Student Debt: Lawsuit Challenges Denial of Loan Discharges After School Closures

Kendrick Gaussoin carries a debt of nearly $22,000 without a degree, a burden he has managed for a decade after his photography program at Brooks Institute in Ventura, Calif., shut down in August 2016. The closure left him and other students with loans but no clear path to a diploma. He now expects to have his debt erased, but a new lawsuit filed in federal court claims the U.S. Department of Education is blocking that relief.

Student Defense, a nonprofit borrower advocacy group, filed the complaint Wednesday. The suit argues that the Trump administration is illegally refusing to apply the full rules of the federal closed school discharge program. This program has required the secretary of education to cancel debts for qualified borrowers whose schools close suddenly for more than three decades.

The legal dispute centers on a change in eligibility rules made in January 2025. James Kvaal, then the department's undersecretary, expanded the look-back window for borrowers at specific closed institutions, including Brooks. Under this order, borrowers who were enrolled as of May 6, 2015, became eligible for discharge and a refund of past payments. Gaussoin, who had taken an eight-month leave of absence in December 2015, fell within this new window.

Gaussoin applied for the discharge on August 23, 2026. A week later, on August 31, the department denied his request. The denial letter stated that he did not meet the traditional pre-2025 eligibility requirements. The department is citing the standard rule that borrowers must have been enrolled at the time of closure or left no more than six months prior.

Education Department spokesperson Ellen Keast said the agency stands by its implementation of the program. In a statement, she described the previous administration's expansion as an unlawful policy that shifted debt onto taxpayers. Keast noted that the change was made just days before the former undersecretary left office.

Bonnie Latreille, a former official in the office of Federal Student Aid, called the new stance legally questionable. She noted that the secretary has the authority to expand the eligibility window, as Education Secretary Betsy DeVos did in 2019 for other closed schools. Latreille said the department instructed her in 2025 not to process discharges under the expanded rules without approval from the incoming team.

The Government Accountability Office reported that more than 1,100 colleges closed between 2010 and 2020. Those closures left 246,000 borrowers eligible for discharge under the traditional rules. Gaussoin’s mother, Christine, also owes about $28,000 from Parent PLUS loans. Her application for discharge was also denied this month.

Gaussoin works for an online retailer and supports a family of four. He described the last decade as a struggle to survive on minimum wage while carrying the cost of an education that ended abruptly. The lawsuit seeks to force the department to process claims according to the 2025 order rather than the older, stricter guidelines.