Government cancels $6 billion in student loans for defrauded borrowers

About 200,000 former students who attended schools they believe defrauded them will see $6 billion in federal loans canceled in a sweeping settlement announced Wednesday, the latest move by the Biden administration to address the crisis student loans by eliminating certain debts.

Those who applied for relief — some as early as seven years ago — will have their loans forgiven if they attend one of more than 150 schools named in the class action settlement, nearly all of which are colleges and programs for-profit professionals. The deal overturns 128,000 denial notices – which a federal judge called “Kafkaesque trouble” – that were sent to relief applicants under the Trump administration.

Many schools included in the settlement are closed. They include big chains like art institutes and other campuses run by the Dream Center, whose operations abruptly collapsed in 2019, and those owned by Career Education. The latter, at its peak, enrolled tens of thousands of students in over 100 locations. The deal also includes a few colleges that are still in operation, including the University of Phoenix, Grand Canyon University, and DeVry University.

Education Secretary Miguel Cardona called the deal “fair and equitable for all parties”.

The Department of Education awarded relief to applicants from the schools included in the agreement “based on strong indications of gross misconduct by the listed schools, whether credibly alleged or in some cases proven”, according to settlement documents filed with the U.S. District Court for the Northern District. from California. The loans of these borrowers will be eliminated entirely and all payments made by them will be refunded.

The deal, which requires federal judge approval, was met with cheers and relief by borrowers. “That’s probably the sexiest thing I’ve seen in a long time!” one posted in a Facebook group. “My school is listed as a bad actor and my debt will be cleared.”

The agreement is a major step toward solving a problem that spanned three presidential administrations: a glut of reparations claims from students who attended for-profit schools that were burdening them with big bills for a poor education.

A state and federal crackdown a decade ago led to enforcement action against some of the industry’s most notorious operators, pushing several top chains into bankruptcy. But even after the schools disappeared, the debts incurred by their former students remained.

The Obama administration tried to address the problem by updating a federal program called Borrower Defense Until Reimbursement, which allows those who attended schools that violated state consumer protection laws or committed serious misdeeds to have their federal student loans eliminated.

However, Betsy DeVos, education secretary under President Donald J. Trump, froze the program, calling it a giveaway of “free money.” Ms. DeVos allowed hundreds of thousands of claims to pile up; during his final year in office, officials produced massive denials.

The Biden administration revived the Borrower Defense Program and used it this month to wipe out nearly $6 billion in loans for 580,000 borrowers who attended Corinthian Colleges, a major chain that closed. in 2015 after numerous allegations of illegal recruitment tactics. It also granted Borrower Defense Requests to half a dozen other schools.

But the massive denials under Ms DeVos remained, along with a queue of tens of thousands of pending relief requests, many dating back years. Wednesday’s deal would erase the denials, treating them as if they never happened. The agreement also promises to resolve any claims that aren’t automatically granted — for those involving schools not on the settlement list — within six to 30 months.

“This momentous settlement proposal will provide answers and certainty to borrowers who have fought long and hard for a fair resolution of their borrower defense claims after being misled by their schools and ignored or even dismissed by their government,” said Eileen Connor, director of the Project on Predatory Student Lending, which represented the borrowers in the case.

Relief from the agreement is primarily limited to those who submitted a Borrower Defense Claim by June 22, 2022. The Department of Education must now decide whether it will approve future claims from students who attended the schools which he believes acted illicitly.

Mr. Biden is still pondering a larger decision: Whether or not to use executive action to deliver on a campaign promise to forgive $10,000 in federal student loan debt for all borrowers. High inflation intensified a debate among his advisers over the wisdom of such a move.

Theresa Sweet, one of the plaintiffs named in the class action, said she was stunned to get what she saw as justice after years of stress and, as settlement talks progressed, the ” rollercoaster ride of feeling that the process would collapse”.

Ms. Sweet graduated in 2006 from the Brooks Institute of Photography, a for-profit Career Education-owned school that closed in 2016. Indebted by a program that promised students lucrative careers but offered them little training or support, she struggled after graduation to earn a living wage.

“I hope each band member’s experience serves as proof that fighting for your rights is something you should never be afraid to do,” she said in an email. “It’s been too long, but I think we’re finally where we needed to be from the start.”


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