage garnishment proceedings under Section 488A of the Higher Education

Act can only be initiated against an individual “if he or she is not currently

making required repayment.” 20 U.S.C. § 1095a(a). Salary offset

proceedings against federal employees can only be initiated after the

Secretary sends written notice to the debtor demanding repayment in a pre-

offset notice. 34 C.F.R. § 31.3. Although credit bureau proceedings could be

commenced pre-default, there is no indication that this possibility was

contemplated in the 1994 Rule. Ultimately, because “words grouped in a list

should be given related meanings,” the 1994 Rule clearly assumed that

borrower defenses would only be invoked post-default; any pre-default

proceedings, if they occurred, would be extremely rare. Third Nat’l Bank in

Nashville v. Impac Ltd., 432 U.S. 312, 322, 97 S. Ct. 2307, 2313 (1977).

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 may assert their “defenses . . . in any action arising

from or relating to a loan,” the statute implies a causal connection between

the school’s actionable misconduct and the loans to be discharged. Yet the

Rule allows borrowers to receive full discharge of their consolidated loans if

their discharge claims have been successfully adjudicated. 87 Fed. Reg. at

65,916. This would allow the Department to discharge loans without

requiring the borrower to show causation. The Rule thus opens the door for

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a student to receive discharge for all four years of loans if he can show that

injury by a school’s misrepresentation or omission committed during his

fourth year. In fact, because the Rule does not provide for partial discharges,

a full discharge would be the only remedy available under the Rule.

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 87 Fed. Reg. at 65,920, 65,922. By allowing students to discharge loans

that were disbursed before an actionable act or omission by a school, the Rule

confers on students substantially greater benefits than necessary to

compensate for any injuries. The combination of full discharge with the

absence of a causation requirement essentially constitutes a punitive damage

remedy arising from the borrower-defense provision. There is no basis for

such outsize compensation under Section 455(h).

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, 121 S. Ct.

1511, 1522 (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

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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, 142 S. Ct.

2587, 2609 (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 be asserted as borrower defenses to

repayment. See 20 U.S.C. § 1087e(h). The verb “specify” connotes

specificity, which means a precise definition of the prohibited acts or

omissions. Specify, WEBSTER’S NEW INTERNATIONAL DICTIONARY

2187 (3d ed. 1981) (“to mention or name in a specific or explicit manner: tell

or state precisely or in detail . . . ”).16

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

_____________________

16

See also Cambridge Dictionary, available at

https://dictionary.cambridge.org/us/dictionary/english/specify (“to explain or describe

something clearly and exactly”); Oxford English Dictionary, available at

https://www.oed.com/dictionary/specify_v?tab=meaning_and_use#21658843 (“to

mention, speak of, or name (something) definitely or explicitly; to set down or state

categorically or particularly; to relate in detail”).

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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.” 34 C.F.R. §§ 668.71, 668.75,

685.401(b)(1),(2). Potential liability runs the gamut of a student’s

interactions with the school, as it includes “but [is] not limited to”

misrepresentations or omissions concerning educational programming,

financial charges and assistance, and the employability of graduates. Id.

§§ 668.72–668.74. Especially glaring are the prohibitions on “aggressive and

deceptive recruitment tactics or conduct.” 34 C.F.R. § 668.501. These

prohibitions also “include but are not limited to” six enumerated categories

of tactics or conduct,” with many of the key terms left undefined. 17 For

_____________________

17

The full text of 34 C.F.R. § 668.501 states:

(a) Aggressive and deceptive recruitment tactics or conduct include but are not limited to

actions by the institution, any of its representatives, or any institution, organization, or

person with whom the institution has an agreement to provide educational programs,

marketing, recruitment, or lead generation that:

(1) Demand or pressure the student or prospective student to make enrollment or

loan-related decisions immediately, including falsely claiming that the student or

prospective student would lose their opportunity to attend;

(2) Take unreasonable advantage of a student’s or prospective student’s lack of

knowledge about, or experience with, postsecondary institutions, postsecondary

programs, or financial aid to pressure the student into enrollment or borrowing

funds to attend the institution;

(3) Discourage the student or prospective student from consulting an adviser, a

family member, or other resource or individual prior to making enrollment or loan-

related decisions;

(4) Obtain the student’s or prospective student’s contact information through

websites or other means that:

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instance, a school may not “take unreasonable advantage of a student’s or

prospective student’s lack of knowledge about, or experience with,

postsecondary institutions, postsecondary programs, or financial aid to

pressure the student into enrollment or borrowing funds to attend the

institution.” Id. § 668.501(2) (emphasis added). But there is no definition

of what amounts to an “unreasonable advantage.” The same goes for the

Rule’s prohibition on “us[ing] threatening or abusive language or behavior

toward the student or prospective student,” which does not define the key

terms. Id. § 668.501(5) (emphasis added).

We hold that the Rule’s standards for actionable misrepresentations

or omissions or aggressive 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.

_____________________

(i) Falsely offer assistance to individuals seeking Federal, state or local

benefits;

(ii) Falsely advertise employment opportunities; or,

(iii) Present false rankings of the institution or its programs;

(5) Use threatening or abusive language or behavior toward the student or

prospective student; or,

(6) Repeatedly engage in unsolicited contact for the purpose of enrolling or

reenrolling after the student or prospective student has requested not to be

contacted further.

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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 87 Fed. Reg. at 66,014. Further, in this respect

the Rule contrasts starkly with the 2019 regulations, governing loans

disbursed or after July 1, 2020, which require a student borrower to prove

reckless or knowing misrepresentations or omissions “that directly and

clearly relate to” enrollment, continuing enrollment, or educational services

for which the loan was made. 34 C.F.R. § 668.206(e)(3) (July 1, 2020).

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 may 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).

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The Department argues that “harmless and inadvertent errors” are

“unlikely” to lead to the full discharge of a borrower’s debt. See 87 Fed. Reg.

at 65,921. This is wholly unpersuasive. As was explained above, by

authorizing full discharge and disallowing partial discharges of all loans—

including loans disbursed to a borrower prior to any actionable act or

omission by the school—the Rule eviscerates the need for a causal link

between the school’s conduct and a borrower’s injury. Thus, the

Department’s contention that the Rule requires a causal link is simply

erroneous. See id. at 65,920. This argument, founded on what is “unlikely,”

also implicitly concedes the unbounded, and illegal, enforcement discretion

embedded in the Rule’s failure to promulgate specific terms of actionable

acts or omission.

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 5 U.S.C. § 706(2)(A); FCC v.

Prometheus Radio Project, 592 U.S. 414, 423, 141 S. Ct. 1150, 1158 (2021).

Here, however, the Department absurdly states that “[r]equiring intent

would place too great a burden on an individual borrower.” 87 Fed. Reg. at

65,921. But proof of intent is ubiquitously required throughout the law and

can be proven through circumstantial evidence. See Crowe v. Henry, 115 F.3d

294, 297 (5th Cir. 1994). The Department’s explanation of the Rule itself

acknowledges that many state Unfair, Deceptive, or Abusive Practices

(“UDAP”) statutes, which continue to be relevant in borrower defense

claims involving loans disbursed prior to July 1, 2017, “require proof of

intent, knowledge, or recklessness—requirements that are not present in the

Federal standard.” 87 Fed. Reg. at 65,934.

The Department’s further rationale, that “if the action resulted in

detriment to the borrower that warrants relief,” then knowledge or intent are

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irrelevant, is equally unsatisfactory. Id. at 65,921. According to the

Department’s own estimates, in 30 to 80 percent of borrower-initiated cases,

claims against proprietary schools will arise from the group claims process,

in which the injury is presumed, rather than proven on an individual basis.

Id. at 66,016; 34 C.F.R. § 685.406(b)(2). In other words, many borrowers

who receive full discharges will be third-party beneficiaries of liability for

misconduct that inflicted no injury on them. In sum, the Department’s

decision to eliminate mens rea from the Rule is not adequately justified or

reasonably explained. The decision also conflicts with the Supreme Court’s

holding that agencies must offer a “reasoned explanation,” rather than a

mere “summary discussion” when they depart from a “longstanding earlier

position.” Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 222–24,

136 S. Ct. 2117, 2126, 2127 (2016).

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.” 87 Fed. Reg. at 65,923. Both individual and group

adjudications may occur. 34 C.F.R.§§ 685.402, .403. The schools, which

could face recoupment liability following discharge, id. § 685.409(a)(1), must

respond to the borrower proceedings within 90 days or be deemed not to

contest the borrower defense. Id. § 685.405(d). Because “claims” may be

brought “at any time,” there is no regulatory limitation of actions.

Id. § 685.401(b). The evident goal of these adjudications is to shift student

debt liability to the schools.

CCST protests that these procedures are ultra vires and violate due

process. The organization is substantially likely to prevail.

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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 claims by the Department against schools.

First, the text of Section 455(h) speaks only to the Secretary’s power to

promulgate regulations—not the power to adjudicate cases based on its

regulations. The Supreme Court has repeatedly emphasized that “when

Congress meant to confer adjudicatory authority . . . it did so explicitly and

set forth the relevant procedures in considerable detail.” Bank One Chi.,

N.A. v. Midwest Bank & Tr. Co., 516 U.S. 264, 274, 116 S. Ct. 637, 643 (1996)

(quoting Coit Indep. Joint Venture v. Fed. Sav. & Loan Ins. Corp, 489 U.S. 561,

574, 109 S. Ct. 1361, 1369 (1989)); see also Equitable Equip. Co. v. Dir., Off. of

Worker’s Comp. Programs, 191 F.3d 630, 632–33 (5th Cir. 1999) (holding that

the ALJ lacked jurisdiction to adjudicate a claim for attorney’s fees because

the statute only vested ALJ jurisdiction over “a claim for compensation”).

As CCST correctly argues, this “run-of-the-mill grant of rulemaking

authority” does not support “reading into [Section 455(h)] . . . the authority

to adjudicate” borrower discharge claims. RLC Indus. Co v. C.I.R., 58 F.3d

413, 418 (9th Cir. 1995). “[W]e find no secure signal here that Congress

intended to assign to the [Department of Education] responsibility for the

adjudication of private claims.” Bank One, 516 U.S. at 274, 116 S. Ct. at

643.18

_____________________

18

The Rule also purports to authorize administrative adjudications of borrower

defense claims against the government. 87 Fed. Reg. at 65,910; 65,941; 65,945. Because

such claims are, in the Department’s view, analogous to claims for restitution or rescission,

87 Fed. Reg. 65,914, they are subject to sovereign immunity. Edelman v. Jordan, 415 U.S.

651, 668-69, 94 S. Ct. 1347, 1358 (1974). But Congress did not waive sovereign immunity

for these claims.

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Indeed, Section 455(h) essentially contradicts a grant of adjudicatory

power in stating that borrower defenses can be asserted “in any action arising

from or relating to a loan made under this part.” 20 U.S.C. § 1087e(h)

(emphasis added). The contemporaneous legal definition of “action” is “a

lawsuit brought in a court,” which is distinct from an adjudication brought in

an administrative tribunal. Action, BLACK’S LAW DICTIONARY (6th ed.

1990).19 The Department does not respond to this meaningful choice of

language.

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,

20 U.S.C.§ 1087d(a)(3). That this provision and related audit and liability

functions are performed within the Department and are subject to

administrative hearings is simply not the same as the adjudications

authorized by the Rule for individual or group claims alleging violations of

the newly created borrower defenses. The new claims function to shortcut

conventional civil litigation between private parties, not to resolve schools’

_____________________

19

BALLENTINE’S LAW DICTIONARY is consistent with this definition:

A judicial proceeding either in law or in equity, to obtain relief at the hands

of a court. A judicial remedy for the enforcement or protection of a right,

or a legal proceeding in which a plaintiff claims against a defendant or fund

the enforcement of some obligation toward the plaintiff which is binding

upon the defendant or the fund. A prosecution in a court by one party

against another party for the enforcement or protection of a right, the

redress or prevention of a wrong, or the punishment of a public offense,

without regard to the particular form of the procedure.

(3d ed. 1969).

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more general compliance under agreements with the Department that

enabled federally backed student loans in the first place.

The Department attempts to rely on the “broader context” of the

Higher Education Act in support of its newly crafted authority. See

20 U.S.C. §§ 1094(b), 1094(c), 1099c-1(a)(1)). In so doing, it principally

relies on Chauffeur’s Training Sch., Inc v. Spellings, 478 F.3d 117, 125–30

(2d Cir. 2007), which upheld the Department’s implicit statutory authority

to conduct an administrative proceeding that assessed liability against a

school for loan program violations. Chauffeur’s is distinguishable from this

case. First, Chauffeur’s did not turn on Section 455(h), the relevant statutory

provision here. Second, the Department, acting in Chauffeur’s, had grafted

additional remedies onto a statutorily authorized proceeding under Section

1094(c). Id. at 127. The Chauffeur’s court did not review an adjudicatory

regime created out of whole cloth and lacking any statutory basis. Moreover,

under the Rule before us, schools facing recoupment proceedings are denied

a hearing under Subpart G of Part 668 of its regulations, which implement

Section 1094(c). See 87 Fed. Reg. at 65,949; 34 C.F.R. § 668.81–100. Third,

the statutory interpretation in Chauffeur’s relied on Chevron20 deference to

the Department; but the Department makes no Chevron argument here, and

Section 455(h)’s plain statutory language belies deference to agency

interpretation.

The Department’s “broader context” argument is far from

compelling. Nothing in the text of Section 1094(c) or Section 1099(c)-1(a)(1)

specifically mentions the Department’s authority to adjudicate claims, much

less the authority to adjudicate borrower-defense or recoupment claims. The

_____________________

20

Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843–45,

104 S. Ct. 2778, 2782–83 (1984).

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closest the Department comes to identifying a provision in the Higher

Education Act that authorizes it to adjudicate borrower-defense claims is

Section 1094(b). But this provision only allows the Department to hold

hearings concerning “final audit[s] or program review determination[s]”

relevant to an institution’s ability to participate in Title IV. The subject

matter and structure of those proceedings is distinguishable from the

borrower defense claims or recoupment claims at issue here.

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 most 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 34 C.F.R. § 685.401(b)(3) (establishing a

borrower defense for state breach of contract claims), id. § 685.401(c)

(allowing borrowers to seek discharge on the basis of other state law causes

of action).

To be sure, the Department seeks to disaggregate the integrated

process of borrower-defense and recoupment, and it focuses on recoupment

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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 34 C.F.R. § 668.125(e)(2) (the school bears the

burden to prove that “the decision to discharge the loans was incorrect or

inconsistent with the law and that the institution is not liable for the loan

amounts discharged or reimbursed” in the subsequent recoupment

proceedings), id. § 668.125(e)(3) (the only evidence that may be submitted in

recoupment proceedings concerns the bases cited by the Department in

adjudicating the borrower discharge claims and materials submitted to the

Department or relied on in the borrower discharge proceedings). For

practical purposes, as summarized by CCST, these procedures act to shift

debt liability to schools.

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

_____________________

21

Nonetheless, it is difficult to reconcile the Department’s position that these

administrative adjudications would not be dispositive in collateral litigation with the rest of

the Rule. Indeed, if collateral estoppel would not attach to the outcome of any

administrative adjudication under the Rule, then the adjudication regime established by the

Rule would open the door to potential double recovery for borrowers against schools after

their loans have successfully been discharged, and rather than simplifying the process,

would lead to duplication of proceedings. See 87 Fed. Reg. at 65,908 (stating that the

Department sought to “strike[] a balance between providing transparency, clarity, and ease

of administration while simultaneously giving adequate protections to borrowers,

institutions, the Department, and the public monies that fund Federal student loans.”).

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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. § 685.406(b)(2).22

This regulation embodies three “rebuttable” presumptions: that each

member of the group knew about the particular claimed borrower defense;

that each member relied on the representation, omission, or other act; and

that each member’s reliance was reasonable. Id. Further, related regulations

largely undercut schools’ ability to rebut the presumptions, as they have no

independent right to probe these facts through discovery or witness

examinations. Id. §§ 685.402–406, 668.125. Indeed, the Department

explained that it need not share with a school related evidence in its

possession. 87 Fed. Reg. at 65,912.

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

_____________________

Moreover, once the borrower’s debts have been discharged, it is difficult to see what the

borrower’s remaining potential damages for any subsequent civil suit governed by state law

would be, especially for a borrower whose claims sounded in contract rather than tort law,

as punitive damages are only available in the latter.

22

For closed schools, the Rule also establishes a rebuttable presumption that the

actionable act or omission of the school that caused the borrower detriment “warrants

relief” being afforded to the borrower. 34 C.F.R. § 685.401(e).

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implication from our earlier conclusion that the Department lacks power 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. 34 C.F.R. § 685.406(b)(2). Attendance decisions are highly fact-

specific, and many of the actionable misrepresentations explicitly listed in the

Rule, such as a faculty member’s qualifications or whether a particular charge

is customary, are too discrete to justify a universal presumption—

particularly given that the only available remedy is full discharge of the loan.

Id. §§ 668.72(h), 668.73(b).

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 Federal Rule of Civil Procedure 23. See 34 C.F.R. § 685.402.

Rule 23 protects the integrity of civil class actions for money damages by

requiring, at a minimum, that the class representative’s claim is “typical” of

that of the class and that common questions of law and fact “predominate”

in the case. Fed. R. Civ. P. 23(a)(2), (b)(3). As a result, this court has

repeatedly rejected certifying class actions, including for fraud, where

damages and reliance issues are highly individualized. See Castano v Am.

Tobacco Co., 84 F.3d 734, 745 (5th Cir. 1996) (“[A] fraud class action cannot

be certified when individual reliance will be an issue.”); McManus v.

Fleetwood Enters. Inc., 320 F.3d 545, 550 (5th Cir. 2003) (“Reliance will vary

from plaintiff to plaintiff.”); Patterson v. Mobil Oil Co., 241 F.3d 417, 419 (5th

Cir. 2001) (“Claims for money damages in which individual reliance is an

element are poor candidates for class treatment, at best.”). Handling group

claims under the Rule thus lacks due process protections available under the

class action process.

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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

and capricious. “[T]he argument for agency expertise and judgment does

not get [the Department] very far,” as “falling back on unexplained claims of

agency expertise does not carry the [Department’s] burden” under the APA.

El Paso Elec. Co. v. FERC, 76 F.4th 352, 364 (5th Cir. 2023). Presumptions,

especially in administrative proceedings that may generate institution-

destroying liability, cannot be a matter of Department ipse dixit.

Further evidence of incompatibility lies in the Rule’s liability standard

for both individual and group claims: totality of the circumstances. 34 C.F.R.

§ 685.401(e). What is the “totality of the circumstances,” and how, if at all,

does it differ from “preponderance of the evidence”? This standard

amounts to another loophole affording immense non-reviewable discretion

to the Department.

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

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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 means 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).

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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 or through a teach-out

agreement” at another comparable school one year after the school

“closure” or their last day of attendance at a continuation program.

Borrowers are presumed to have withdrawn without needing to prove

causation, and they are presumed to have suffered financial “detriment” as

well.

a. Redefinition of School “Closure”

The authority for discharging student debt associated with school

closures derives from 20 U.S.C. § 1087(c), which states in pertinent part:

(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

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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[.]

34 C.F.R. § 685.214(a)(2)(i) (emphasis added).

“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

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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.

A straightforward hypothetical shows how the Rule’s expanded

definition of “closure” exposes a school to financial liability for actions that

Congress clearly did not intend to cover. Consider a campus with one

thousand students that previously offered two programs: a culinary program

with 490 students and a cybersecurity program with 510 students. The

school chooses to relocate the cybersecurity program to a new campus so that

the original campus can be retrofitted to enhance culinary education. In

doing so, the school has “closed” the original campus according to the Rule

merely by choosing to reorganize its operations. Under the statutory text of

Section 1087(c), none of the cybersecurity students who had to relocate to

other campuses would be eligible for discharge, and the school would not be

exposed to any financial liability to the Department. But the newly minted

_____________________

23

See also Cambridge Dictionary, available at

https://dictionary.cambridge.org/us/dictionary/english/closure?q=closure+ (“the fact of

a business, organization, etc. stopping operating”); Oxford English Dictionary,

available at https://www.oed.com/dictionary/closure_n?tab=meaning_and_use#9161981

(“the act of closing or shutting; closed condition; a bringing to a conclusion; end, close”).

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Rule subjects the school24 to enormous financial exposure25 for “closing”

even if it is still operates and educates 49 percent of the students who were

enrolled at that location prior to the reorganization. Such an expansion in the

Department’s power and ability to impose liability on schools not only

conflicts with the statute, but it also eviscerates schools’ ability to reduce or

relocate certain programing at certain locations in response to legitimate

business and educational needs.

In defense of this expanded definition of “closure,” the Department

argues first that the change 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.

20 U.S.C. § 1087(c)(1). Second, the Department asserts, with no supporting

citation, that the Rule does not expand the overall scope of which schools are

considered “closed” because borrowers can obtain discharge only after a

school has entirely ceased operations. The plain text of the Rule, as explained

in the above hypothetical, contradicts that assertion.

_____________________

24

A “school” is defined in the closed-school discharge regulations as “a school’s

main campus or any location or branch of the main campus.” 34 C.F.R. § 685.214(a)(2)(ii).

25

Under this hypothetical, all the cybersecurity students who did not complete the

same program at another branch or location of the school, or through a teach-out agreement

approved by the school’s accrediting agency and, if applicable, the school’s State

authorizing agency, within one year of this reorganization (or their last date of attendance

at a continuation program that they started but failed to complete), would be eligible for

automatic discharge.

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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

34 C.F.R. § 685.214(a)(2)(i) is likely to succeed on the merits.

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. § 685.214(d)(1)(i)(B). In doing

so, the Rule does not require borrowers to show that they were unable to

complete their program “due to the closure of the institution.”

20 U.S.C. § 1087(c)(1) (emphasis added). Instead, the Rule allows the

Secretary to discharge an eligible borrower’s loan under the closed school

provision without an application or any statement from the borrower 1 year

after the institution’s closure date26 if the borrower did not complete the

program at another branch or location of the school or through a teach-out

agreement at another school. 34 C.F.R. § 685.214(c).

This substantial expansion in the number of borrowers eligible for

discharge exceeds 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.

_____________________

26

Borrowers who accepted but did not complete a continuation program are

eligible for automatic discharge one year after their last date of attendance at the other

branch or location or in the teach-out program. 34 C.F.R. § 685.214(c)(2).

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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. 34 C.F.R. § 685.214(c). Again, no proof is required

that the closure actually caused the students not to complete the program.

This abandonment of the causation requirement, like the 180-day

“inference,” is overinclusive and exceeds the Department’s statutory

authority. The Department may not justify the Rule by stating that the

Higher Education Act does not foreclose the Department’s approach, or that

CCST’s policy preference is not a sufficient basis to invalidate the Rule. An

agency’s burden is to establish that its governing statute enables its

regulations. The Department’s burden here is insurmountable given the

clarity of the relevant statutory provisions.

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 provides 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.

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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, upgrading facilities, and

constructing new ones. The only alternative to incurring these costs is for

the school to withdraw from Title IV entirely, which would be to the

detriment of students who rely on the availability of Direct Loans. Such a

consequence would harm the public at large.

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. 5 U.S.C. § 705. Nothing in the text of

Section 705, nor of Section 706, suggests that either preliminary or ultimate

relief under the APA needs to be limited to CCST or its members. Instead,

we conclude that the scope of preliminary relief under Section 705 aligns with

the scope of ultimate relief under Section 706, which is not party-restricted

and allows a court to “set aside” an unlawful agency action. See Griffin v.

HM Florida-ORL, LLC, 144 S. Ct. 1, 1 n.1 (Mem) (2023) (Kavanaugh, J.,

concurring in the denial of the application for stay); Mila Sohoni, The Power

to Vacate A Rule, 88 GEO. WASH. L. REV. 1121, 1173 (2020) (“The term

‘set aside’ means invalidation—and an invalid rule may not be applied to

anyone.”) (footnote omitted); Jonathan Mitchell, The Writ-of-Erasure

Fallacy, 104 VA. L. REV. 933, 1012–13 (2018) (“Unlike judicial review of

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statutes, in which courts enter judgments and decrees only against litigants,

the APA . . . go[es] further by empowering the judiciary to act directly against

the challenged agency action. This statutory power to ‘set aside’ agency

action is more than a mere non-enforcement remedy . . . . In these situations,

the courts do hold the power to ‘strike down’ an agency’s work, and the

disapproved agency action is treated as though it had never happened.”).

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 Section 705 can only be specific

to the plaintiff. 5 U.S.C. § 705. Rather, it means, as the Department

acknowledges in its own briefing, that the relief should only involve

postponing the effective date of the portions of the Rule that CCST actually

challenges and for which it has shown a likelihood of success on the merits.

The Department’s argument that it would be improper to enjoin portions of

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the Rule that are unchallenged or for which CCST has not shown a likelihood

of success on the merits is correct. But it is also irrelevant, as the preliminary

injunction sought by CCST, and granted in this opinion, does not affect

portions of the Rule that do not relate to borrower-defenses, closed-schools,

or adjudication procedures.

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.

57