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Judge grants final approval of $6 billion student loan settlement

A class-action lawsuit filed in 2018 accused the Education Department of ignoring applications for loan forgiveness through a federal program known as borrower defense to repayment. (iStock)

About 200,000 student loan borrowers who say they were defrauded by their colleges will soon have their debts automatically canceled after a federal judge granted final approval of a $6 billion settlement Wednesday.

The agreement resolves a class-action lawsuit filed in 2018 by people who accused the Education Department of ignoring their applications for loan forgiveness through a federal program known as borrower defense to repayment. It was threatened after several schools, including Lincoln Tech and Keiser University, said the deal failed to assess the validity of the borrowers’ claims and would damage their reputation.

As part of the settlement, the Education Department identified 153 institutions — many of which are for-profit colleges — as having evidence of “substantial misconduct … whether credibly alleged or in some instances proven.” Anyone who attended those schools and applied for debt relief is entitled to full loan forgiveness under the agreement.

U.S. District Judge William Alsup of the Northern District of California gave the colleges that raised objections an opportunity to have their say but ultimately finalized the settlement, affirming the Education Department’s approach.

“The borrower-defense program set up by Congress has devolved into an impossible quagmire,” Alsup wrote in his 25-page opinion Wednesday. “The Secretary has crafted a process for resolving the enormous backlog of claims, and he has done so pursuant to specific congressional authorization.”

In addition to the automatic relief, the agreement provides refunds of money paid to the Education Department and credit repair to hundreds of thousands of eligible borrowers. A separate group of about 64,000 borrowers, who attended schools that are not on the department’s list, will also receive decisions on their applications on rolling deadlines.

The agreement also ensures borrowers who filed a claim after June 22, but before the judge finalized the settlement, will have their claims decided within three years. According to Wednesday’s opinion, that group of borrowers has now reached about 179,000 people.

“People are just overjoyed,” said Eileen Connor, director of the Project on Predatory Student Lending, a group representing the borrowers. “I’m hopeful this is a path forward for people and for the Department of Education to move forward and have some kind of process that works.”

Education Secretary Miguel Cardona said the administration is pleased with the court’s final approval of the settlement, saying it resolved the borrowers’ claims in “a fair and equitable manner.”

“Going forward, the Department of Education will continue to strengthen oversight and enforcement for colleges that mislead students and work to uphold the Biden-Harris Administration’s commitment to helping students who have been harmed,” Cardona said in a statement Thursday.

Jason Altmire, president and chief executive of Career Education Colleges and Universities, a lobbying group for for-profit colleges, expressed disappointment in the ruling and raised the specter of an appeal.

“The settlement represents an unlawful overreach by the Department of Education and unfairly maligns over 150 institutions without any opportunity to respond,” Altmire said. “We expect that the Ninth Circuit on appeal will recognize these fatal flaws and send the parties back to the negotiating table.”

Victor Abalos, a spokesperson for the Chicago School of Professional Psychology, one of the four schools that intervened in the case, would not confirm whether the institution plans to appeal. He said the institution is pleased the settlement acknowledges no findings of any misconduct related to the school. None of the other schools responded to requests for comment.

Alsup’s ruling will deliver relief to scores of people awaiting decisions on their borrower defense claims, some for as long as seven years.

The collapse of for-profit chains Corinthian Colleges in 2015 and ITT Technical Institutes in 2016 — which spent their final days fighting state and federal charges of fraud — ushered in a deluge of claims at the Education Department. Former Education secretary Betsy DeVos refused to take action on claims after taking office, saying the Trump administration needed time to review the process created under President Barack Obama.

Applications piled up before DeVos decided to grant partial debt relief, which led to a lawsuit from former Corinthian students. DeVos said the case ground the system to a halt. But borrowers argued that it had no bearing on their claims and took legal action.

In 2020, the Trump administration agreed to process the backlog of claims within 18 months under an earlier settlement. Alsup rejected the deal months later after the Education Department revealed its widespread denials of requests for student debt cancellation.

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