Biden administration agrees to cancel student debt of 200,000 borrowers who say they were defrauded

The class-action lawsuit accused the Trump administration – and later the Biden administration – of illegally delaying for years any action on requests that borrowers had submitted to the Department of Education seeking debt relief.

Under the proposed settlement, 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 lawsuit against one of the 50 colleges, most of them for-profit institutions. These borrowers would also receive a refund of payments already made under the agreement.

Approximately 74,000 of the borrowers are those whose claims were denied in the last few years of the Trump administration. These large-scale denials have sunk a previous settlement in the case after a judge in 2020 criticized the decisions as lacking sufficient explanation and “disturbingly Kafkaesque”. The Biden administration has now agreed to rescind those decisions, in line with the proposed deal.

Eileen Connor, director of the Predatory Student Lending Project at Harvard Law School, which filed the lawsuit, called the proposed settlement an “important” settlement that “will deliver answers and certainty to borrowers who have fought hard for a fair resolution from their borrower. defense claims after being misled by their schools and ignored or even rejected by their government.”

“Not only will this help secure billions of dollars in debt cancellation for defrauded students, it will also outline a borrower defense process that is fair, just and efficient for prospective 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 in automatic relief to approximately 200,000 borrowers and that we believe will resolve the plaintiffs’ claims in a fair and equitable manner for all parties.” . .”

The agreement aims to eliminate the large backlog of “borrower defense” claims that predated the Biden administration but only increased during his tenure.

Repaying the loan in full for about 200,000 borrowers will eliminate about three-quarters of outstanding claims, according to the proposed agreement. The remaining claims – from about 68,000 borrowers – will have to be decided individually by the Department of Education. The Biden administration agreed as part of the deal to resolve the remaining claims within six months to 30 months, depending on how long the claim is pending.

It is unclear whether the Department of Education will attempt to recoup any part of the cost of forgiving loans to these institutions or whether department officials have made any findings of misconduct against schools or their owners.

Loan relief as part of the agreement is limited to borrowers who have already filed an application with the Department of Education. A remaining question is whether the agency will take steps to expand relief to borrowers who attended 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 Department of Education would cancel all of the remaining $5.8 billion in student loan debt for 560,000 borrowers who attended the now-defunct network of non-profit schools. Corinthian Colleges – for the same reasons borrowers were defrauded.

But the deal also comes after months of mounting frustrations with the Biden administration’s handling of the backlog of claims that predated his time in office but continued to grow. Two additional processes were filed against the Biden and Cardona administration over the past few months accusing the Department of Education of illegally shutting down claims groups.

Progressives were disappointed that the Biden administration continued to defend itself against the lawsuit challenging the delays. And they were particularly dismayed that the Department of Justice 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 ruled in February, in a 2-1 decision, that DeVos could not be compelled to testify in the case.

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

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

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