Government Cancels $ 6 Billion Student Loans for Deceived Borrowers

About 200,000 former students attending schools they say cheated them will be canceled $ 6 billion in federal loans under a comprehensive settlement announced Wednesday, the Biden administration’s latest move to tackle the student loan crisis by eliminating some debt.

Those who applied for relief – in part over the past seven years – will have their loans written off if they attend one of the more than 150 schools named in the class action settlement, almost all of which are for -profit colleges and vocational programs. The deal reverses 128,000 denial notices – called by federal judges as “disturbing Kafkaesque” – sent to aid seekers during the Trump administration.

Many of the schools included in the placement are not operating. It includes large networks such as the Art Institute and other campuses operated by the Dream Center, whose operations collapsed abruptly in 2019, and which are owned by the Career Education Corporation. The latter, at its peak, enrolled tens of thousands of students in more than 100 locations. The agreement also includes several colleges that are still operating, including the University of Phoenix, Grand Canyon University and DeVry University.

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

The Department of Education granted exemption to applicants from schools included in the agreement “based on strong indications of gross misconduct by listed schools, whether credible or in some proven circumstances,” according to a settlement paper filed with the U.S. District Court for the North . California County. The borrower’s loan will be completely written off, and any payments they make will be refunded.

The deal, which must be approved by a federal judge, was greeted with cheers and relief by borrowers. “This is probably the sexiest thing I’ve ever seen in a long time!” one was posted in a Facebook group. “My school is listed as a bad actor and my debts will be written off.”

The deal is a big step toward solving a problem that spans three presidential administrations: many demands for help from students attending for -profit schools that burden them with huge bills for primary education.

State and federal crackdowns a decade ago led to enforcement actions against some of the industry’s most notorious operators, pushing some leading chains into bankruptcy. But even after school is gone, the debts incurred by their former students remain.

The Obama administration is trying to address the problem by updating a federal program called borrower advocacy to repay, which allows those who attend schools that violate state consumer protection laws or commit serious misconduct to eliminate their federal student loans.

However, Betsy DeVos, education secretary under President Donald J. Trump, froze the program, calling it a “free money” grant. Ms. DeVos allowed hundreds of thousands of claims to be filed; in his last year in office, officials made massive denials.

The Biden administration revived its borrower defense program and used it earlier this month to eliminate nearly $ 6 billion in loans for 580,000 borrowers attending Corinthian College, a large chain that closed in 2015 after widespread allegations of illegal recruitment tactics. It also provides borrower defense claims at half a dozen or so other schools.

But massive denials under Ms. DeVos remain, as well as a line of tens of thousands of pending aid applications, most of them years old. Wednesday’s deal would eliminate the denials, treating them as if it never happened. The agreement also promises to resolve all applications that are not granted automatically – for those involving schools that are not on the settlement list – within six to 30 months.

“This important proposed settlement will provide answers and reassurance to borrowers who have long struggled to get a fair settlement for their borrower’s defense claims after being cheated by their school and ignored or even rejected by their government,” said Eileen Connor, the company’s director. . Predatory Student Loan Project, representing the borrower in the case.

The waiver of the agreement is primarily limited to those who file borrower defense applications on or before June 22, 2022. The Department of Education must now decide whether it will approve future claims from students attending schools allegedly acting illegally.

Mr. Biden is still pondering a bigger 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 increased the debate among his advisers about the wisdom of such a move.

Theresa Sweet, one of the plaintiffs named in the class action lawsuit, said she was stunned to achieve what she considered justice after years of stress and, as settlement discussions progressed, “a roller-coaster ride with a sense of certainty the process would be ruined. ”

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

“I hope the experience of every class member will be proof that fighting for your rights is something you shouldn’t be afraid to do,” he said in an email. “It’s been too long a journey, but I think we’re finally in the place we’ve needed all this time.”

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