Biden administration agrees to forgive student debt for 200,000 borrowers who say they were defrauded

The class action lawsuit accused the Trump administration — and later the Biden administration — of unlawfully delaying for years any action on the applications borrowers filed with the Department of Education for debt relief.

Under the proposed deal, which still needs to be approved by a judge, the Biden administration would forgive the student loan debts of hundreds of thousands of borrowers who have already filed a claim against one of 50 colleges, most for profit. These borrowers would also receive a refund of payments they have already made under the agreement.

About 74,000 of the borrowers are those whose applications had been denied during the final years of the Trump administration. These large-scale denials scuttled a previous settlement in the case after a judge 2020 blasted the rulings as lacking sufficient explanation and “disturbingly Kafkaesque”. The Biden administration has now agreed to reverse those decisions, according to the proposed settlement.

Eileen Connor, director of the Harvard Law School’s Predatory Student Loans Project, which filed the lawsuit, called the proposed settlement a “momentary” settlement that “will provide answers and certainty for borrowers who have fought long and hard for a fair resolution of their borrower defense claims after being deceived by their schools and ignored or even rejected by their government.

“This will not only help secure billions of dollars in debt forgiveness for defrauded students, but will map out a borrower defense process that is fair, just and effective for future borrowers,” Connor said in a statement.

Education Secretary Miguel Cardona said in a statement that he was pleased to have reached “an agreement that will provide billions of dollars in automatic relief to approximately 200,000 borrowers and which we believe will resolve the plaintiffs’ claims in a manner that is fair and equitable to all parties”. .”

The deal aims to eliminate the large backlog of “borrower defense” claims that predated the Biden administration, but only grew during his tenure.

Full loan discharges for about 200,000 borrowers will clear about three-quarters of pending claims, according to the proposed settlement. The remaining claims – from around 68,000 borrowers – will have to be decided individually by the Department of Education. The Biden administration agreed as part of the agreement to resolve those remaining claims within six to 30 months, depending on how long the claim is pending.

It is unclear whether the Department of Education will seek to recoup some of the cost of canceling the loans from these institutions or whether department officials have made any findings of misconduct against the schools or their owners.

Loan relief under the settlement is limited to borrowers who have already filed an application with the Department of Education. A remaining question is whether the agency will take steps to extend relief to borrowers who attended schools concurrently but did not file borrower defense claims.

The proposed settlement follows Vice President Kamala Harris’ announcement earlier this month that the Department of Education would forgive all of the remaining $5.8 billion in student loan debt for 560,000 borrowers who attended the now defunct Corinthian Colleges for-profit school chain – on the same grounds that borrowers were defrauded.

But the deal also comes after months of incremental frustrations over how the Biden administration handled the backlog of claims that predated his tenure but have continued to grow. Two additional chases were filed against the Biden and Cardona administration in recent months, accusing the Department of Education of illegally blocking advocacy groups.

Progressives were disappointed that the Biden administration continued to defend itself against the lawsuit challenging the delays. And they were especially appalled that the Justice Department sided with lawyers for former Education Secretary Betsy DeVos in arguing that DeVos should not be required to testify in the case.

The 9th Circuit Court of Appeals ruled in February in a 2-1 decision that DeVos could not be compelled to sit for a deposition in the case.

The appeals court ruled that the DeVos education department acted in bad faith by denying large amounts of loan forgiveness requests, but ruled the case did not meet the high standards to compel the testimony from a former Cabinet Secretary.

The Ministry of Education and the plaintiffs in the case have asked the judge handling the case to hold a July 28 hearing on the settlement.