Judge Gives Final Approval To Settlement Forgiving $6 Billion In Student Loans

Over 200,000 federal student loan borrowers included in a class action lawsuit will have their federal student loans forgiven as a result of a settlement that has been given final approval by the judge overseeing the case. Borrowers included in the settlement will have their loans completely forgiven.

The settlement is between Department of Education (ED) and the two organizations representing borrowers in the case, the Project on Predatory Student Lending (PPSL) and Housing and Economic Rights Advocates (HERA). In addition to the more than 200,000 who will be eligible to have their loans canceled immediately, more than 60,000 borrowers will receive decisions on whether their loans will be forgiven in the coming months.

The case, Sweet v. Cardona, centered on allegations that over 150 colleges and universities defrauded students by promising earning and employment outcomes they knew they could not deliver. The settlement will forgive over $6 billion in federal student loans.

Judge Alsup of California’s Northern District gave preliminary approval for the settlement in early August this year, saying at the time that the settlement was “fair, reasonable, and adequate to the members of the class.” Now that the settlement has been granted final approval, ED can begin discharging loans for the borrowers included in the class.

In a statement, Eileen Connor, President and Director of the Project on Predatory Student Lending, said, “This is a life-changing and long-awaited win for our clients who have fought tirelessly in this case. It immediately delivers certainty and relief to borrowers who have been waiting years for a fair resolution of their borrower defense claims.”

Several of the 150 colleges listed in the settlement (Lincoln Educational Services Corporation, American National University, Everglades College, Inc., and The Chicago School of Professional Psychology) tried to intervene in the case, arguing that their due process rights were being violated because they were included in the 150 named institutions without the ability to respond to the accusations against them. Judge Alsup decided those claims were invalid. None of the colleges included in the settlement will be held liable for the loans being forgiven.

There is still a possibility that the colleges who objected to the settlement will appeal the settlement decision to the 9^th circuit, which could prevent ED from starting to cancel loan for students included in the settlement.

The case was a class-action suit brought in 2019 by PPSL on behalf of seven borrowers. The case focused on delays in processing what are known as borrower defense to repayment (BD) claims. The BD process provides a way for students who are defrauded by an institution to have their loans forgiven if it is clear the institution did not provide the education it promised students when recruiting them.

From 2015-2019 the students represented in the suit filed BD claims against their former universities, asserting that the institutions they attended falsely promised high-quality education, excellent training, and well-paid jobs waiting for them after graduation. Until the end of 2016, ED had been processing these claims, approving almost 28,000 of them.

Processing of BD claims ground to a halt under the Trump administration. Under former Secretary DeVos, ED refused to process any BD claims for more than a year, leaving claims in limbo for as long as four years. In the spring of 2020, ED started issuing blanket denials of BD claims using form letters. The Biden administration will withdraw those blanket denials as part of the settlement.

Miguel Cardona, Secretary of Higher Education, welcomed the settlement, saying “Since day one, the Biden Harris team has not stopped fighting for borrowers. We are pleased with yesterday’s borrower defense court decision approving the settlement, which will provide billions of dollars of relief to over 200,000 borrowers. It will also resolve plaintiffs’ claims in a fair and equitable manner.”

The loan forgiveness that students in the class are eligible for is separate from the Biden administration’s decision to forgive up to $20,000 in student loans for eligible federal loan borrowers. The ongoing lawsuits that have prevented the administration’s debt relief plan from moving forward will not impact borrowers included in this settlement.

The settlement marks a huge win for borrowers defrauded by their schools and the advocates who fought for them for years.