The Education Department will erase about $6 billion of student-loan debt for borrowers who argued in a class-action lawsuit the agency ignored their claims for loan cancellation, public officials announced.
Under the proposed settlement, the department will immediately approve thousands of applications filed by people who claimed they were defrauded by their colleges, resolving a three-year-old case between the government and borrowers.
The settlement is divided into two groups: One class consisting of about 200,000 borrowers who took out federal student loans to attend certain schools, the list includes over a dozen different for-profit institutions around the country, who will have their loans fully canceled, receive refunds for prior loan payments and have their credit repaired.
The second class consists of about 64,000 students that took out federal student loans but did not attend a school on the list. These students will have their loan cancellation applications considered and get a decision based on how long their application has been pending.
In a statement, Education Secretary Miguel Cardona said the Biden administration has worked to address issues regarding the “borrower defense to repayment” process, designed to provide federal loan forgiveness to students whose colleges lied to get them to enroll.
“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,” Cardona said.
Students in the lawsuit attended various for-profit colleges, including ITT Technical Institute, Corinthian Colleges, The Art Institutes, the New England Institute of Art, Salter College and more, and claimed these institutions falsely and deceptively promised students high-paying jobs, state of the art vocational training and fulfilling careers.
“This momentous proposed settlement will deliver answers and certainty to borrowers who have fought long and hard for a fair resolution of their borrower defense claims after being cheated by their schools and ignored or even rejected by their government,” said Eileen Connor, director of the Project on Predatory Student Lending.
“It will not only help secure billions of dollars in debt cancellation for defrauded students, but charts a borrower defense process that is fair, just, and efficient for future borrowers.”
In 2020, the Trump administration proposed a settlement agreement that included a promise to process 170,000 debt cancellation claims within a year-and-a-half. A federal judge, however, rejected that proposal.
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