Settlement to forgive $6 billion in student loans for defrauded college students

The Biden administration has agreed to cancel $6 billion in student loans for an estimated 200,000 former students who say their colleges cheated them, according to a proposed Trump-era lawsuit settlement.

The agreement, filed Wednesday in San Francisco federal court, would automatically void federal student debt for students who were enrolled at one of more than 150 colleges and then applied for debt relief due to alleged school misconduct.

Nearly all participating schools are for-profit colleges. The list includes DeVry University, the University of Phoenix, and other networks that are still active, as well as many that have closed in recent years, including the ITT Institute of Technology.

Education Minister Miguel Cardona said in a statement that the settlement would settle the claims “in a fair and equitable manner for all parties.”

The deal has yet to be approved by a federal judge. Consideration of the proposal is scheduled for July 28.

If approved, it would be a major step in the Biden administration’s efforts to eliminate the backlog of claims filed under the Borrower Protection Program, which allows students to erase their federal loans if their schools make false advertising claims or otherwise mislead them.

The class-action lawsuit was originally filed by seven former students who alleged that President Donald Trump’s education secretary, Betsy DeVos, deliberately stalled the borrower’s defense process when she rewrote its rules. At the time of filing the claim for more than a year, the final decision on the claims was not taken.

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When a department led by DeVos began to decide on claims a few months later, he issued tens of thousands of denials, often with no explanation. At the time, the judge overseeing the case criticized DeVos for the “rapid pace” of refusals, saying her approach “puts borrowers on display.”

Tens of thousands of borrowers were still in limbo when the Biden administration took over and began settlement talks in 2021, according to court documents. The latest federal data shows that there are more than 100,000 borrower protection claims pending.

Under the proposed settlement, anyone who attended an eligible school and applied for cancellation as of Wednesday will receive a full write-off of their federal student loans and interest. They will also be reimbursed for past payments on these loans.

An additional 68,000 plaintiffs who did not attend eligible schools will receive a “summary review” of their claims. The oldest claims will be dealt with first and the most recent will be resolved within 2 years.

All borrowers who were involved in DeVos’ barrage of rejections will be canceled and their claims treated as if they were pending from the date they were originally filed.

The Predatory Student Loan Project, which represented the students in the lawsuit, said the agreement would help create a “fair, fair and efficient future borrower.”

“This important proposed settlement will provide answers and reassurance to borrowers who have fought long and hard to get a fair settlement of their claims in defense of the borrower after being deceived by their schools and ignored or even rejected by their government,” said Eileen Connor, Project Director.

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Borrower protection claims are usually considered on a case-by-case basis, but the Department of Education chose to grant automatic revocation in this case due to “general evidence of institutional misconduct” at the schools in question, per the agreement.

Under the agreement, some schools already had evidence of “substantial wrongdoing”, while others were included due to the high volume of lawsuits coming from their former students.

The borrower protection process was initiated by Congress in 1994 but was rarely used until the collapse of the Corinthian Colleges network in 2015. The for-profit company closed its campuses due to widespread fraud, prompting thousands of students to apply for debt relief.

This prompted the Obama administration to expand the program and create clearer rules. This became the centerpiece of the administration’s efforts to crack down on for-profit colleges that lied or used heavy pressure tactics to enroll students. Students at Corinthian and other networks said they entered the job promising they would get high-paying jobs, only to graduate with few job prospects.

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Earlier this month, the Biden administration agreed to write off federal student debt for everyone who attended the Corinthian school from the company’s founding in 1995 until its collapse two decades later. The action will write off $5.8 billion of debt for more than 560,000 borrowers, the largest single write-off in the history of the Department of Education.

The settlement complements the administration’s efforts to write off student debt for certain groups of borrowers. He has written off billions of additional dollars of debt from other former commercial college students, as well as borrowers with severe disabilities and those who work in the public service.

Biden also faced growing pressure to write off student debt en masse. The White House recently signaled it was considering canceling the $10,000, but a decision has yet to be made.

© 2022 The Associated Press. All rights reserved.

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