Judge Prevents More Delays For 200,000 Borrowers Expecting Debt Cancellation

Over 200,000 federal student loan borrowers included in a class action lawsuit settlement will have their federal student loans forgiven. The forgiveness comes as a result of a settlement that can now move forward after Judge William Alsup, the federal judge presiding over the case, denied a motion from some of the colleges named in the suit that would have prevented the settlement from moving forward while the schools appealed. Borrowers included in the settlement may see notices of cancellation as early as this week.

The settlement is between the 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). 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 give the education it promised students when recruiting them.

The case, Sweet v. Cardona, centered on allegations that over 150 colleges and universities defrauded students by promising earning and employment outcomes the settlement says that schools were unable to deliver.

Processing of BD claims ground to a halt under the Trump administration, with borrowers facing massive delays for their claims to be reviewed. 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.

Judge Alsup granted final approval in the case in November of 2022, but several colleges, American National University, Everglades College, and Lincoln Educational Services, all appealed in an attempt to block the settlement. As a result, members of the class who studied at one of the three intervening colleges will have their loan cancellation delayed for at least seven days to give the colleges a chance to seek a stay from the 9^th circuit court of appeals.

Borrowers who attended any of the other 148 schools named in the settlement will see relief from their student loans.

Judge Alsup wrote in his decision: “Resolution of a lawsuit concerning monumental delay should not be delayed any longer by three intervenor schools who were not parties to the settlement agreement and who were not in the long, hard-fought litigation that preceded it.”

In addition to the 200,000 class members who will have their loans canceled, another 64,000 borrowers will see their applications for cancellation given a streamlined review. A further 250,000 borrowers who submitted claims after June 2022 but before final approval was granted in the case will have their cases reviewed, and may also be eligible for loan cancellation.

“This decision delivers a massive, long-overdue victory for our clients and validates the fact that this settlement is on solid legal ground,” said Eileen Connor, President and Director of the Project on Predatory Student Lending. “Now, hundreds of thousands of people and families who have been held hostage by the borrower defense process for so long will finally receive a fair resolution and the justice they are owed. We’re so proud of our clients for staying in this fight and overcoming countless hurdles along the way. We will continue to stand with them, including those who attended one of the intervenor schools, until the end.”

The settlement marks a huge win for borrowers defrauded by their schools and the advocates who fought for them for years. Revised and more borrower-friendly BD rules will go into effect in July this year. The new rules are intended as an improvement to the current regulations.