The $6 billion in student loan cancellation through borrower defense

Separate from the broader debate surrounding student loan forgiveness, the U.S. Department of Education recently settled a lawsuit forgiving about $6 billion in federal student loans for 200,000 borrowers. The students, mostly from for-profit colleges, claimed their schools defrauded them.

Biden administration agreed to cancel student debt for around 200,000 defrauded borrowers

The Department of Education filed a settlement agreement in the Sweet v.  Cardona case on June 22, 2022 stating that the agency would fully discharge the federal student debt of approximately 200,000 defrauded students.

The agreement came after students from 150 institutions — most for-profits — filed a lawsuit against the Department of Education regarding borrower defense to repayment. Under borrower defense, borrowers are eligible to have some or all of their federal student loans discharged if their school engaged in misconduct or defrauded them.

Among their claims, the plaintiffs stated that the department “unreasonably delayed and unlawfully withheld decisions on pending ‘borrower defense’ claims,” “issued unlawful notices denying certain borrower defense claims,” and “adopted unlawful policies governing the process of evaluating borrower defense claims.”

Borrowers in the suit have been granted forgiven student loans, as well as a refund on any payments made toward these debts.

Relief comes years after the original lawsuit was filed against the Trump administration

The Sweet v. Cardona case (formerly Sweet v. DeVos) was filed in June 2019. The plaintiffs claimed that the Department of Education had ignored their borrower defense applications. After filing, borrowers asked the court to turn the case into a class action lawsuit to not only represent themselves but also all other borrowers in the same situation.

The motion included nearly 900 affidavits from students, which detailed the damages they’ve suffered thanks to the department’s lack of action. Ninety-six percent of the borrowers said they were worse off than before finishing school.

Shortly after, the department started sending out rejection letters to those who had applied for borrower defense without any further explanation. This, too, was included as part of the suit’s allegations.

The Department of Education remains committed to helping borrowers

Following the news of the proposed settlement, U.S. Secretary of Education Miguel Cardona reiterated the administration’s commitment to changing its borrower defense program to help borrowers move closer to forgiveness.

“Since day one, the Biden-Harris Administration has worked to address longstanding issues relating to the borrower defense process,” Cardona said in a press statement. “We are pleased to have worked with plaintiffs to reach an agreement that will deliver billions of dollars of automatic relief to approximately 200,000 borrowers and that we believe will resolve plaintiffs’ claims in a manner that is fair and equitable for all parties.”

To date, the Department of Education has granted over $11 billion in loan forgiveness for borrowers through the borrower defense process, discharging $5.8 billion of remaining loan balances for former students of Corinthian Colleges. In the months since that settlement, other large waves of forgiveness have followed suit for borrowers who attended Westwood College, DeVry University, ITT Technical Institute and others.

In August 2023, a federal court issued an injunction halting borrower defense applications and delaying the effective date of date of the latest regulations related to borrower defense. Eligible borrowers can continue applying for relief through the Department of Education.

Despite the Department’s efforts to address these cases, many still fall through the cracks. If you have federal loans and think you’ve been misled or defrauded by your school, visit the Department of Education’s website and fill out the borrower defense application, as you could be eligible for relief.