Department of Education to write off $6 billion debt for defrauded borrowers

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The Department of Education will write off about $6 billion in student loan debt for borrowers who argued in a class action lawsuit that the agency ignored their loan forgiveness requests, public officials said.

Under the proposed settlement, the department will immediately approve thousands of applications filed by people claiming to have been defrauded by their colleges, resolving a three-year-old case between the government and borrowers.

In a statement, Education Secretary Miguel Cardona said the Biden administration has been working to resolve 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 the plaintiffs to reach an agreement that will provide billions of dollars in automatic relief to approximately 200,000 borrowers and which we believe will resolve the plaintiffs’ claims in a fair and equitable manner for all parties,” Cardona said. .

Education Department to erase $5.8 billion in Corinthian Colleges student debt

The agreement between the department and the borrowers will provide automatic relief, including reimbursement of amounts paid to the federal agency and credit repair, according to the Project on Predatory Student Lending, a legal organization that represents former students. This will affect 200,000 people who attended schools the department says were at fault.

Another group of about 64,000 borrowers, who took out loans to attend schools not on the department’s Dishonored Schools list, will get decisions on their Borrower Defense Loan applications in rolling timelines, a indicated the legal organization in a press release.

Eileen Connor, director of the legal group, said the settlement will not only benefit defrauded borrowers, but also prospective students.

“This landmark settlement proposal will provide answers and certainty to borrowers who have fought long and hard for a fair resolution of their defense claims after being misled by their schools and ignored or even dismissed by their government,” Connor said. in a press release. “This will not only help secure billions of dollars in debt forgiveness for defrauded students, but will map out a borrower defense process that is fair, just and effective for future borrowers.”

Among the schools the department has identified as having evidence of “institutional misconduct” — many of which are for-profit colleges — include the University of Phoenix, Capella University and Brooks Institute, according to the settlement agreement.

“We are deeply concerned that, in its haste to respond to outside political pressure, the U.S. Department of Education is attempting to approve broad swathes of claims without regard to individual merit,” said Jason Altmire, president. and CEO of Career Education Colleges and Universities. a lobby group for for-profit colleges, said in a statement. “The Department has an obligation to take a more measured approach to determining whether each student has suffered financial harm due to an unlawful act. The Court should carefully review the settlement agreement to ensure that it is fair to all parties involved.

A court will then review the proposed settlement and set a hearing date before the settlement is approved.

The collapse of for-profit chains Corinthian Colleges and ITT Technical Institute has led to a wave of demands for debt relief.

Under the Donald Trump administration, Education Secretary Betsy DeVos declined to approve or deny applications, saying more time was needed to review the process created by the Barack Obama administration. The demands piled up before DeVos decided to grant partial debt relief, which led to a lawsuit by former Corinthian students in 2019.

DeVos said the lawsuit slowed down the system. But the borrowers argued it had nothing to do with their demands and took legal action against the secretary.

In 2020, the Trump administration offered a settlement deal that included a promise to process 170,000 debt forgiveness claims within a year and a half. A federal judge, however, rejected this proposal.

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