Appeals Court Overturns Freeze on Collection of Defaulted Student Loans

A federal appeals court on Friday ruled to allow the U.S. Education Department to resume collecting defaulted students loans following a six-month freeze imposed by a lower court, Politico reported.

Hundreds of thousands of defaulted student loan borrowers have been stuck in limbo in the wake of this legal battle involving dozens of debt collection companies fighting over contracts with the department. Earlier this year, the U.S. Court of Federal Claims judge overseeing the case issued an order prohibiting the department from sending any newly-defaulted student loans to debt collection firms—a key step for those borrowers to eventually rehabilitate their loan debt.

After hearing oral arguments in the case on Friday, the U.S. Court of Appeals for the Federal Circuit blocked the lower court's ruling.

The appeals court ruling is a victory for the Trump administration, which vigorously fought the order blocking collection. The Consumer Financial Protection Bureau backed the administration's position in the appeal.

The Education Department estimated that the rulings affect roughly 700,000 borrowers owing billions of dollars in student loans.

The case will now return to the U.S. Court of Federal Claims.


Related Links