Proposed Legal Settlement Would Forgive Student Loans For 200,000 Borrowers

The Department of Education (ED) has agreed to settle a suit that would provide loan forgiveness to 200,000 federal student loan borrowers, most of whom attended for-profit colleges. ED will also agree to a specific timeline to review loan forgiveness claims for another 68,000 borrowers, guaranteeing that their claims will be processed within six months.

In a statement, Education Secretary Miguel Cardona said, “Since day one, the Biden-Harris Administration has worked to address longstanding issues relating to the borrower defense process. 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.”

The case in question was a class-action suit brought in 2019 by the Harvard Project on Predatory Lending. The case centered on delays in processing what is 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 claims.

Processing of BD claims ground to a halt under the Trump administration. Under former Secretary DeVos, the Department of 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 began issuing blanket denials of BD claims using form letters. The Biden administration will withdraw those earlier denials as part of the agreement.

Students in the suit who attended any of fifty schools, including Westwood College, University of Phoenix, and Ashford University, stand to have their loans forgiven because of the agreement if they have filed a claim for BD. In addition, students who have been making payments on their loans will have those payments refunded and any adverse credit history resulting from delinquency or default related to the loans wiped out.

For students who are not in the group receiving automatic loan forgiveness, their loans will be automatically forgiven if ED takes more than six months to review their claim.

The settlement could erase up to $6 billion dollars in student loan debt and comes hard on the heels of the Biden administration forgiving $5.6 billion worth of student loans for 560,000 former Corinthian College students.

A judge will have to approve the final agreement. The plaintiffs in the case have asked for a hearing on July 28 to review the settlement. If approved, the settlement should clear much of the backlog in pending BD claims, providing welcome relief to the students who have been waiting for years to have their claims adjudicated.