Court Approves $6 Billion In Student Loan Forgiveness For 200,000 Borrowers To Resolve Lawsuit – Forbes

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Secretary of Education Miguel Cardona testifies before a Senate Health, Education, Labor, and … [+] Pensions Committee hearing, Thursday, Sept. 30, 2021 on Capitol Hill in Washington. (Shawn Thew/Pool via AP)
A federal court has approved a landmark settlement that will lead to an estimated $6 billion in student loan forgiveness for over 200,000 borrowers.
The settlement between the Biden administration and a class of student loan borrowers to resolve claims of delayed or unprocessed loan forgiveness applications is one of the most sweeping agreements to date to resolve disputed student debt. The victory for borrowers follows recent legal setbacks over other, unrelated federal student loan forgiveness initiatives.
Here’s what borrowers should know.
The newly-approved settlement will resolve Sweet v. Cardona, a class-action lawsuit initiated by student loan borrowers years ago during the Trump administration. The class of borrowers alleged that the Education Department, under former Secretary Besty DeVos, failed to process and approve thousands of applications for student loan forgiveness under Borrower Defense to Repayment, or arbitrarily denied them.
The Borrower Defense program provides federal student loan cancellation for borrowers who can show that they were misled into enrolling or remaining enrolled at an institution through misrepresentations or false promises about key aspects of their program. This can include misrepresentations about admissions criteria, the ability to transfer credits to other institutions, or job prospects.
The lawsuit, as well as further allegations in court filings well after the suit had commenced, alleged that the Education Department had wrongfully delayed processing applications (leaving many borrowers in limbo for years), or issued blanket denials without adequate review. The lawsuit continued against the Biden administration following the 2020 election.
Under the terms of the approved settlement agreement, over 200,000 federal student loan borrowers who had submitted Borrower Defense applications by June 22, 2022, and who attended an approved list of dozens of individual schools, will be approved for student loan forgiveness. “Within one year of the effective date of the settlement agreement, these class members will have their outstanding loans relating to these schools fully discharged and will receive refunds of any amounts they previously paid the federal government toward those loans,” according to an FAQ page set up by the Project on Predatory Student Lending, one of the organizations representing the class of borrowers. Borrowers will also have their damaged credit repaired.
An additional 64,000 borrowers who borrowed to attend schools that are not on the approved list, but whose Borrower Defense applications were delayed by the Education Department, will receive decisions on their applications within rolling deadlines, based on how long their application has been pending. If the Department does not meet any of the deadlines in the approved settlement agreement, these borrowers will automatically get full settlement relief.
In addition, the Department of Education will rescind all Borrower Defense denials that it issued between December 2019 and October 2020.
Borrowers who submitted Borrower Defense applications between June 22, 2022 and November 16, 2022 (when the settlement was approved) will be considered post-class applicants, and may still be entitled to some benefits under the settlement. “Post-Class Applicants will receive decisions on their applications within 36 months of the final approval date of the settlement,” according to the FAQ page. “If the Department fails to provide a decision during that time period, then [borrowers] will receive the same relief as if [they] were a class member in the decision group who did not receive a timely decision (loan discharge, refund, and credit repair).”
“This is a life-changing and long-awaited win for our clients who have fought tirelessly in this case,” said Eileen Connor, president and director of the Project on Predatory Student Lending, in a statement. “It immediately delivers certainty and relief to borrowers who have been waiting years for a fair resolution of their borrower defense claims. Throughout this case, our clients exposed a fundamentally broken borrower defense system and the urgent need for reforms to hold predatory schools accountable. We are proud that this settlement with the Department of Education will help chart a more fair and accountable process for borrowers.”
“We are pleased to have worked with plaintiffs to reach an agreement that will deliver billions of dollars of automatic relief to approximately 200,000 borrowers and that we believe will resolve plaintiffs’ claims in a manner that is fair and equitable for all parties,” said Education Secretary Miguel Cardona in a statement in June when the settlement proposal was first announced.
Importantly, the relief provided by the approved Borrower Defense settlement is entirely distinct from President Joe Biden’s one-time student loan forgiveness initiative, which has been blocked by multiple federal courts. The Biden administration had relied on the HEROES Act of 2003 to establish that one-time loan debt cancellation program.
“President Biden’s recent announcement of broad-based loan cancellation under the HEROES Act will not change class members’ entitlement to relief under the settlement, even if the HEROES Act cancellation would cover their entire loan balance,” says the settlement FAQ page. “Likewise, recent court decisions concerning HEROES Act cancellation will not affect the distribution of relief under the settlement.”
Borrowers can learn more about the Sweet v. Cardona settlement here.
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