Higher Education Litigation Summary: December 3, 2025

Thompson Coburn's Higher Education Litigation Summary is your resource for legal updates on key rulings and ongoing cases shaping the higher education sector. This installment covers updates related to Gainful Employment, the Bare Minimum Rule, BDR, Student Loan Forgiveness, Title IX, False Claims Act, Nonprofit Institution Status, Federal Funding Freeze, DEI Executive Orders, the Executive Order Directing the Closure of ED, Grant Terminations, Student and Exchange Visitor Program Litigation, and the Legality of Nationwide Injunctions.

This edition highlights important updates in GE Rule and BDR litigation, a new challenge against plans to shift duties away from the Department of Education, and recent developments in ongoing grant litigation.

Gainful Employment

Overview

In October 2023, the U.S. Department of Education ("ED") under the Biden Administration published a new Gainful Employment Rule ("GE Rule"). The GE Rule sets forth metrics that ED uses to measure whether programs are preparing students for "gainful employment in a recognized profession" under the Higher Education Act of 1965, as amended ("HEA"). The GE Rule uses two measures of program value: a debt-to-earnings test that ensures graduates are not left with unmanageable loan payments, and an earnings premium test that compares graduates' incomes to state averages for high school graduates. Programs failing either measure twice within three years lose Title IV eligibility. After a first failure, schools must issue a warning to students disclosing their failure to meet the criteria.

Prior to the GE Rule's July 1, 2024 effective date, the cosmetology school community challenged the GE Rule in two separate lawsuits. American Association of Cosmetology Schoolsv. U.S. Dep't of Ed., No. 23-cv-01267 (N.D. Tex.); Ogle School Management v. U.S. Dep't of Ed., No. 24-cv-00259 (N.D. Tex.). Plaintiffs in both cases argued the GE Rule was unlawful because Congress's definition of "gainful employment" in the HEA did not contemplate ED using debt and earnings metrics. Plaintiffs argued the GE Rule was therefore in "excess of statutory authority" and was "arbitrary and capricious," in violation of the Administrative Procedure Act ("APA"). The court consolidated the two lawsuits in July 2024, and plaintiffs and ED filed competing motions for summary judgment.

Current Status of Litigation

In May 2025, in a surprising turn of events due to President Trump's inauguration, ED filed a reply in support of its motion for summary judgment that defended the Biden-era GE Rule—notwithstanding that ED stripped an Obama-era GE rule from the books in 2019 during the first Trump Administration. ED's reply specifically defended both the financial value transparency framework, which applies to all Title IV-participating programs at all Title IV-participating institutions of higher education, and the gainful employment framework, which applies solely to "gainful employment" programs (non-degree programs at private, non-profit and public institutions, and all programs at proprietary institutions). A detailed analysis of ED's filing is available here.

On October 2, 2025, the court granted ED's motion for summary judgment and upheld the GE Rule. The court concluded that the GE Rule was not in excess of statutory authority because "gainful employment" reasonably means profitable employment. The court also held that the GE Rule was not arbitrary and capricious because ED's reliance on IRS earnings data and chosen debt thresholds was justified, and because ED's cost-benefit analysis—including projected taxpayer savings of $14 billion—was rational. With respect to Constitutional claims asserted by the AACS plaintiffs, the court ruled that they had abandoned their equal protection claim, that the GE Rule did not unconstitutionally burden or compel speech, and that plaintiffs had no property interest in potential Title IV funding.

The plaintiffs filed a notice of appeal on November 24, 2025. See No. 25-11303 (5th Cir.).

Although plaintiffs are appealing the court's ruling to the Fifth Circuit, the GE Rule remains intact nationwide at this time. Institutions should begin preparing now to assess compliance under the debt-to-earnings and earnings premium metrics and to implement the required student warnings.

Bare Minimum Rule

Overview

In October 2023, as part of a broader final rulemaking, ED promulgated the so-called "Bare Minimum Rule" (BMR"). Effective July 1, 2024, the BMR restricted Title IV aid to GE programs that required the minimum hours a state mandates for licensure in a given field. If a program's length exceeded a state's minimum hours, students are ineligible for Title IV aid for that program. The BMR departed from ED's prior "150% Rule" which restricted Title IV aid to GE programs that did not exceed 150% of a state's minimum hours. Two lawsuits challenged the BMR under the APA: 360 Degrees Education, LLC v. U.S. Dep't of Ed., No. 24-cv-00508 (N.D. Tex.); American Massage Therapy Associationv. U.S. Dep't of Ed., No. 24-cv-01670 (D.D.C.).

Current Status of Litigation

In 360 Degrees Education, the Northern District of Texas granted the plaintiffs' motion and entered a nationwide injunction in June 2024. The court held that the BMR was likely "arbitrary and capricious," emphasizing that it "represents a sea-change from thirty years of established practice." The next month, ED announced that it would revert to enforcing the 150% Rule while the injunction remained in place.

In December 2024, ED initiated an administrative proceeding to terminate one of the plaintiffs' Title IV eligibility. After President Trump assumed office, both the administrative proceeding and the lawsuit were stayed. Recently, however, ED dismissed the administrative proceeding.

Meanwhile, in American Massage, plaintiffs AMTA and E D filed cross motions for summary judgment in November 2024. However, the case has been stayed since February 2025, and remains stayed through January 21, 2026. In a July 2025 status report, ED explained that it intends to reconsider the BMR through a negotiated rulemaking process this year.

Following ED's stated plans to reconsider the BMR through negotiated rulemaking, the parties in 360 Degrees in August 2025 jointly requested a continued stay of the case, pending resolution of the rulemaking.

For now, the BMR remains enjoined nationwide and will not be implemented in its current form. The fate of the BMR will likely involve one or more of the following actions:

• ED could reconsider the BMR through negotiated rulemaking, the outcome of which would likely revolve the ongoing litigation.
• ED could withdraw its defense of the BMR and rescind the BMR.
• Congressional legislation could formally nullify the BMR and reinstate the 150% Rule.

Borrower Defense to Repayment

2022 BDR Rule

Overview

In November 2022, ED published a final Borrower Defense to Repayment Rule ("2022 BDR Rule"). The 2022 BDR Rule, pursuant to the HEA, 20 U.S.C. § 1087e(h), created a new adjudication system that provided for ED's assessment of borrower defenses to repayment in administrative proceedings before the borrower's default, and further, provided for ED's assessment of similarly-situated borrowers' defenses on a group basis. The 2022 BDR Rule also established new closed-school loan discharge provisions.

In February 2023, Career Colleges & Schools of Texas ("CCST") challenged the 2022 BDR Rule's borrower defense adjudication and closed-school loan discharge provisions. Career Coll. & Schs. of Texas v. U.S. Dep't of Ed., No. 23-cv-00433 (W.D. Tex.), No. 23-50491 (5th Cir.), No. 24-413 (U.S.). The district court denied CCST's motion for a preliminary injunction, but the Fifth Circuit reversed /strong> in April 2024 and enjoined the challenged provisions on a nationwide basis.

Current Status of Litigation

In October 2024, ED petitioned the Supreme Court to review two issues: (1) whether the Fifth Circuit erred in holding that the HEA does not permit ED's assessment of borrower defenses to repayment before default in administrative proceedings and on a group basis; and (2) whether the Fifth Circuit erred in entering a nationwide injunction. In January 2025, the Supreme Court granted the petition on the first issue only.

On January 24, 2025, ED filed a motion to hold the briefing schedule in abeyance "to allow for the Department to reassess the basis for and soundness of the borrower defense regulations." The Supreme Court granted the motion on February 6, 2025. On May 29, 2025, ED moved to resume briefing, explaining that it intended to defend the 2022 BDR Rule and would argue that the Fifth Circuit erred on the first issue presented.

However, on August 8, 2025, the parties requested to dismiss the petition pursuant to Rule 46, in light of the passage of OBBB, which provided in Section 85001(a) that borrower defense to repayment provisions of the 2022 BDR Rule "shall not be in effect" for loans that originate before July 1, 2035, and which further provided in Section 85001(b) 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." On August 11, 2025, the Supreme Court affirmed dismissal pursuant to Rule 46.

2019 BDR Rule

Overview

In September 2019, ED published the 2019 BDR Rule, which went into effect July 1, 2020. 84 Fed. Reg. 49788. Among other things, the 2019 BDR Rule revised prior standards under the 2016 BDR Rule for borrower defenses to repayment and the process for the assertion and resolution of borrowers' defensive claims. The 2019 BDR Rule also established a three-year limitations period for borrowers to raise defensive claims as part of collection proceedings against them.

Current Status of Litigation

New York Legal Assistance Group sued ED in 2020, claiming the 2019 BDR Rule was arbitrary and capricious, and that the limitations period provision was procedurally invalid, and thus violated the APA. NYLAG v. McMahon, No. 20-cv-01414 (S.D.N.Y.), No. 21-0888 (2nd Cir.). In 2021, a federal district court in New York granted summary judgment to ED on the arbitrary and capricious claims, but ruled that the limitations provision violated the APA because it was not a "logical outgrowth" of ED's notice of proposed rulemaking that preceded it. The district court entered judgment but instead of severing and vacating the limitations provision, remanded to ED "for further proceedings." NYLAG appealed to the Second Circuit.

The Second Circuit in 2024 partially remanded to the district court and directed it to consider whether it could sever and vacate the limitations provision while leaving the rest of the 2019 BDR Rule in tact. In March 2025, the district court severed and vacated the limitations provision in an amended judgment. NYLAG then reinstated its appeal from the district court's ruling denying its arbitrary and capricious claims.

Following the Second Circuit's request, in September 2025 ED argued that NYLAG, however, contended in response that OBBB merely "restored" and "revived" the status quo as of July 1, 2020; in other words, NYLAG argues that Congress did not "ratify" and "codify" the 2019 BDR Rule into law, such that its challenge to the 2019 BDR Rule as arbitrary and capricious remains a "live controversy." ED on November 25 filed a supplemental letter brief responding to NYLAG, and requesting that the Second Circuit either vacate the district court's amended judgment or, alternatively, remand the matter to the district court. ED maintained that the 2019 BDR Rule was "codified" by Congress in OBBB, noting that Congress's decision to incorporate the 2019 BDR Rule into statute by reference had the effect of placing it beyond the reach of arguments challenging it as arbitrary, capricious, or contrary to law under the APA.

2016 BDR Rule

Overview

In a separate case related to BDR, students sued ED for failing to process borrower defense claims under the 2016 BDR Rule. Sweet v. Cardona, No. 19-cv-3674(N.D. Cal.), No. 23-15049 (9th Cir.). The 2016 BDR Rule, which set standards for student borrowers to assert claims based on institutional misconduct, faced delays after ED, under the first Trump administration, paused adjudication of claims. In June 2022, a settlement was reached between ED and a class of students who attended 151 schools that were identified as having likely engaged in substantial misconduct, resulting in $6 billion in debt discharges for these students. Four schools opposed the settlement, but the court approved it, finding that ED had statutory authority to settle the students' claims under 20 U.S.C. § 1082(a).

Current Status of Litigation

Three of the four schools appealed the settlement approval order, but in November 2024, the Ninth Circuit dismissed their appeal, ruling the schools lacked prudential standing. In December 2024, one of the appealing schools, Everglades College, petitioned the Ninth Circuit for rehearing en banc. ED opposed the petition. On May 21, 2025, the Ninth Circuit denied the petition. On October 17, 2025, Everglades petitioned the U.S. Supreme Court for a writ of certiorari. ED's response to the petition is currently due December 22, 2025.

Meanwhile, back in the district court, ED has recently sought an extension of its deadline to adjudicate the BDR applications of student borrowers who were not part of the class when the settlement agreement was reached in June 2022, but who later submitted BDR applications, and which, per the settlement agreement, ED is required to adjudicate by January 2026. ED explained that the size of this "post-applicant class" is far larger than the parties had anticipated and that it simply will not be able to process all their applications by January 2026. It therefore requested an extension of this deadline through July 2027. The district court is expected to address the extension request soon.

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