Second Circuit Litigation Threatens to Further Confuse Regulatory Standards Applied to Borrower Defense Applications

JD Supra

January 9, 2024

The Second Circuit Court of Appeals released a new decision in the NYLAG v. Cardona et al. case that may have implications for the everchanging legal and regulatory environment of Borrower Defense to Repayment (BDR) claims. Here are the key takeaways from this latest ruling:

1. The decision has no impact on the post-class Sweet v. Cardona applications filed between June and November 2022. The U.S. Department of Education (ED) will continue to review post-class applications under the 2016 Borrower Defense regulatory standards. ED has indicated that additional institutions may until April 2024 receive batches of such applications for response.

2. The ruling does not affect the 2022 regulations, which are currently under an injunction by the Fifth Circuit pursuant to the Career Colleges & Schools of Texas v. U.S. Department of Education (CCST v. Cardona) litigation.

3. The processing of current BDR applications remains unaffected until the Southern District of New York (SDNY) delivers a verdict on whether the statute of limitations (SOL) provision in the 2019 regulations is severable from the rest of the regulatory scheme. Following this, the matter will return to the Second Circuit for further deliberation.

4. If the SDNY rules to sever and invalidate the 2019 SOL, the 2019 regulations will still be in effect pending the outcome of the CCST v. Cardona case in the Fifth Circuit. Since the Biden administration did not include a similar provision in its 2022 regulations, it is unlikely to move to reinstate the SOL.

5. In the event that the SDNY, and eventually the Second Circuit, invalidates the entire 2019 regulations, there is a possibility that the 2016 regulations could govern current BDR application processing, especially if the Fifth Circuit litigation leads to the invalidation of the 2022 regulations.

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