Finance

Settlement would forgive $6B for defrauded college students

Miguel Cardona

The Biden administration has agreed to cancel $6 billion in student loans for about 200,000 former students who say they were defrauded by their colleges, according to a proposed settlement in a Trump-era lawsuit.

The agreement filed Wednesday in San Francisco federal court would automatically cancel federal student debt for students who were enrolled at one of more than 150 colleges and later applied for debt cancellation because of alleged misconduct by the schools.

Almost all the schools involved are for-profit colleges. The list includes DeVry University, the University of Phoenix and other chains still in operation, along with many that have folded in recent years, including ITT Technical Institute.

Education Secretary Miguel Cardona said in a statement that the settlement would resolve the claims “in a manner that is fair and equitable for all parties.”

The deal has yet to be approved by a federal judge. A hearing on the proposal is scheduled for July 28.

If approved, it would mark a major step in the Biden administration’s efforts to clear a backlog of claims filed through the borrower defense program, which allows students to get their federal loans erased if their schools made false advertising claims or otherwise misled them.

The class-action suit was initially filed by seven former students who argued that President Donald Trump’s education secretary, Betsy DeVos, had intentionally stalled the borrower defense process while she rewrote its rules. When the suit was filed, no final decision had been made on any claims for more than a year.

When the department under DeVos started deciding claims months later, it issued tens of thousands of denials, often without any explanation. At the time, the judge overseeing the case blasted DeVos for the “blistering pace” of rejections, saying her approach “hangs borrowers out to dry.”

Tens of thousands of borrowers were still in limbo when the Biden administration took over and started negotiating a settlement in 2021, according to court documents. The latest federal data shows there are more than 100,000 pending claims for borrower defense.

Under the proposed settlement, anyone who attended an eligible school and applied for cancellation as of Wednesday would get their federal student loans and interest fully forgiven. They would also get refunds for past payments made on those loans.

An additional 68,000 plaintiffs who did not attend eligible schools will get a “streamlined review” of…

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