The Biden administration has agreed to cancel $6 billion in student loans for some 200,000 former students who say they were conned by their colleges, according to a settlement proposed in a Trump-era lawsuit.
The agreement filed Wednesday in San Francisco federal court will automatically cancel federal student debt for students enrolled in one of more than 150 colleges and then file for debt cancellation for alleged misconduct by the school.
Nearly all of the schools involved are for-profit colleges. The list includes DeVry University, the University of Phoenix and other chains still operating, along with many that have gone out of business in recent years, including the ITT Technical Institute.
Education Minister Miguel Cardona said in a statement that the settlement would resolve the claims “in a manner that is fair and equal for all parties.”
The deal has not yet been approved by a federal judge. A hearing on the proposal is scheduled for July 28.
If approved, it would mark a major step in the Biden administration’s efforts to clear the backlog of claims filed through its borrower defense program, which allows students to have their federal loans written off if their school makes false advertising claims or misleads them.
The class-action lawsuit was originally filed by seven former students who argued that President Donald Trump’s education secretary, Betsy DeVos, had intentionally stopped the borrower’s defense process when she rewrote the rules. When the lawsuit was filed, no final decision was made on any claims for more than a year.
When the department under DeVos began deciding claims months later, it issued tens of thousands of denials, often without any explanation. At the time, the judge overseeing the case lashed out at DeVos for the “scorching move” of rejection, saying its approach “hanged borrowers dry.”
Tens of thousands of borrowers were still in limbo when the Biden administration took over and began negotiating a settlement in 2021, according to court documents. The latest federal data shows there are more than 100,000 pending claims in the defense of borrowers.
Under the proposed settlement, anyone who attends an eligible school and files for cancellation on Wednesday will get a federal student loan and their interest fully forgiven. They will also get a refund for past payments made on the loan.
An additional 68,000 plaintiffs who did not attend an eligible school will receive a “simplified review” of their claim. The oldest claims will be reviewed first, while the newest will get a decision within 2½ years.
All borrowers caught in the confusion of DeVos having their refusal be revoked and their claim will be treated as if they had been pending from the date it was originally filed.
The Predator Student Loan Project, which represents students in the lawsuit, said the agreement would help create “fair, equitable and efficient use of future borrowers.”
“This important proposed settlement will provide answers and reassurance to borrowers who have fought long and hard for a fair settlement of their borrowers’ defense claims after being conned by their schools and ignored or even rejected by their government,” said Eileen Connor, project director.
Borrowers’ defense claims are usually reviewed on an individual basis, but the Department of Education decided to grant an automatic cancellation in this case because of “general evidence of institutional misconduct” at the school in question, according to the settlement.
At some schools, there was already evidence of “substantial misconduct,” while others were included because of the high rate of claims coming in from their former students, according to the agreement.
The borrower defense process was initiated by Congress in 1994 but was rarely used until the collapse of the Corinthian College chain in 2015. The non-profit company closed its campus amid findings of widespread fraud, prompting thousands of students to apply for debt cancellations.
That led to the Obama administration expanding the program and making clearer rules. This is at the heart of the government’s efforts to crack down on nonprofit colleges that lie or use high-pressure tactics to recruit students. Students at Corinth and other chains said they applied with the promise that they would land a high-paying job, only to graduate with few job prospects.
Earlier this month, the Biden administration agreed to cancel the federal student debt for anyone who attended Corinthian schools from the company’s founding in 1995 until its collapse two decades later. The move would write off $5.8 billion in debt to more than 560,000 borrowers, the largest single debit in Department of Education history.
The settlement adds to the administration’s efforts to cancel student debt for certain groups of borrowers. It has wiped out billions of additional dollars in debt from other former student nonprofits, along with borrowers with severe disabilities and those with jobs in the public service.
Biden is also facing increasing pressure to pursue student debt cancellations en masse. The White House recently hinted that it was considering canceling $10,000, but no decision has been reached.
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