A federal judge on Thursday granted preliminary approval of a $6 billion settlement between the Biden administration and student loan borrowers who say they were defrauded by their schools, despite the objection of some for-profit colleges.
The schools are among 153 institutions — many of which are for-profit colleges — that the Education Department identified as having evidence of “substantial misconduct … whether credibly alleged or in some instances proven.” Former students of those schools who applied for debt relief are entitled to full loan forgiveness under the settlement.
U.S. District Judge William Alsup of the Northern District of California is giving the for-profit colleges that have raised objections an opportunity to have their say but ultimately moved the deal a step closer to being finalized.
Borrowers involved in the case will have until Sept. 8 to object to the terms of the deal, which Alsup called a “grand slam, home run” for borrowers.
“This settlement … skips over adjudication and just cancels the loan,” Alsup said during a hearing Thursday. “From the point of view of the class, this is certainly a good enough deal to get preliminary approval.”
If granted final approval, the settlement would resolve a class-action lawsuit filed in 2018 by people who accused the Education Department of ignoring their applications for loan cancellation through a federal program known as borrower defense to repayment.
The agreement will provide automatic relief, including refunds of money paid to the federal agency and credit repair, to some 200,000 people. Another group of about 64,000 borrowers, who attended schools that are not on the department’s list, will receive decisions on their applications on rolling deadlines.
“Given all of the twists and turns in this case … we are going to have to keep pressing this until the ink is dry on the final approval,” said Eileen Connor, director of the Project on Predatory Student Lending, a group representing the borrowers. “I’m wary of people trying to obstruct something that is completely lawful, completely just.”
At Thursday’s hearing, Connor’s colleagues at the Project questioned why the intervening colleges waited until now to show an interest in the case or the claims from their former students. Attorneys for the schools said they should be given a chance to defend themselves against the claims, as is permitted in the Trump administration’s update of the borrower defense rules.
“The parties’ proposed settlement has unfairly impugned the reputations of more than 150 schools, all without the basic procedural fairness to which these schools are entitled under the Department’s own regulations,” said Jason Altmire, president and chief executive of Career Education Colleges and Universities, a lobbying group for for-profit colleges. “We are confident that these schools’ participation in the case will ensure a more just outcome for everyone involved.”
It’s unclear whether Alsup’s tentative ruling on the intervention will have a material impact on the settlement. Although the judge offered the schools a chance to have their say, he questioned the harm posed to the institutions.
“You’ve already gotten the money and spent it,” Alsup told attorneys for the schools. “Unless the U.S. government brings a recoupment [case] against you, you don’t have money to lose.”
In 2020, Alsup rejected an earlier settlement reached with the Trump administration in the case after the Education Department revealed its widespread denials of requests for student debt cancellation.