Education Department agrees to cancel $6B in loans, part of settlement agreement
Story at a glance
- The U.S. Department of Education agreed to settle a years-long lawsuit over denied borrower defense applications.
- The Department will forgive 100 percent of all loan balances, refund prior loan payments and repair credit histories for about 200,000 borrowers that attended certain for-profit schools.
- Those schools were found to have engaged in misconduct by the Education Department.
After three years of litigation, the U.S. Education Department agreed to settle a lawsuit brought against it regarding billions of dollars in debt forgiveness for hundreds of thousands of borrowers.
The terms of the settlement for Sweet v. Cardona state that the Education Department will immediately approve borrower defense claims for approximately 200,000 borrowers, effectively canceling $6 billion in student loans for students that attended schools that the Department determined engaged in misconduct.
The settlement is divided into two groups: One class consisting of about 200,000 borrowers who took out federal student loans to attend certain schools — the list includes over a dozen different for-profit institutions around the country — who will have their loans fully canceled, receive refunds for prior loan payments and have their credit repaired.
The second class consists of about 64,000 students that took out federal student loans but did not attend a school on the aforementioned list. These students will have their loan cancellation applications considered and get a decision based on how long their application has been pending.
Secretary of Education Miguel Cardona issued a statement upon news of the settlement, saying, “We are pleased to have worked with plaintiffs to reach an agreement that will deliver billions of dollars of automatic relief to approximately 200,000 borrowers and that we believe will resolve plaintiffs’ claims in a manner that is fair and equitable for all parties.”
Sweet v. Cardona was brought by seven students against then-Secretary of Education Betsy Devos in 2019, previously titled Sweet v. Devos, and claimed their loan cancellation applications, known as borrower defense applications, were being ignored by the Education Department.
That’s because in December 2019, the department began issuing formal denial notices to tens of thousands of borrowers who had applied for loan cancellation, with the lawsuit arguing the notices did not contain any real reason for denial.
The lawsuit also included a motion to include more than 900 affidavits from students describing the harm the Department’s inaction had caused — with 96 percent saying their lives were worse than before they attended school.
Later in 2020, the Department sent out an additional round of tens of thousands of denial letters to borrower defense applications, this time stating there was a lack of evidence. A hearing was later held and attended by more than 500 student borrowers and 14 testified about how the settlement and the department had been acting in bad faith by issuing blanket denials without any consideration of their claims.
Students in the lawsuit attended various for-profit colleges, including ITT Technical Institute, Corinthian Colleges, The Art Institutes, the New England Institute of Art, Salter College and more, and claimed these institutions falsely and deceptively promised students high-paying jobs, state of the art vocational training and fulfilling careers.
“This momentous proposed settlement will deliver answers and certainty to borrowers who have fought long and hard for a fair resolution of their borrower defense claims after being cheated by their schools and ignored or even rejected by their government,” said Eileen Connor, director of the Project on Predatory Student Lending.
“It will not only help secure billions of dollars in debt cancellation for defrauded students, but charts a borrower defense process that is fair, just, and efficient for future borrowers.”
The settlement of Sweet v. Cardona comes shortly after the Department made a similar decision by approving $415 million in borrower defense claims from students that attended another group of for-profit colleges, including Devry University, Westwood College, the nursing program at ITT Technical Institute and the criminal justice programs at Minnesota School of Business/Globe University and Corinthian Colleges.
In that instance, the Department also found that each school misled students, including falsely advertising job placement rates and available accreditation programs.
President Biden may soon announce his plan to address the student debt crisis, telling reporters he’s close to a decision on whether he’ll issue blanket debt forgiveness to all student loan borrowers. He previously campaigned on issuing up to $10,00 in forgiveness per borrower.