July 21, 2022
A fight over when and how the U.S. Department of Education can cancel some federal student loans will soon play out in a federal courthouse on Golden Gate Avenue in San Francisco.
On Aug. 4, a federal judge will decide whether to preliminarily approve a settlement that would erase the debts of 200,000 borrowers who say they were defrauded by their colleges.
The lawsuit, Sweet v. Cardona, centers on a federal rule, known as borrower defense, that allows borrowers to ask the department to erase their student debts if a school has lied to them – about their job prospects, their credits’ transferability or their likely salary after graduation.
Tens of thousands of borrowers who say they were ripped off, largely by for-profit colleges, have been in limbo, waiting years to have their claims reviewed. During the Trump administration, borrower advocates sued the department, arguing it deliberately and illegally stopped processing claims and wrongfully denied others without considering the merits of their cases.
If the settlement is approved, those 200,000 borrowers will have more than $6 billion in debts erased, and another 64,000 will have their fraud claims reconsidered on the merits.
“This momentous proposed settlement will deliver answers and certainty to borrowers who have fought long and hard for a fair resolution of their borrower defense claims after being cheated by their schools and ignored or even rejected by their government,” says Eileen Connor, director of the Project on Predatory Student Lending and co-counsel for the plaintiffs.
The settlement also has its critics, who argue it’s a brazen attack on dozens of largely for-profit colleges and could be used, by the department, to erase the debts of many more borrowers beyond the lawsuit.