The government will cancel $ 6 billion in student loans to deceived borrowers

About 200,000 former students who went to schools they said had defrauded them will have $ 6 billion in federal loans canceled during a comprehensive settlement announced Wednesday, the latest step by the Biden administration to resolve the student loan crisis by eliminating some debt.

Those who applied for emergency aid – some as long as seven years ago – would have their loans canceled if they went to one of more than 150 schools mentioned in the settlement of class actions, almost all of which are for-profit schools and vocational schools . The deal overturns 128,000 denial notices – which a federal judge called “unsettling Kafkaesque” – sent to aid seekers under the Trump administration.

Many of the schools included in the settlement are out of order. They include big chains like the art institutes and other campuses run by Dream Center, whose activities abruptly collapsed in 2019, and those owned by Career Education. The latter enrolled at its highest tens of thousands of students at more than 100 locations. The agreement also includes a few colleges that are still in operation, including the University of Phoenix, Grand Canyon University and DeVry University.

Education Minister Miguel Cardona called the agreement “fair and equitable for all parties.”

The Department of Education granted exemption to applicants from the schools included in the agreement “based on strong evidence of material fraud by listed schools, whether credibly alleged or in some cases proven,” according to the settlement papers filed with the U.S. District Court for the Northern District of California. These borrowers’ loans will be completely eliminated and any payments they have made will be refunded.

The deal, which requires the approval of a federal judge, was met with cheers and relief from borrowers. “This is probably the sexiest I’ve seen in a long time!” one posted in a Facebook group. “My school is listed as a bad actor and my debt will be wiped out.”

The deal is a major step toward solving a problem that had stretched across three presidential administrations: a host of relief demands from students attending profit-making schools that burdened them with big bills for a subordinate education.

A state and federal crackdown ten years ago led to enforcement action against some of the industry’s most notorious operators, pushing several prominent chains into bankruptcy. But even after the schools disappeared, the debt incurred by their former students remained.

The Obama administration sought to address the issue by updating a federal program called Loan Defense for Repayment, which allows those who went to schools that violated state consumer protection laws or otherwise committed serious misconduct to have their federal student loans removed.

However, Betsy DeVos, the education secretary under President Donald J. Trump, froze the program, calling it a “free money” giveaway. Ms. DeVos allowed hundreds of thousands of claims to pile up; in her last year in office, officials rejected mass denials.

The Biden administration revived the borrower defense program and used it this month to wipe out nearly $ 6 billion in loans to 580,000 borrowers who went to Corinthian Colleges, a major chain that closed in 2015 after widespread allegations of illegal recruitment tactics. It also gave borrowers defense requirements of half a dozen or so other schools.

But the mass rejections under Mrs DeVos remained, as well as a queue of tens of thousands of pending relief applications, many of them years old. Wednesday’s agreement would wipe out the rejections and treat them as if they had never happened. The agreement also promises to resolve all applications that are not automatically granted – for those involving schools that are not on the conciliation list – within six to 30 months.

“This significant proposed settlement will provide answers and security to borrowers who have fought long and hard for a fair settlement of their borrower’s defense claims after being cheated by their schools and ignored or even rejected by their government,” said Eileen Connor, director for Project on Predatory Student Lenning, which represented borrowers in the case.

The relaxation of the agreement is mainly limited to those who have submitted a borrower defense application on 22 June 2022 or earlier. The Ministry of Education must now decide whether it will approve future claims from students who went to the schools which it has said have acted illegally.

Mr. Biden is still considering a major decision: whether to use executive action to fulfill a campaign promise to cancel $ 10,000 in federal student loan debt for all borrowers. High inflation has intensified a debate among his advisers about the rationale of such a move.

Theresa Sweet, one of the plaintiffs named in the class action, said she was shocked to achieve what she considered fair after years of stress, and as the conciliation negotiations progressed, “the roller coaster ride of feeling confident that the process would fall apart. “

Ms. Sweet graduated in 2006 from the Brooks Institute of Photography, a for-profit school owned by Career Education that closed in 2016. Saddled with debt from a program that promised students lucrative careers but offered them some real training or support, she struggled for graduation to earn a living.

“I hope the experience of each class member will serve as proof that fighting for your rights is something you should never be afraid to do,” she said in an email. “It’s been too long a road, but I think we’re finally where we should be all the time.”

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