Settlement would award $6 billion for cheated college students

The Biden administration has agreed to cancel $6 billion in student loans for about 200,000 alumni who say they were cheated 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 enrolled in one of more than 150 colleges who later filed for debt forgiveness over alleged misconduct by the schools.

Almost all participating schools are non-profit colleges. The list includes DeVry University, the University of Phoenix, and other chains that are still in operation, as well as many that have closed in recent years, including ITT Technical Institute.

Education Minister Miguel Cardona said in a statement that the settlement would resolve the claims “in a manner that is fair and equitable to 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 be an important step in the Biden administration’s effort to clear a backlog of claims filed under the Borrower Defense Program, which allows students to have their federal loans canceled if their schools made false advertising claims or have otherwise misled them.

The class action lawsuit was originally filed by seven former students who argued that President Donald Trump’s Education Secretary Betsy DeVos intentionally blocked the borrower defense process while she was rewriting its rules. When the lawsuit was filed, a final decision on claims had not been made in more than a year.

Months later, when the department under DeVos began deciding claims, it issued tens of thousands of denials, often without any explanation. At the time, the judge overseeing the case blasted DeVos for the “breakneck pace” of the rejections, saying their approach “hangs borrowers out to dry.”

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

Under the proposed settlement, anyone attending an eligible school who requested cancellation as of Wednesday would have their federal student loans and interest waived in full. You would also get refunds for previous payments made on these loans.

Another 68,000 plaintiffs who did not attend qualifying schools will receive “streamlined scrutiny” of their claims. The oldest applications will be considered first, while the most recent applications will be decided within 2 1/2 years.

All borrowers caught in DeVos’ spate of denials will have their denials revoked and their claims treated as if they were pending from the date of their original filing.

The Project on Predatory Student Lending, which represented students in the lawsuit, said the agreement will help create “fair, just and efficient terms for future borrowers.”

“This significant proposed settlement will provide answers and reassurance to borrowers who have fought long and hard for a fair settlement of their defense claims after being cheated by their schools and ignored or even rejected by their government,” said Eileen Connor, director of the project .

Borrower defense claims are usually assessed individually, but the Department of Education opted for an automatic nullification in this case based on “general evidence of institutional misconduct” at the schools concerned, the settlement said.

Some schools already had evidence of “serious misconduct,” while others were admitted because of high demands from their former students, according to the deal.

The borrower defense process was initiated by Congress in 1994 but was little used until the collapse of the Corinthian Colleges chain in 2015. The for-profit company shut down its campuses amid widespread fraud findings, prompting thousands of students to seek debt relief.

This prompted the Obama administration to expand the program and create clearer rules. It became central to government efforts to crack down on for-profit colleges that lied or used high-pressure tactics to recruit students. Students at Corinthian and other chains said they enrolled with promises they would get high-paying jobs, only to graduate with few job prospects.

Earlier this month, the Biden administration agreed to forgive federal student debt for anyone who attended a Corinthian school from the company’s inception in 1995 until its collapse two decades later. The measure will eliminate $5.8 billion in debt for more than 560,000 borrowers, the largest single relief in the Department of Education’s history.

The settlement contributes to the administration’s efforts to forgive student debt for certain groups of borrowers. It has paid off billions in additional debt from other alumni for-profit college students, as well as borrowers with severe disabilities and those with government jobs.

Biden also faced mounting pressure to seek mass student debt forgiveness. The White House recently signaled it was considering canceling $10,000, but no decision was made.

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The Associated Press education team is supported by the Carnegie Corporation of New York. The AP is solely responsible for all content.

Collin Binkley, The Associated Press

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