Proposed legal settlement would forgive student loans for 200,000 borrowers

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The Department of Education (ED) has agreed to settle a lawsuit that would grant loan forgiveness to 200,000 federal student loan borrowers, most of whom attended for-profit colleges. ED will also agree to a specific timeline to review loan forgiveness applications from another 68,000 borrowers, ensuring that their applications will be processed within six months.

In a statement, Education Secretary Miguel Cardona said, “From day one, the Biden-Harris administration has worked to address long-standing issues with the borrower defense process. We are pleased to have worked with the plaintiffs to reach an agreement that will provide billions of dollars in automatic relief to approximately 200,000 borrowers and which we believe will resolve the plaintiffs’ claims in a fair and equitable manner for all parts.

The case in question was a class action lawsuit filed in 2019 by the Harvard Project on Predatory Lending. The case involved delays in processing so-called Borrower Defense Until Reimbursement (BD) claims. The BD process offers students who have been defrauded by an institution a way to have their loan canceled if it is clear that the institution has not provided the education it promised students when they recruited them.

From 2015 to 2019, the students represented in the lawsuit filed BD claims against their former universities, claiming the institutions they attended falsely promised high-quality education, excellent training, and well-paying jobs awaiting them afterward. obtaining their diploma. Through the end of 2016, ED was processing these applications, approving nearly 28,000 applications.

Processing of BD claims came to a halt under the Trump administration. Under former Secretary DeVos, Ed’s department refused to process any BD claims for over a year, leaving the claims in limbo for four years. In the spring of 2020, ED began issuing blanket denials of BD claims using form letters. The Biden administration will withdraw those earlier denials as part of the deal.

Lawsuit students who attended one of fifty schools, including Westwood College, University of Phoenix and University of Ashford, risk having their loans canceled as a result of the deal if they filed a claim for BD. Additionally, students who have made payments on their loans will have those payments refunded, and any adverse credit history resulting from default or default related to the loans will be erased.

For students who are not part of the group receiving automatic loan forgiveness, their loans will be automatically canceled if the ED takes longer than six months to review their application.

The settlement could erase up to $6 billion in student loan debt and comes harshly after the Biden administration forgave $5.6 billion in student loans to 560,000 former Corinthian College students.

A judge will have to approve the final deal. The plaintiffs in the case have requested a July 28 hearing to review the settlement. If approved, the settlement should eliminate much of the backlog of pending BD claims, providing welcome relief to students who have been waiting years for their claims to be adjudicated.

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