Court Awards Preliminary Settlement to Borrower Defense Claims

By Hugh T. Ferguson, NASFAA Managing Editor

A federal judge on Thursday granted preliminary approval to the Biden administration’s recently proposed borrower defense settlement that would discharge the loans of 200,000 borrowers who say they were defrauded by their institutions. The court will also allow more time for institutions or other parties to file motions to intervene. 

"We are pleased that, today, Judge Alsup tentatively ruled that he will allow schools to intervene in Sweet v. Cardona to protect their interests,” said Career Education Colleges and Universities (CECU’s) President and CEO, Jason Altmire. “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."

Judge William Alsup of the Northern District of California said during a hearing on Thursday that the proposed settlement was a “grand slam home run” for borrowers, according to POLITICO

According to court documents, the Department of Education (ED) will now begin sending notice to class members, who will have until Sept. 8, 2022 to file comments on the proposed settlement with the court. Alsup will also allow institutions or other parties to file motions to intervene by August 25; four institutions have already done so. A hearing on the final approval is set for November 3.

As a part of the settlement process ED in a legal filing said it would administer this debt cancellation through the secretary’s “compromise and settlement authority” as opposed to an approval of borrower defense claims that would have required colleges to repay the discharged loans.

The case, dubbed Sweet v. Cardona (previously Sweet v. DeVos), was filed in 2019 and initially sought for the Trump administration to issue decisions on a backlog of pending borrower defense claims. The settlement reached between ED and The Project on Predatory Student Lending at the Legal Services Center at Harvard Law School took it a step further to cancel the loans.


Publication Date: 8/8/2022

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