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California lawsuit leads Biden Education Department to erase $6 billion in debt for 200,000

McClatchy Washington Bureau logo McClatchy Washington Bureau 6/24/2022 Gillian Brassil, McClatchy Washington Bureau

A group of federal student loan borrowers agreed on Wednesday night to settle a class-action lawsuit they filed against the United States Education Department.

If approved, the settlement will cancel $6 billion in federal loans for roughly 200,000 people who attended schools that were deemed to have defrauded students or otherwise flouted certain state laws.

An additional approximately 64,000 borrowers who did not attend one of the 153 named schools will get a timely review of their situations to see whether they can have their loans wiped too.

“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,” Education Secretary Miguel Cardona said in a statement on Wednesday.

Students who can show their schools misled them or otherwise engaged in misconduct or violated certain state laws may be eligible for what is called a borrower defense loan repayment.

The rule was first added in the 1990s and expanded at the end of the Obama administration after the demise of for-profit education conglomerates Corinthian Colleges and ITT Tech.

The repayments were essentially halted under former President Donald Trump when then-Secretary of Education Betsy DeVos attempted to block them. After a court ruled against her, she narrowed eligibility, and allowed the backlog of applicants to mount. In her final year, DeVos’ department sent out mass denials to borrowers.

The Biden Education Department under Cardona returned to the Obama-era rule.

Seven named plaintiffs filed the lawsuit in the U.S. District Court for the Northern District of California in San Francisco on June 25, 2019. They later updated the case to seek relief for everyone awaiting a decision on their borrower defense application.

They said that the Department of Education had failed to review any borrower defense applications for over a year and that the agency’s inaction “unlawfully withheld or unreasonably delayed” borrower defense decisions. The Higher Education Act requires the department to decide and resolve claims in a timely manner, they said.

Plaintiffs said that the Education Department’s “alleged policies of delay ... left them in a state of indefinite limbo, unsure of whether or when they would need to repay their federal student loans or how they could prove their entitlement to” borrower defense relief, according to their settlement agreement.

“On the day I graduated college, I never imagined that I would find myself locked in a nearly 20-year battle for justice against a for-profit education company that defrauded me, and against the federal government for failing to protect me from this fraud,” Theresa Sweet, one of the named plaintiffs who attended the defunct Brooks Institute, said in a statement.

“More than a quarter million defrauded students have been waiting far too long for justice that should have come without delay, but for which we instead had to fight tooth and nail.”

‘Sham process’

Before the settlement is approved, the court must review it, hear from members of the class action and set a hearing date, according to Harvard University’s Project on Predatory Student Lending, which represented the students along with the California’s Housing and Economic Rights Advocates.

The 264,000 people are applicants who had their borrower defense statuses pending as of June 22, 2022. It includes anyone who received a form denial notice between 2019 and October 2020; form denials will be rescinded, per the PPSL.

The about 200,000 people who attended one of listed schools are receiving automatic relief — a full erasure of their loans, refund of what they paid and credit repair. The approximately 64,000 people who did not attend one of these schools but are awaiting a decision should have their cases resolved in a timely manner in the order in which they applied.

All of the students’ loans will remain in forbearance with zero interest until they get settlement relief or a denial of cancellation that they are allowed to appeal.

Lawyers said reviewing documents through the class-action lawsuit showed that DeVos’ Department of Education created a “sham process designed to deny borrowers debt relief regardless of evidence,” leading plaintiffs to add to their complaint in March 2021, per the PPSL release.

Among the schools on the list is Ashford University, a former for-profit institution that was bought by the University of Arizona in 2020. In March 2022, after California’s attorney general sued the university and its parent company in 2017, a San Diego judge ruled that the online university misled students to get them to enroll.

California Attorney General Rob Bonta called upon the Department of Education to cancel Ashford students’ loans following the ruling.

The settlement follows just weeks after the Education Department announced its intent to wipe out $5.8 billion in federal loan debt for 560,000 former students of Corinthian Colleges, a defunct for-profit university conglomerate bankrupted as a result of an investigation and lawsuit by Vice President Kamala Harris when she was California’s attorney general.

©2022 McClatchy Washington Bureau. Visit mcclatchydc.com. Distributed by Tribune Content Agency, LLC.

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