A federal court approved a settlement between the Department of Education and around 200,000 student loan borrowers on Wednesday for $6 billion in loan relief, as the borrowers argued the department was taking too long to process applications claiming the borrowers were defrauded by their colleges.
Federal Judge William Alsup gave a final ruling in the Sweet v. Cardona case, formerly called the Sweet v. DeVos case because the lawsuit was brought during the Trump administration.
The borrowers, represented by the Project on Predatory Student Lending (PPSL) and Housing and Economic Rights Advocates, filed the lawsuit back in 2019 in the United States District Court for the Northern District of California.
The lawsuit was filed as the borrowers argued their applications for the borrower defense program were not getting addressed by the Department of Education.
Borrower defense applications are intended for borrowers who believe they have been defrauded by their schools and are looking for a partial or full discharge of the federal student loan debt they have.
Alsup said in his decision that the “program set up by Congress has devolved into an impossible quagmire,” pointing out it would take the Education Department more than 25 years to get through backlogged applications if they had all their borrower defense employees working a full work week with no holidays all year long.
The settlement on Wednesday includes a full discharge of loans, refunds and credit repairs for around 200,000 borrowers with borrower defense applications who went to certain schools. Around 64,000 borrowers who did not attend the agreed-upon schools have to have their applications processed within a certain time frame, or they will get automatic relief as well.
“This is a life-changing and long-awaited win for our clients who have fought tirelessly in this case. It immediately delivers certainty and relief to borrowers who have been waiting years for a fair resolution of their borrower defense claims,” Eileen Connor, president and director of PPSL, said in a statement.
“Throughout this case, our clients exposed a fundamentally broken borrower defense system and the urgent need for reforms to hold predatory schools accountable. We are proud that this settlement with the Department of Education will help chart a more fair and accountable process for borrowers,” Connor added.
Career Education Colleges and Universities (CECU), which represents many of the more than 150 schools on the settlement list, released a statement calling the decision an “unlawful overreach” and saying it “unfairly maligns” the schools without a chance for them to defend themselves.
The judge says the schools are not losing their right to due process, as they “cannot be held liable for any remedial measures absent proceedings initiated specifically against them” in the settlement and none of the schools will lose money from the agreement.
“Moreover, the settlement does not constitute a successful or approved borrower-defense claim, a position maintained by both the class and Secretary (see Dkt. No. 300). Therefore, no recoupment action could be initiated in any event as a result of the settlement,” Alsup wrote.
PPSL emphasized this settlement will not be affected by any decision other courts make on the Biden administration’s broad student loan forgiveness announcement in August for all borrowers.
Education Secretary Miguel Cardona said in a statement on Thursday that he is “pleased” with the settlement for the borrowers.
“It will also resolve plaintiffs’ claims in a fair and equitable manner. Going forward, the Department of Education will continue to strengthen oversight and enforcement for colleges that misled students and work to uphold the Biden-Harris Administration’s commitment to helping students who have been harmed,” Cardona said.
CECU’s president and CEO, Jason Altmire, says he doesn’t expect this settlement will be approved by a higher court.
“We expect that the Ninth Circuit on appeal will recognize these fatal flaws and send the parties back to the negotiating table,” he said in a statement.