Student loan lawsuit: closed-college borrowers sue US Education Department
By Kabir SethiEducation Correspondent, Peepals Yuva
Representative image: WOKANDAPIX / Pixabay
Former students of four collapsed US for-profit college groups sued the Education Department on October 28, 2026, saying it has refused promised loan cancellations.
What Happened
A group of former students has filed a class action lawsuit against the US Department of Education and Education Secretary Linda McMahon, saying the department has refused to cancel federal student loans for borrowers whose colleges shut down. The suit was filed on Wednesday, October 28, 2026, in the US District Court for the District of Columbia by the legal group Student Defense. It asks the court to order the department to carry out a January 2025 decision that widened loan cancellation, known as closed school discharge, for students of four collapsed for-profit college groups.
Key Facts
- The lawsuit was filed on October 28, 2026, in federal court in Washington, DC, against the Education Department and Secretary Linda McMahon.
- It was brought by Student Defense on behalf of Kendrick Gaussoin, a former Brooks Institute student who says he qualifies for cancellation but was denied it, and others in the same position.
- In January 2025, the department decided that closures at Career Education Corporation (CEC), Education Management Corporation (EDMC), Education Corporation of America (ECA) and Bay State College counted as "exceptional circumstances", widening who could get their loans cancelled.
- According to the complaint, the department has not granted a single closed school discharge under that 2025 decision, and many thousands of borrowers are entitled to one.
- The suit also says the department broke the Administrative Procedure Act, the US law on how federal agencies make and change decisions, by refusing to process the discharges without public notice.
- A department spokesperson, Ellen Keast, criticised the 2025 decision, saying the former under secretary used "the stroke of a (digital) pen to inappropriately expand the closed-school discharge period".
- No court has ruled on the new suit yet.
Why It Matters
Closed school discharge is a rule in the US federal student loan system: if a college shuts down while a student is enrolled, or soon after they leave, the student can have their federal loans cancelled, because they never got the education they borrowed for. How long after leaving a student can still qualify is set by a window, and the department can extend that window in "exceptional circumstances". The January 2025 decision did exactly that for students of four college groups that collapsed, which brought many more former students into the scheme.
The dispute is now about whether a decision made by one administration must be honoured by the next. The plaintiffs say the decision is binding and is simply being ignored. The department says it was made in haste just before the change of government. The court will have to decide whether the department can leave the decision unused without formally reversing it through a proper process.
For the borrowers, the stakes are practical. Until their loans are cancelled, they may still owe repayments for courses at colleges that no longer exist, and the debt can affect their credit records.
The case is one of several now facing the department. A separate suit filed on Friday, October 30, by the American Federation of Teachers and individual borrowers accuses the department of blocking Public Service Loan Forgiveness, and a proposed class action filed in September accuses it of still reporting already-cancelled loans as unpaid debt.
Peepals timeline: In January 2025, days before the change of administration, the department widened closed school discharge for students of CEC, EDMC, ECA and Bay State College. From then on, according to the complaint, no discharge was granted under that decision. In September 2026, a separate proposed class action accused the department of reporting cancelled loans as outstanding. On October 28, 2026, Student Defense filed this class action, and on October 30, 2026, a teachers' union sued over Public Service Loan Forgiveness.
What it means for students: the case is a reminder that when a college closes, students can be left with debt for an unfinished degree, and that relief can depend on court cases that take years. Anyone weighing a private college at home or abroad can check the institution's accreditation and its regulator's record before enrolling and borrowing.
Impact
Short-term: Former students of the four college groups remain without cancellation while the court considers the case. The department is expected to defend its position in court.
Long-term: The ruling could decide how far a new administration can leave unused the loan relief decisions of the one before it, which matters for borrowers in other federal relief programmes.
Who is affected: Former students of CEC, EDMC, ECA and Bay State College schools with federal student loans, the US Education Department, and other borrowers waiting on federal loan relief.
Key Takeaway
Former students of four collapsed US for-profit college groups have sued the Education Department, saying it has granted none of the loan cancellations a January 2025 decision promised them.
Questions and Answers
What is a closed school discharge?
It is a rule in the US federal student loan system that cancels a borrower's federal loans when the college they attended closes while they are enrolled or within a set period after they leave, so they do not repay loans for an education they could not complete.
Who filed the lawsuit against the Education Department on October 28, 2026?
The legal group Student Defense, on behalf of former Brooks Institute student Kendrick Gaussoin and other borrowers, filed it as a class action in the US District Court for the District of Columbia.
Which colleges does the case cover?
Students of schools run by Career Education Corporation, Education Management Corporation and Education Corporation of America, and of Bay State College, whose closures the department ruled in January 2025 to be exceptional circumstances.
What does the Education Department say?
A department spokesperson, Ellen Keast, said the January 2025 decision was an inappropriate expansion of the closed-school discharge period made by the former under secretary just before leaving office.
Disclaimer: Prepared by the Peepals newsroom from publicly available sources with AI assistance. Information is accurate to the best of our knowledge at the time of publication and may change. Images may be representative. Not professional advice. Report an error via our contact page.
By Kabir Sethi, Education CorrespondentCovers Education and more for Peepals Yuva. All stories by Kabir Sethi
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Kabir Sethi is a pen name of the Peepals Global Editorial Team, which researches, fact-checks and publishes every story. The portrait is an illustration.
