Lawsuit Challenges Withheld Student Loan Discharges for Closed School Borrowers
Class action lawsuit demands Education Department process thousands of overdue closed school loan discharges.
1Class Action Lawsuit Filed
On October 28, 2026, Student Defense initiated a class action lawsuit against the Department of Education and Secretary Linda McMahon. The legal action alleges that the department has failed to implement a January 2025 decision, which expanded closed school discharge eligibility for thousands of former students who attended specific for-profit institutions.
2Scope of Affected Institutions
The 2025 decision specifically covers campuses operated by Career Education Corporation, Education Management Corporation, Education Corporation of America, and Bay State College. These entities previously managed prominent brands such as Le Cordon Bleu and the Art Institutes. Thousands of borrowers remain burdened by debt despite the established eligibility criteria for federal relief.
3Lead Plaintiff Case Details
Kendrick Gaussoin, the lead plaintiff, attended the CEC-owned Brooks Institute before its 2016 closure. Although he applied for a discharge in August 2026, his servicer, MOHELA, denied the request by citing incorrect standards. Gaussoin currently carries nearly $22,000 in debt, while his mother faces an additional $28,000 in Parent PLUS loan obligations.
4Administrative Procedure Act Violations
The lawsuit claims the department violated the Administrative Procedure Act by refusing to process discharges without providing public notice. Plaintiffs allege that not a single discharge has been granted under the 2025 decision since its inception. The suit seeks a court order to force the department to implement the policy and notify borrowers.
5Department of Education Stance
The Department of Education maintains its current program management, with spokesperson Ellen Keast characterizing the 2025 expansion as an inappropriate use of executive power. The administration argues that such policies unfairly shift financial burdens onto taxpayers. This defense mirrors previous legal battles where the department attempted to delay or block various student loan forgiveness initiatives.
6Connection to Broader Litigation
This case shares significant parallels with Woods v. U.S. Department of Education, which concerns $4.6 billion in cancelled loans still reported to credit bureaus. Both cases involve MOHELA as the loan servicer and highlight systemic failures in processing federal relief. These ongoing legal disputes underscore widespread administrative inconsistencies regarding student debt forgiveness programs.
7Impact on Affected Borrowers
Borrowers denied relief face ongoing interest accrual, potential wage garnishment, and Treasury offsets. Without the discharge, these individuals remain legally responsible for payments on loans for schools that have ceased operations. The lawsuit aims to halt collection efforts for class members until the department properly processes their applications and fulfills its previous policy commitments.
8Future Legal Implications
The court must now decide on class certification, which would allow a single order to cover all eligible borrowers. Federal agencies typically have 60 days to respond to such complaints. This ruling will determine whether the department is compelled to honor the 2025 discharge expansion or if the current administrative deadlock will persist indefinitely.