Biden administration agrees to cancel student debt of 200K borrowers who say they were defrauded

The class-action lawsuit accused the Trump administration — and then the Biden administration — of illegally delaying for years any action on the applications that borrowers had filed with the Education Department seeking debt relief.

Under the proposed agreement, 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 of them for-profit institutions. Those borrowers would also receive a refund of payments they already made under the agreement.

Approximately 74,000 of the borrowers are those whose claims had been denied in the final years of the Trump administration. Those large-scale denials scuttled an earlier settlement in the case after a judge in 2020 blasted the decisions as being without sufficient explanation and “disturbingly Kafkaesque.” The Biden administration has now agreed to rescind those decisions, according to the proposed settlement.

Eileen Connor, director of Harvard Law School’s Project on Predatory Student Lending, which brought the lawsuit, called the proposed settlement a “momentous” agreement that “will deliver answers and certainty to borrowers who have fought long and hard for a fair resolution of their borrower defense claims after being cheated by their schools and ignored or even rejected by their government.”

“It will not only help secure billions of dollars in debt cancellation for defrauded students, but charts a borrower defense process that is fair, just, and efficient for future borrowers,” Connor said in a statement.

Education Secretary Miguel Cardona said in a statement that he was pleased 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 agreement is aimed at eliminating the large backlog of “borrower defense” claims that predated the Biden administration but has only grown larger during its time in office.

The full loan discharges for about 200,000 borrowers will wipe out about three-quarters of the pending claims, according to the proposed settlement. The remaining claims — from about 68,000 borrowers — will have to be decided individually by the Education Department. The Biden administration agreed as part of the deal to resolve those remaining claims within six months to 30 months, depending on how long the application has been pending.

It’s not clear if the Education Department will seek to recoup any of the cost of forgiving the loans from those institutions or whether department officials have made any findings of misconduct against the schools or their owners.

The loan relief as part of the settlement is limited to borrowers who have already filled an application with the Education Department. A remaining question is whether the agency will take steps to expand the relief to borrowers who attended the schools at the same time but did not file borrower defense claims.

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

But the deal also comes after months of progressive frustrations with how the Biden administration has address the backlog of claims that predated their time in office but have continued to grow larger. Two additional lawsuits have been filed against the Biden administration and Cardona over the past several months accusing the Education Department of illegally stalling on groups of claims.

Progressives were disappointed that the Biden administration has continued to defend against the lawsuit challenging the delays. And they were particularly dismayed that the Justice Department sided with attorneys for former Education Secretary Betsy DeVos in arguing that DeVos should not be required to testify as part of the case.

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

The appeals court ruled that the DeVos Education Department had acted in bad faith in denying large batches of applications for loan forgiveness, but it ruled that the case did not meet the high standard to compel the testimony of a former Cabinet secretary.

The Education Department and the plaintiffs in the case have asked the judge overseeing the case to hold a July 28 hearing on the settlement.

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