Federal judge signs off on student loan cancellation for 200,000 borrowers
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Yesterday, Federal Judge William Alsup of California approved the erasure of over $6 billion in federal student loan debt for the 200,000 borrowers with pending borrower defense to repayment claims.
The verdict resolves Sweet v. Cardona, a lawsuit filed by borrowers who argued that the U.S. Department of Education — while under the leadership of the Trump administration — failed to act on their borrower defense claims.
Here’s what borrowers need to know.
Estimated $6 billion in student loans to be erased through borrower defense
Borrower defense to repayment is a federal student debt relief program that discharges some or all of the federal student loan balances for students who were misled or defrauded by their school. Students are only eligible for cancellation under the program if their school misrepresented important details like admissions practices, loan details or program costs.
Sweet v. Cardona argued that under the leadership of former Education Secretary Betsy DeVos, the ED failed to properly assess thousands of borrower defense claims. Yesterday’s ruling is a long-awaited victory for the involved students. The suit was first filed in 2019, and in June 2022, nearly six months ago, the ED announced the initial proposed agreement.
“We are pleased with yesterday’s borrower defense court decision approving the settlement which will provide billions of dollars of relief to over 200,000 borrowers,” said Education Secretary Miguel Cardona in a statement. “It will also resolve plaintiffs’ claims in a fair and equitable manner,” he added, promising that the administration will continue to strengthen oversight and accountability for colleges and universities in America.
Qualifying students could see forgiveness in as little as a year
Under the settlement agreement, students who filed a borrower defense claim by June 22, 2022 and attended one of the 153 eligible schools could have their loans canceled within a year of the court’s official decision. They will also receive credit score adjustments and refunds for payments they’re already made.
An FAQ page constructed by the Project on Predatory Student Lending explains that those who submitted an application between June 22 and Nov. 16 may be eligible for some benefits under the agreement guidelines. These students should receive an application decision within 36 months of the Nov. 16 settlement approval date. If borrowers fail to receive a decision from the ED within 36 months, they’re eligible for forgiveness just as if they applied before the original June cut-off date.
Appeal not completely off the table
While yesterday’s verdict is a step in the right direction for the impacted students, there’s the possibility that the federal appeals court will block Alsup’s decision if appealed.
Career Education Colleges and Universities president and CEO Dr. Jason Altmire stated his opposition to the ruling, claiming that the verdict is unlawful and “unfairly maligned over 150 institutions without any opportunity to respond.” CECU represents many of the listed schools in the settlement agreement and has been heavily involved with the lawsuit’s development.
“We are disappointed that Judge Alsup overlooked these defects and approved the settlement,” said Altmire in a statement. “We expect that the Ninth Circuit on appeal will recognize these fatal flaws and send the parties back to the negotiating table.”
Borrowers should use time to prepare for repayment
Much like with the student loan forgiveness appeals, it’s important to note that this decision isn’t final if appealed. While waiting for the latest news on the status of the settlement agreement, borrowers can use this time to prepare for the resumption of their student loan payments.
Due to the legal factors involved, borrowers shouldn’t rely on court decisions or legislature to erase their student loans. At this point, the ED hasn’t announced any plan to extend the Dec. 31 forbearance expiration date. Borrowers uncertain about their upcoming payments should plan ahead and research federal relief programs.