Education Department agrees to cancel $6 billion in loans, part of settlement agreement
history at a glance
The US Department of Education agreed to settle a year-long legal battle over rejected borrower defense requests.
The ministry will forgive 100 percent of all loan balances, refund past loan payments and repair credit histories for approximately 200,000 borrowers who attended certain for-profit schools.
The Department of Education found that these schools had committed misconduct.
After three years of litigation, the US Department of Education agreed to settle a lawsuit against it and grant approximately $6 billion in debt relief to 200,000 borrowers.
The terms of the settlement for Sweet v. Cardona say the Department of Education will immediately approve borrower defense claims for about 200,000 borrowers, effectively canceling $6 billion in student loans for students who attended schools the department believes have engaged in misconduct.
The settlement is divided into two groups, one class consisting of about 200,000 borrowers who took out federal student loans to attend specific schools -- the list includes over a dozen different for-profit institutions across the country -- whose loans will be canceled in full, with refunds for them get past loan payments and have their credit score repaired.
The second class consists of approximately 64,000 students who have received federal student loans but have not attended a school on the above list. These students will have their loan cancellation applications reviewed and receive a decision based on how long their application has been pending.
Education Minister Miguel Cardona issued a statement following news of the settlement, saying: "We are pleased to have worked with the plaintiffs to reach a settlement that will bring billions of dollars in automatic relief to approximately 200,000 borrowers and by which we believe will solve the plaintiffs' problem. assert claims in a manner that is fair and equitable to all parties.”
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Sweet v. Cardona was brought up by seven students in 2019 against then Secretary of Education Betsy Devos, previously titled Sweet v. Devos carried on, claiming their requests for loan cancellations, known as borrower defense requests, were being ignored by the Department of Education.
That's because in December 2019, the department began issuing formal refusal notices to tens of thousands of borrowers who had requested loan cancellations, with the lawsuit arguing that the notices contained no real reason for the refusal.
The lawsuit also included a request for the recording of more than 900 student affidavits describing the damage the department's inaction has caused - with 96 percent saying their life is worse than it was before they went to school.
Later in 2020, the department sent another round of tens of thousands of letters of denial to borrower defense applications, this time citing a lack of evidence. A hearing was later held, attended by over 500 student borrowers, and 14 testified how the Settlement and the Department had acted in bad faith by issuing blanket denials without considering their claims.
The students in the lawsuit attended various for-profit colleges, including ITT Technical Institute, Corinthian Colleges, The Art Institutes, New England Institute of Art, Salter College and more, alleging that those institutions falsely and fraudulently misappropriated the student promised high-paying jobs, art means professional training and fulfilling careers.
"This significant proposed settlement will provide answers and reassurance to borrowers who have fought long and hard for a fair settlement of their defense claims after being cheated by their schools and ignored or even rejected by their government," said Eileen Connor, director of the project to predatory student lending.
"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."
The settlement in Sweet v. Cardona comes shortly after the department made a similar decision, approving $415 million in debt defense claims from students attending another group of for-profit colleges, including Devry University, Westwood College and the ITT Technical Institute's nursing program and the criminal justice programs at the Minnesota School of Business/Globe University and Corinthian Colleges.
In this case, the ministry also found that each school misled students, including falsely advertising job placement rates and available accreditation programs.
President Biden may soon announce his plan to solve the student debt crisis, telling reporters that he is close to a decision on whether to grant blanket debt forgiveness to all student loan borrowers. He had previously campaigned for forgiveness of up to $10.00 per borrower.
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