Government cancels $6 billion in student loans for defrauded borrowers

About 200,000 former students who attended schools they said they defrauded will cancel $6 billion in federal loans under a sweeping settlement announced Wednesday, in the Biden administration’s latest move to tackle the student loan crisis by canceling some debt.

Those who applied for relief — some of them seven years ago — will have their loans canceled if they attend one of the more than 150 schools named in the class action settlement, nearly all of which are for-profit colleges and professional programs. The deal invalidates 128,000 denial notices — which a federal judge called “annoying Kafkaesque” — that had been sent to relief applicants during the Trump administration.

Many of the schools included in the settlement are out of business. They include large chains such as other polytechnics and campuses operated by Dream Center, which suddenly collapsed operations in 2019, and those owned by Career Education. The latter, at its peak, enrolled tens of thousands of students in more than 100 locations. The deal also includes a few colleges that are still operating, including the University of Phoenix, Grand Canyon University and DeVry University.

Education Minister Miguel Cardona described the deal as “fair and equitable to all parties”.

The Department of Education granted relief to applicants from schools included in the deal “based on strong indications of significant misconduct by listed schools, whether credibly alleged or substantiated in some cases,” according to settlement papers filed with the US District Court for the Northern District of California. These borrowers’ loans will be canceled in full, and any payments they have made will be refunded.

The deal, which required approval by a federal judge, was well received by borrowers. “This is probably the sexiest thing I’ve seen in a long time!” One of them was posted to a Facebook group. “My school is listed as a bad actor and my debts will be eliminated.”

The agreement represents a major step toward resolving a problem that has stretched across three presidential administrations: a glut of relief claims from students who attended for-profit schools have burdened them with huge bills for substandard education.

A state and federal crackdown a decade ago led to enforcement action against some of the industry’s most famous operators, driving several high-profile chains into bankruptcy. But even after the schools disappeared, the debts incurred by former students remained.

The Obama administration has tried to address the problem by modernizing a federal program called Borrower Repayment Defense, which allows those who attended schools that violated state consumer protection laws or committed serious crimes to cancel federal student loans.

However, Betsy DeVos, Secretary of Education under President Donald J. Trump, has frozen the program, calling it a “free money” grant. Ms. DeVos has allowed hundreds of thousands of claims to accumulate; In her final year in office, officials launched mass denials.

The Biden administration revived its borrower defense program and used it this month to clear nearly $6 billion in loans for 580,000 borrowers who attended Corinthian colleges, a large chain that closed in 2015 after widespread allegations of illegal recruiting tactics. Borrower defense claims have also been granted in six or so other schools.

But mass exile under Mrs. DeVos, as well as a waiting list of tens of thousands of pending relief requests, is still years old. Wednesday’s deal would eliminate denials, treating them like they never happened. The deal also pledges to automatically resolve all non-grant applications — those that include schools not on the settlement list — within six to 30 months.

said Eileen Connor, director of the Predatory Student Lending Project Management, which represented the borrowers in the case.

The deal relaxation is primarily limited to those who filed a borrower defense application on or before June 22, 2022. The Department of Education must now decide whether to approve future claims from students who attended schools it said acted illegally.

the master. Biden is still contemplating a larger decision: whether to use executive action to fulfill a campaign promise to cancel $10,000 in federal student loan debt for all borrowers. High inflation has intensified the debate among his advisers about the wisdom of such a move.

Teresa Sweet, one of the plaintiffs named in the class action, said she was shocked to achieve what she saw as Adalah after years of tension, and as settlement talks progress, “a ride filled with a sense of confidence that the process will collapse.”

Ms. Sweet graduated in 2006 from the Brooks Institute of Photography, a for-profit school owned by Career Education that closed in 2016. Debt-burdened by a program that promised students lucrative careers but offered them little to no actual training or support, Sweet has struggled yet Graduation for a living wage.

“I hope each class member’s experience serves as proof that fighting for your rights is something you should never be afraid of,” she said in an email. “It’s been quite a long way to go, but I think we’re finally where we needed to be all along.”

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