(NerdWallet) – More than 200,000 federal student loan borrowers who were misled by their schools are in line for $6 billion in debt relief following a preliminary settlement approved by court order Aug. 4 .
This is a huge settlement and a big win for borrowers. But the waivers are just the latest in a series of efforts by the Department of Education to clear backlogs of applications and provide relief to borrowers whose schools defrauded them.
Defense of the borrower offers a loan discharge to borrowers whose schools – mostly for-profit – have misrepresented things like graduation and employment rates, financial aid, or even classroom resources. The program was launched in 2015, but releases slowed to a nearly complete halt under the previous administration due to rule changes and inaction.
The Biden administration has made these intact borrower defense claims a priority, resulting in about $8 billion in denials through the program since January 2021, according to federal data. The $6 billion settlement is the result of a class action lawsuit, Sweet v. Cardona, and it pushes the total amount of borrower defense releases to more than $14 billion.
Even before the Sweet v. Cardona, federal data shows total federal student loan forgiveness across all programs reached $26 billion and 1.5 million borrowers. This includes the $8 billion Borrower Defense Releases, as well as:
- $8 billion under the Civil Service Loan Cancellation Program.
- $9 billion to borrowers who are totally and permanently disabled.
- $1 billion in closed school holidays.
Billions for for-profit school borrowers
Since 2021, new debt reviews have resulted in billions in rejections for millions of borrowers. This includes students who attended for-profit schools like DeVry University and the now closed ITT Technical Institute.
The ministry has also started changing regulations, such as reversing partial relief calculations made under the previous administration. This resulted in full relief for 72,000 borrowers for a total of $1 billion, according to federal data.
The Department of Education also began doing group discharges without requiring applications last spring when it cleared $238 million in student loan debt for 28,000 borrowers who attended beauty schools. Marinello.
And the biggest discharges came recently through a group discharge of $5.8 billion in federal student loans borrowed by 560,000 borrowers who attended Corinthian Colleges from its founding in 1995 until its closure in April. 2015.
Program Flaws and Upcoming Change
Other changes are also being made to the borrower defense program.
On July 6, the Biden administration proposed new regulations that would impact borrower defense, among other programs. The changes include establishing categorical standards for misconduct, under which a borrower could file a complaint such as “aggressive and deceptive recruitment practices” or “material misrepresentation”.
Additional proposals would allow group applications, eliminate time limits for filing a claim, require colleges to cover discharge costs and create a reconsideration process for borrowers who have been denied a full discharge.
The new regulations are expected to be finalized this fall and come into force on July 1, 2023.
These additional changes are necessary because some borrowers have filed claims the department has never addressed — in one class-claims case, it’s been six years, according to the National Consumer Law Center.
It’s also unclear how many borrowers actually receive loan discharges, says Aaron Ament, president of Student Defense, a nonprofit litigation and advocacy organization.
“We are getting a number of people contacting us to say they received an email nine months ago approving their Borrower Defense request, but the release has not been completed,” says Ament. “A lot of them are being denied mortgages or can’t rent an apartment because it’s still on their credit report – that loan still shows up.”
How You Can Get Relief Under Sweet v. Cardona
The Sweet v. Cardona was first brought by borrowers whose borrower defense claims were denied or not processed by the Department of Education.
Eligibility for relief under Sweet v. Cardona will depend on when a borrower submitted a Borrower Defense Request:
- Those who submitted applications before June 22, 2022 and did not receive a decision or were denied on or after December 2019 are included in the category of applicants eligible for release.
- Those who submitted after June 22, 2022 could qualify as “post-class applicants” until the settlement is approved – sometime in the fall.
If the settlement receives final approval, all releases and refunds will be distributed to 75% of class members within one year. The rest of the class members would receive defense decisions from the individual borrower. This would also result in credit report adjustments.
Now that the settlement has been preliminarily approved, individual borrowers can expect to receive email or mail notifications from the Department of Education regarding their eligibility. It is unclear when qualified borrowers would receive loan discharges.
However, it is possible that the preliminary settlement will face legal challenges.
To request the Borrower’s Defense Release, you must visit the student help website.