Miguel Cardona speaks after President-Elect Joe Biden announced his nomination for Education ... [+]
A settlement agreement that would grant loan forgiveness to over 200,000 federal student loan borrowers has been granted preliminary approval. Judge William Alsup of California’s Northern District ruled that the settlement was “fair, reasonable and adequate to the members of the class.”
The case, Sweet v Cardona, centers on allegations that over 150 colleges and universities defrauded students by promising earning and employment outcomes they knew they could not deliver. The settlement will forgive over $6 billion in federal student loans if given final approval.
“Preliminary approval is an important milestone for this settlement and for our clients, bringing us one step closer to finally delivering certainty to borrowers who have fought long and hard for a fair resolution of their borrower defense claims.,” Eileen Connor, President and Director of the Project on Predatory Student Lending (PPSL
Now that preliminary approval has been granted, the Department of Education (ED) will begin notifying the class members of the settlement. Members of the class will have until September 8, 2022, to submit comments on the settlement to the court.
The case in question was a class-action suit brought in 2019 by PPSL on behalf of seven student loan borrowers. The case centered on delays in processing what is known as Borrower Defense to Repayment (BD) claims. The BD process provides a way for students who are defrauded by an institution to have their loans forgiven if it is clear the institution did not provide the education it promised students when recruiting them.
From 2015-2019 the students represented in the suit filed BD claims against their former universities, asserting that the institutions they attended falsely promised high-quality education, excellent training, and well-paid jobs waiting for them after graduation. Until the end of 2016, ED had been processing these claims, approving almost 28,000 claims.
Processing of BD claims ground to a halt under the Trump administration. Under former Secretary DeVos, the Department of Ed refused to process any BD claims for more than a year, leaving claims in limbo for as long as four years. In the spring of 2020, ED began issuing blanket denials of BD claims using form letters. The Biden administration will withdraw those earlier denials as part of the settlement.
Several schools (Lincoln Educational Services Corporation , American National University, Everglades College, Inc., and The Chicago School of Professional Psychology), filed to intervene in the case, noting their disagreement with the settlement. The schools attempting to intervene claim the settlement will violate their due process rights and also wish to ensure they are not held financially responsible for any forgiven loans.
The schools attempting to intervene in the case tried to claim that their rights are being abrogated by the decision. Jesse Panuccio, representing Everglades College, said “They are taking our entire set of rights. We have to protect ourselves”. This argument was met with skepticism from Alsup, who said, “you are the luckiest guy in the room. You get all that money, and you don't have to pay it back,” he said. “It’s a proceeding where the government forgives the loans and it gives you the opportunity to give your two cents before you go down that road. I don’t see much harm to you.”
Alsup has given colleges until August 25 to file any additional motions to intervene in the case but has not ruled on any of the current requests from colleges to join in the case.
ED has said that the schools named in the settlement will not be held financially accountable for loans forgiven. ED has said it intends to use its settlement authority to forgive the loans rather than borrower defense to simplify and speed up the forgiveness process.
Students who attended the institutions named in the case but who had not filed a BD claim before June 22, 2022, are not included in the settlement. However, students who attended one of the colleges named in the case can file for BD before the case is given final approval. Under the terms of the settlement, students who apply for BD between June 22, 2022, and when the settlement is given final approval will be notified of decisions on their claims within 36 months of the settlement agreement’s final approval date.
Alsup has set a date of November 3 for a hearing on the final approval of the case.
