Settlement to Cancel $6 Billion in Federal Student Loans

Borrowers who brought a lawsuit against the U.S. Department of Education asserting that they had been defrauded by their colleges may receive $6 billion in relief after a federal judge in San Francisco granted final approval of their settlement agreement on Wednesday.

The class is composed of more than 200,000 student borrowers who attended one of 153 colleges. The lawsuit, Sweet v. Cardona, was based on a federal rule called the borrower defense. The borrower defense allows student borrowers to discharge their federal loans if their school misled them about things such as the school’s selectivity, its rankings, the likelihood that its credits would be accepted by other schools, or its students’ job placement and earning outcomes.

The student borrowers argued that the Department of Education had taken far too long to process their claims and, in some instances, wrongfully denied their claims without considering the merits.

Judge William Alsup spoke to the practical problem the settlement sought to address in his order: “As of now, approximately 443,000 borrowers have pending borrower-defense applications. That is a staggering number. If, hypothetically, the Department’s Borrower Defense Unit had all 33 of its claim adjudicators working 40 hours a week, 52 weeks a year (no holidays or vacation), with each claim adjudicator processing two claims per day, it would take the Department more than twenty-five years to get through the backlog.”

However, critics of the settlement argue that most of the allegations against the schools have not been investigated by the Department of Education and remain unproven.

This settlement stands separate and apart from the Biden-Harris Administration’s one-time student debt relief program (which has been blocked by court order most recently on November 10, 2022).

Additional Reading

Judge rules to erase the student loans of 200K borrowers who say they were ripped off, NPR (November 17, 2022)

200k student borrowers are closer to getting their loans erased after judge’s ruling, NPR (August 5, 2022)

Sweet v. Cardona Order Granting Final Settlement Approval (November 16, 2022)

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