Biden Administration Will Cancel Student Debt of 200,000 Borrowers Defrauded by Colleges
The Biden administration said it will cancel the federal student loan debt of about 200,000 borrowers who claimed their schools cheated them. The announcement followed a class action lawsuit filed in federal court on Wednesday.
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The settlement could pay off more than $6 billion in student loan debt, according to Politico. It could also spell the end of a long-running legal battle questioning the U.S. Department of Education's handling of its "borrower defense" law, which entitles federal borrowers to debt relief when their colleges mislead or otherwise defraud them.
The lawsuit accused the Trump administration and then the Biden administration of spending years illegally delaying action on borrower applications filed with the Department of Education seeking debt relief.
The proposed agreement has yet to be approved by a judge. In that case, the Biden administration would forgive the student loan debt of about 200,000 borrowers who have already filed a lawsuit against one of the top 50 most for-profit colleges. These borrowers would also be reimbursed for payments they have already made under the agreement.
According to Eileen Connor, director of Harvard Law School's Project on Predatory Student Lending, who filed the lawsuit, the proposed settlement represents a "meaningful" step in the fight to help borrowers defend themselves against fraud.
"Not only will it help secure billions of dollars in debt relief for cheated students, but it will also provide a fair, just and efficient borrower defense process for prospective borrowers," Connor said in a statement.
Education Secretary Miguel Cardona also welcomed the settlement, saying in a statement that it "will bring billions of dollars in automatic relief to approximately 200,000 borrowers and that we believe plaintiffs' claims will be resolved in a fair and equitable manner for all parties."
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The agreement also aims to clear the large backlog of defense claims by borrowers. As Politico noted, the full loan relief for about 200,000 borrowers will wipe out about three-quarters of pending receivables. The Ministry of Education must decide individually on the remaining claims, which affect around 68,000 borrowers.
As part of the deal, the Biden administration agreed to resolve the remaining claims within six to 30 months, depending on how long a request was pending.
The deal comes as President Biden weighs a broader plan to forgive millions of borrowers all or part of the federal student loan debt. Though an official announcement may not come until July or August, the White House is reportedly leaning toward a $10,000-per-borrower cancellation plan, CNBC reported this week.
Meanwhile, at a roundtable Wednesday with Sen. Elizabeth Warren (D-Massachusetts) and union leaders, Senator Majority Leader Chuck Schumer (D-New York) said Biden was "open" to a loan forgiveness plan.
Some lawmakers, including Schumer, want Biden to increase the forgiveness amount to $50,000 per borrower. But they will have a hard time convincing others to go along with it, including Republicans who are strongly opposed to any form of federal student-loan forgiveness.
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This article originally appeared on GOBankingRates.com: Biden administration to cancel student debt of 200,000 college-cheated borrowers
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