Student Loans: 2019 Forgiveness Lawsuit Settled and $6 Billion Awarded

Graduation mortar board cap on one hundred dollar bills concept for the cost of a college and university education.
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While the Biden Administration’s sweeping student loan forgiveness program is still blocked after a Texas federal court judge declared it “illegal” last week, there has been some traction in a separate but related case.

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Late Wednesday, Nov. 16, federal Judge William Alsup moved to approve a settlement in an ongoing lawsuit related to the Borrower Defense program. It will award a total of $6 billion to 200,000 borrowers of federal student loan funding.

The class action case, Sweet vs. Cardona (formerly Sweet vs. DeVos), was first filed in 2019 when Donald Trump was president. It accuses the Education Department during his term (led by former Secretary Betsy DeVos) of “failing to process their Borrower Defense to Repayment applications,” reports Business Insider. Of course, that position is now held by Miguel Cardona, hence the change in the case’s name.

The Borrower Defense program was first instituted by the government in late 2016, per Inside Higher Ed, allowing borrowers who believed they were “defrauded” by their college or university the chance to file for having their student loans dismissed.

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As noted by Forbes, claimants were able to seek federal student loan cancelation if they could prove they “were misled into enrolling or remaining enrolled at an institution through misrepresentations or false promises about key aspects of their program.” That might have been related to job prospects, the admissions process or transferring credits from previous schools where they were enrolled. 

However, the class-action lawsuit came after Trump’s administration had delayed or denied eligible applications without cause, and because it was never settled, it carried over into the Biden era once he took office in 2021. 

This week’s ruling approving the settlement offered by the current White House (originally introduced in June) is being hailed as a “landmark” decision, says Forbes as it’s one of the biggest agreements to date awarding refunds and cancelation to student loan holders. 

“This order finds all class members, including our named plaintiffs, have properly asserted a real and concrete injury arising from the Secretary’s [DeVos] alleged unlawful handling of their borrower-defense claims,” Alsup stated regarding his decision. “The injury is two-fold. The Secretary’s improper delay and suspension of processing claims for debt relief has directly led to a specific economic injury to each class member. Unlawful delay of debt relief results in clear monetary harm.”

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Under this latest provision, anyone who filed a Borrower Defense application by June 22 of this year and attended one of the 12 institutions deemed by the government as fraudulent will be getting money back.

As well, 64,000 additional applicants who did not attend the 12 culpable institutions but have a solid case filed, will have their paperwork looked at and approved or denied on a rolling basis with strict deadlines; if the government doesn’t meet these key dates, the borrower will also have full loan relief or refunds. 

An advocacy group, Project on Predatory Student Lending says on their website, “Within one year of the effective date of the settlement agreement, these class members will have their outstanding loans relating to these schools fully discharged and will receive refunds of any amounts they previously paid the federal government toward those loans.” They also note that applicable borrowers will see repairs to any damaged credit reports because of the roadblocks with the program.

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This week’s settlement approval has no bearing on President Biden’s 2022 program to offer student loan relief to up to 45 million Americans through one-time payments of $10,000 ($20,000 for Pell Grant holders). However, there is hope that the latest court ruling in favor of borrowers could sway the latest program to be ultimately approved.

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About the Author

Selena Fragassi joined GOBankingRates.com in 2022, adding to her 15 years in journalism with bylines in Spin, Paste, Nylon, Popmatters, The A.V. Club, Loudwire, Chicago Sun-Times, Chicago Tribune, Chicago Magazine and others. She currently resides in Chicago with her rescue pets and is working on a debut historical fiction novel about WWII. She holds a degree in fiction writing from Columbia College Chicago.
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