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Borrower-Defense Settlement To Discharge $6 Billion in Loans | Inside Higher Ed


A federal judge approved a settlement in a class action lawsuit against the U.S. Department of Education that argued the agency ignored borrower defense to repayment claims.

Under the settlement, 200,000 borrowers who attended one of 153 institutions identified by the Education Department will see all their federal student loans discharged, which totals about $6 billion for the group. Another 64,000 borrowers will receive final decisions on their borrower-defense claims. Most of the institutions listed are for-profit colleges or universities.

“This is a life-changing and long-awaited win for our clients who have fought tirelessly in this case,” said Eileen Connor, president and director of the Project on Predatory Student Lending, which filed the lawsuit in 2018. “It immediately delivers certainty and relief to borrowers who have been waiting years for a fair resolution of their borrower-defense claims. Throughout this case, our clients exposed a fundamentally broken borrower-defense system and the urgent need for reforms to hold predatory schools accountable.”

The borrower defense to repayment program allows borrowers to apply for relief if their college or university misled them or violated certain state laws. The program started in 1994 but wasn’t widely used for relief until May 2015, when for-profit Corinthian Colleges closed. The Obama administration approved more than 90 percent of borrower-defense claims, according to the settlement, but the pace of approvals slowed during the Trump administration. The lawsuit was aimed at forcing former education secretary Betsy DeVos to resume granting or denying applications.

The settlement is not a successful or approved borrower-defense claim, so the department won’t be able to seek reimbursement for the discharged loans. Additionally, the department did not make an official determination of misconduct against the institutions involved.

American National University, the Chicago School of Professional Psychology, Everglades College Inc. and Lincoln Educational Services Corporation sought to intervene in the lawsuit, taking issuing with their inclusion on the list of 153 institutions, “which they label a scarlet letter,” the settlement states.

Career Education Colleges and Universities, which represents the proprietary higher education sector, said in a statement that it was disappointed by the settlement.

“The four intervenor schools made a compelling case that the Sweet settlement represents an unlawful overreach by the Department of Education and unfairly maligns over 150 institutions without any opportunity to respond,” CECU president Jason Altmire said in a statement. “We are disappointed that Judge Alsup overlooked these defects and approved the settlement. We expect that the Ninth Circuit on appeal will recognize these fatal flaws and send the parties back to the negotiating table.”

Education Secretary Miguel Cardona said in a statement that the administration was pleased with the settlement.

“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.



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