A federal judge in San Francisco on Wednesday gave final approval to a settlement that could cancel at least $6 billion in federal student loans for nearly 200,000 borrowers who argued they were defrauded by their colleges.
The move by Judge William Allsup marks the latest development in a Trump-era lawsuit by borrowers against the U.S. Department of Education, and borrowers who are part of a class-action suit and one of 153 mostly for-profits involved. Colleges are entitled to full and automatic relief from their federal student loans.
Allsup gave preliminary approval of the deal on August 4.
“This is a life-changing and long-awaited victory for our clients who have fought tirelessly in this case. It immediately provides certainty and relief to borrowers who have waited years for a fair resolution of their borrower defense claims,” says Eileen Connor. , president and director of the Project on Predatory Student Loans, which co-represents plaintiffs.
The lawsuit, Sweet v. Cardona (formerly Sweet v. DeVos), focused on a federal rule, known as the borrower defense, which allows federal student loan borrowers to ask the department to erase their loans if the school lied to them — about them. Job prospects, the transferability of their credits, or their potential salary after graduation.
Tens of thousands of borrowers who say they were defrauded have been waiting years to have their claims reviewed. During the Trump administration, borrower advocates sued the department, saying it intentionally and unlawfully stopped processing claims and wrongfully denied others without considering the merits of their cases.
In explaining his decision to grant final approval of the settlement, Alsup called the program’s backlog an “impossible quagmire” … As of now, approximately 443,000 borrowers have pending borrower-protection applications. This is a surprising number. If hypothetically, all 33 claims adjudicators in the Department’s Borrower Defense Unit worked 40 hours a week, 52 weeks a year (no holidays or vacations), with each claims adjudicator processing two claims per day, it would take the Department more than twenty-five years to achieve through the backlog.”
The settlement was opposed by the for-profit college industry, with advocates arguing that most of the schools on the settlement list were never investigated, finding students defrauded. The settlement says these schools were included because of strong indications they had “substantial misconduct … credibly alleged or in some instances proven.”
In an earlier legal memo opposing the settlement, Everglades College, Inc. Lawyers for the, whose schools are listed among 153, called it a “farce” and complained that, “in most cases, all the department can do is unsubstantiated and yet-indictable judgments, but the agency is holding the schools guilty without further process or explanation.”
Allsup dismissed those concerns, writing that the school’s inclusion in the settlement is not a kind of scarlet letter because “the settlement does not constitute a successful or accepted borrower-defense claim.” As a result, he writes, “nothing in this settlement will cause any school to lose a dime.”
In a statement, Jason Altmire, president and CEO of Career Education Colleges and Universities (CECU), which represents many of the 153 schools on the settlement list, said his group was “disappointed” with the decision: The Circuit will recognize these fatal errors and send the parties back to the negotiating table.”
In addition to the roughly 200,000 borrowers who would have their loans wiped out if the deal survives appeals, another 64,000 who don’t attend one of the 153 listed schools will have their fraud claims reconsidered for eligibility.