The Trump administration is facing a new class action lawsuit from student loan borrowers who allege the Department of Education improperly denied debt relief to people whose schools closed before they could finish their programs. The lawsuit was filed Wednesday in the U.S. District Court for the District of Columbia and centers on the federal Closed School Discharge program and a 2025 decision that expanded eligibility for borrowers who attended certain institutions.
The plaintiffs allege the department has failed to carry out that decision, leaving borrowers responsible for debts that they argue should be discharged. Newsweek reached out to the Department of Education for comment via email. The legal dispute could have consequences for thousands of federal student loan borrowers who attended schools that closed and who may qualify for debt cancellation under the department's previous determination.
The lawsuit alleges that affected borrowers remain responsible for loans that the department had already determined could qualify for discharge. That means many may be facing unjustified interest accrual and even involuntary collections and wage garnishment, according to the complaint. Closed School Discharge allows qualifying federal student loan borrowers to have loans canceled when their school closes, and they are unable to finish their program.
Under the general eligibility standard by the Department of Education, a borrower may qualify if the school closed while the borrower was enrolled, while the borrower was on an approved leave of absence, or within 180 days after the borrower withdrew. Certain "exceptional circumstances" can result in a longer look-back period. The latest lawsuit is concerning one of those exceptions.
In January 2025, during the Biden administration, the department determined that closures involving four groups or schools qualified as exceptional circumstances: Career Education Corporation (CEC), Education Management Corporation (EDMC), Education Corporation of America (ECA) and Bay State College. The determination also expanded the look-back periods for some former students beyond the ordinary eligibility window. The lawsuit now alleges that the department under the Trump administration has not implemented those longer periods as required.
"This lawsuit comes down to whether the Education Department can simply stop honoring student loan relief that was already approved under a previous admin," Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek. "Borrowers say they qualify for debt cancellation after their schools closed, yet they're still being billed. The Department argues the earlier expansion was improper.
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