Judge Grants Final Approval to Borrower Defense Settlement

By Maria Carrasco, NASFAA Staff Reporter

A federal judge in California granted final approval on Wednesday to a settlement that will cancel billions of dollars in federal student loans for hundreds of thousands of borrowers who argue they were defrauded by their college.

The class action lawsuit, dubbed Sweet v. Cardona (previously Sweet v. DeVos), was first filed in 2019 by seven named plaintiffs on behalf of themselves and federal student loan borrowers with borrower defense claims, against the Department of Education (ED). The lawsuit sought for the Trump administration to issue decisions on a backlog of pending borrower defense claims. 

In June this year, ED and the Project on Predatory Student Lending at the Legal Services Center at Harvard Law School, which co-represents the plaintiffs, reached a settlement. The settlement stipulates that ED will discharge more than $6 billion owed by approximately 200,000 borrowers who had pending claims against one of 151 institutions, which were mostly for-profit and where the agency determined there was some evidence of misconduct.

Judge William Alsup granted preliminary approval to the settlement and allowed for more time for institutions or other parties to file motions to intervene in August. And in his final decision on Wednesday, Alsup ruled that the Biden administration does have the power to discharge large amounts of federal student loan debt under the settlement. Additionally, Alsup writes that the settlement would help ED clear the backlog of about 443,000 borrower defense claims — which he writes would take ED more than 25 years to get through.

“The borrower-defense program set up by Congress has devolved into an impossible quagmire,” Alsup writes in his decision. “This has been true across all administrations, as detailed above. As of now, approximately 443,000 borrowers have pending borrower-defense applications. That is a staggering number.” 

Alsup’s decision also details that a group of about 64,000 borrowers will get final decisions for their borrower defense claims done through a “streamlined process that provides certain presumptions in favor of the borrower.” Alsup notes that if ED does not issue a decision within a specified time, the borrower will receive full automatic relief like the borrowers in the first group. 

Additionally, Alsup writes that a third group of about 179,000 borrowers who filed new claims between June 22, 2022, and before the final decision on Wednesday will go through a new, streamlined process. If ED doesn’t decide their claim within the next three years, those borrowers will also receive a full discharge of their loans.

Education Secretary Miguel Cardona responded to the final decision, saying the administration is “pleased” with the decision, and will resolve plaintiffs’ claims in a “fair and equitable manner.” In October, ED released highly anticipated final rules on borrower defense to repayment regulations, which aim to create an easier path for borrowers defrauded by their institutions to receive student loan debt relief.

“Since day one, the Biden Harris team has not stopped fighting for borrowers,” Cardona said in a statement. “... 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.”

Eileen Connor, president and director of the Project on Predatory Student Lending, said in a statement that Alsup’s decision is a “life-changing and long-awaited” win for the borrowers. 

“It immediately delivers certainty and relief to borrowers who have been waiting years for a fair resolution of their borrower defense claims,” Connor said in a statement. “Throughout this case, our clients exposed a fundamentally broken borrower defense system and the urgent need for reforms to hold predatory schools accountable. We are proud that this settlement with the Department of Education will help chart a more fair and accountable process for borrowers.” 

However, four institutions filed motions to intervene to oppose the settlement, which includes the American National University, The Chicago School of Professional Psychology, Everglades College, Inc., and Lincoln Educational Services Corporation. Alsup notes that the institutions take issue with their inclusion on the list of 151 institutions where ED determined there was some evidence of misconduct, which Alsup writes they label as a “scarlet letter.”

Jason Altmire, president and CEO of Career Education Colleges and Universities, said his group was “disappointed” by the final approval, but said he expects an appeal to the 9th Circuit. 

“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,” 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."


Publication Date: 11/18/2022

Jeff A | 11/18/2022 9:33:20 AM

Among the majority of institutions ‘on the list’, the vast majority were certainly not eligible for forgiveness o the merits. Shame that to resolve an inability to adjudicate claims, the answer is to just forgive the loans and implicate several colleges that do a good job. And there is no reason to think this won’t continue and spread to all types of colleges.

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