NYLAG v. McMahon

(Formerly NYLAG v. DeVos and NYLAG v. Cardona)

The Latest

On May 20, 2026, the Second Circuit Court of Appeals issued its decision in NYLAG v. McMahon, a case in which PPSL and Public Citizen, on behalf of New York Legal Assistance Group, had challenged the 2019 DeVos-era borrower defense (BD) regulations as arbitrary and capricious under the Administrative Procedure Act. The Second Circuit dismissed the case as moot, ending our challenge to the 2019 regulations.

NYLAG filed its notice of appeal as to the latter part of the decision on April 7, 2021. The parties have fully briefed the appeal, and the appeal is now pending before the Court of Appeals for the Second Circuit.

What Happened?

The Second Circuit held that the case had become moot as result of 2025’s One Big Beautiful Bill Act. The OBBBA included a provision stating that “any regulations relating to borrower defense to repayment that took effect on July 1, 2020, are restored and revived as such regulations were in effect on such date.” The Second Circuit stated that, because the 2019 BD regulations had been put back into effect by statute, the Court no longer had authority to consider challenges to those regulations under normal administrative law procedures.

Moreover, because the OBBBA re-instituted the regulations as they were on July 1, 2020, the Court vacated the district court’s order from earlier in the NYLAG case that had limited the applicability of the 2019 rule’s three-year statute of limitations.

What Does This Mean for Borrower Defense?

This decision is a setback for borrowers challenging the Trump-era 2019 borrower defense rule. But it is not the end of borrower defense.

First, the court did not rule on the validity of BD or BD claims. It simply ruled that since Congress has now re-instituted the 2019 borrower defense rules, we can no longer challenge them under the Administrative Procedure Act.

  • As a result, the stricter 2019 borrower defense standards will remain in place for loans disbursed on or after July 1, 2020, including the rule’s three-year statute of limitations.

  • If your loans were disbursed before July 1, 2020, nothing will change for you.

  • If you are a member of the class or post-class in Sweet v. McMahon, nothing will change with respect to your Sweet relief.

Second, borrowers who were defrauded by their school and have not yet applied for BD can, and should, still apply. Borrowers with pending applications should continue monitoring their cases.

  • Important legal questions remain unresolved, including whether borrowers who originally took out loans before July 1, 2020, but consolidated them after that date, are subject to the 2019 rule’s harsher standards.

  • PPSL will continue fighting to get answers and to ensure borrowers are not unfairly denied relief because of procedural barriers or retroactive rule changes.

About NYLAG v. McMahon

  • Student advocates at NYLAG brought this suit to invalidate the Department of Education’s 2019 borrower defense rules, which reverse vital protections from predatory schools and impose onerous standards and procedural hurdles for defrauded students seeking to assert their legal rights to loan cancellation.

    • September 2019: The Department of Education established new borrower defense rules, making it harder for borrowers to assert their claims to loan cancellation.

    • February 19, 2020: This case was filed in the U.S. District Court for the Southern District of New York.

    • July 2020: New borrower defense rules take effect.

    • March 17, 2021: The District Court issued its decision on the parties’ cross-motions for summary judgment.

    • April 7, 2021: NYLAG filed its notice of appeal.

    • Dec. 11, 2023: Second Circuit hears oral argument in NYLAG’s appeal.

    • May 20, 2026: Second Circuit dismissed appeal as moot.

  • The Project on Predatory Student Lending and Public Citizen Litigation Group filed this case on behalf of New York Legal Assistance Group (NYLAG) against the Department of Education and former-Education Secretary Betsy DeVos.

    Federal law allows students to seek cancellation of their federal student loans when the school they attended engaged in misconduct or closed suddenly. In 2016, the Department of Education issued new rules to stop schools from forcing students out of court, and to specify new procedures for borrower defense. Then-Secretary DeVos attempted to block those rules from going into effect three times – and lawyers from Public Citizen Litigation Group and the Project on Predatory Student Lending were successful in having those attempts declared illegal.

    Undeterred, the Department of Education issued a new rule, which resulted from a flawed process and is grounded on the false premise that student borrowers are the bad actors. Ignoring the Department’s responsibility to students and taxpayers, the rule protects predatory schools from liability for their bad behavior. The rule is contrary to the purpose of borrower defense, which is to allow cheated borrowers to cancel fraudulent debt. Among other harmful changes, the new rule:

    • Eliminates conditions on the use of forced arbitration and class-action bans;

    • Increases the hoops students must jump through to obtain relief when their schools close;

    • Removes key disclosure requirements that inform students about their schools’ status;

    • Imposes a narrow three-year statute of limitations for borrowers to raise claims;

    • Eliminates the ability for borrowers to seek to have their claims decided as part of a group of similarly situated students; and

    • Heightens the evidentiary standard to which borrowers’ claims would be held, including requiring students to offer proof of financial harm beyond that of the federal loan itself.

“DeVos’s new rule allows predatory institutions to escape responsibility for their deceptive and misleading conduct, and forces students – and organizations like NYLAG – to bear the consequences.”

— Adam Pulver, Public Citizen

Coverage

  • Borrower-Defense Rule Saved by Trump Veto but Still Faces Fight in Court | Inside Higher Ed

    June 1, 2020

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  • Lawsuit Challenges Trump Administration Toughening of Student Loan Cancellation Rules | NY Daily News

    March 2, 2020

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  • Senate Might Rebuke DeVos on Borrower Defense | Inside Higher Ed

    February 28, 2020

    Read More