200,000 student-loan borrowers closer to $6 billion in debt cancellation

200,000 student-loan borrowers closer to $6 billion in debt cancellation

Thousands of student-loan borrowers defrauded by for-profit schools just got one step closer to getting their debt wiped out.

Borrowers who believe they were defrauded by a school can file a “borrower defense to repayment” claim, which gives those borrowers debt relief if they can prove a school’s wrongdoing. But under former President Trump’s Education Secretary Betsy DeVos, those claims ran up a backlog and left many borrowers dealing with debt burdens that could have been eligible for discharge, prompting Harvard Law School’s Project on Predatory Student Lending to file a lawsuit in 2019 against DeVos. 

Last summer, while the conflict was still unresolved under the previous administration, President Joe Biden’s Education Department revealed that it had reached a settlement with borrowers who were defrauded for $6 billion in relief — and Federal Judge William Alsup gave preliminary approval to that settlement last week, calling it a “grand slam” for borrowers.

Preliminary approval

“Preliminary approval is a critical step in this settlement, bringing us one step closer to providing justice to borrowers who have fought long and hard for a fair resolution of their borrower defense claims,” Eileen Connor, president of the Project on Predatory Student Lending, said in a press release. “”I’m pleased to announce that we obtained an important victory for our clients and their families in the case of Cintron v. United States, which was filed in 2019. This case stems from the fact that a lot of individuals had already been waiting years with no replies, and harm has only increased over time. As always, our priority is serving our clients, and we look forward to assisting them in obtaining the justice they deserve.”

Following the preliminary approval, Education Department staff began mailing letters to borrowers informing them of the opportunity to submit comments on the proposed settlement until September 8. Alsup is tentatively giving several motions to intervene in the agreement filed by for-profit colleges who claimed they would not have a chance to respond to borrower defense claims, damaging their reputations.

Jason Altmire, president and CEO of Career Education Colleges and Universities — which represents for-profit institutions — said in a statement that he is “pleased” Alsup is allowing schools to intervene.

“The parties’ proposed settlement has unfairly impugned the reputations of more than 150 schools, all without the basic procedural fairness to which these schools are entitled under the Department’s own regulations,” Altmire said.

The department wiped out $5.8 billion in student debt

Biden swooped in to aid defrauded students following the Obama administration’s Department of Education released a report on for-profit colleges. Biden took office on January 20, and his Education Department has taken a number of steps to help students cheated by for-profit institutions. The department wiped out $5.8 billion in student debt for all remaining borrowers defrauded by Corinthian College — the most significant debt discharge it had yet completed. That followed smaller discharges, such as those from ITT Technical Institutes and DeVry University.

If the settlement is approved, it will be significant for the 200,000 borrowers who have been waiting a long time for relief. However, Biden is also considering $10,000 in relief for millions of federal student loan borrowers, according to reports. He is scheduled to reveal his intentions before August 31, as well as his decision on whether to extend the payment pause on student loans beyond September 30.