A federal judge on Wednesday night approved a massive class-action lawsuit seeking to address allegations that the U.S. Department of Education halted hundreds of thousands of applications for a program that cancels student loan debt for borrowers whose colleges misled them.
U.S. District Judge William Alsup signed an agreement after admission in a week to weigh the latter arguments at the age of three Sweets vs Cardona case. The case involves student debt relief that could be provided under the Borrower Protection Program, which is different from President Joe Biden’s sweeping initiative to write off up to $10,000 or $20,000 in federal student loans for about 40 million borrowers — that’s $430 billion. initiative that is tied up in various court cases.
Alsup’s decision creates a framework for the Department of Education to automatically cancel the debts of about 200,000 borrowers who attended 151 colleges, including shuttered large for-profit chains such as ITT Technical Institute and still-operating institutions such as Grand Canyon University. That would wipe out a total of about $6 billion in federal student debt.
The settlement also requires the Department of Education to quickly make decisions about borrowers’ debt cancellations for the other 64,000 borrowers — or pay off their debts if a decision can’t be made by certain deadlines, depending on how long they’ve been waiting for a ruling. This is projected to result in $1.5 billion in loan repayments.
Another part of the agreement requires the department to smooth borrower protection applications for those who applied to the program after the settlement was reached. Those borrowers, who number about 179,000, will be granted automatic relief if the Department of Education does not make a decision on their applications within three years of the settlement being approved.
“This settlement is not only fair, reasonable and adequate, but also a grand slam for class members.” — Alsup wrote in the order approving the transaction. “Initially, they sued just to get a decision on their applications one way or another. Now, in most cases, they get a full pardon.”
Four institutions and college operators whose former students are covered by the deal have opposed it: American National University, Chicago School of Professional Psychology, Everglades College and Lincoln Educational Services Corp. They are on a list of 151 colleges whose former students can receive an automatic pardon, and they have argued that their inclusion deprives them of due process and damages their reputations.
The trade group, which represents nonprofit colleges and universities, may appeal the judge’s approval Wednesday, according to a statement.
“The four intervening schools have argued persuasively that the Sweet settlement is an illegal overreach by the Department of Education and unfairly defames more than 150 institutions without an opportunity to respond,” Jason Altmire, CECU’s president and CEO, said in a statement. “We expect the Ninth Circuit will recognize these fatal flaws on appeal and send the parties back to the bargaining table.”
Alsup addressed the colleges’ objections in his order approving the agreement.
The deal does not use standard borrower default protection procedures, and therefore the Department of Education cannot use it as a basis to try to recover loan origination costs from the 151 institutions on the automatic foreclosure list, he wrote. Listed institutions will continue to have full due process rights if the Department of Education takes action against them in the future. And Alsup dismissed the idea that inclusion on the 151-college list was an “impermissible scarlet letter.”
“This order finds that the list does not have the necessary legal significance to justify the denial of final approval of the agreement,” he wrote.
The Predatory Student Lending Project, which represented the plaintiffs in the case, accepted the judge’s decision.
“Through this case, our clients have exposed a fundamentally broken borrower protection system and the urgent need for reform to hold predatory schools accountable,” said Eileen Connor, president and director of the organization. the statement said. “We are proud that this settlement with the Department of Education will help create a fairer and more accountable process for borrowers.”
Years of Debate About Borrower Protection Before Repayment
A winding path led to Wednesday’s ruling.
In 2019, borrowers sued against the Department of Education, alleging that the Trump administration was improperly delaying decisions on borrower protection claims. They worked with the department to reach a settlement in 2020, but that agreement fell apart when they learned the agency was sending out blanket denials of borrower protection applications.
It wasn’t until about two years after the start of the Biden administration that the Department of Education concluded a new peace agreement with borrowers to provide automatic relief to most class members.
However, colleges which objected to the plan argued that the deal circumvents borrower protection rules, denies them due process rights and harms their reputation.
They noted that the Department of Education said attendance at one of the 151 colleges on the list “justifies presumptive relief for purposes of this settlement based on a strong indication of material misconduct at the listed schools, whether plausibly alleged or, in some cases, proven.”
A lawyer for one institution, the nonprofit Chicago School of Professional Psychology, also expressed concern that some students will have their debts cleared even if they have reached other settlements with their financial aid colleges.
Meanwhile, the department argued that federal law gives it broad authority to “assign, waive or release any right, title, claim, lien or demand” related to federal student loans. In court documents filed before the ruling, the department said it used the same authority to issue more than $11.4 billion in student loans to borrowers who attended several closed for-profit colleges.
According to Alsup, a key question that needed to be answered before final approval was whether Education Secretary Miguel Cardona had the authority to enter into the agreement. The judge found nothing unusual about the secretary using his discretion to pay off student loan debt.
Alsup noted that officials have used that power in various presidential administrations in recent years, including $175 million in waivers for 7,400 borrowers who attended Dream Center Education Holdings colleges in 2019 and $5.8 billion announced in this year for 560,000 borrowers who attended Corinthian colleges. It also dismissed other regulatory objections.
“The Secretary did not exceed his statutory authority or follow agency rules,” Alsup wrote.
Cardona faced a practical problem, Alsup wrote. About 443,000 people are waiting for borrower protection applications to be heard, but the Department of Education has 33 judges. Even if they each processed two claims a day and worked 52 weeks a year without vacation, it would take more than 25 years to work through the backlog individually.
“The approach taken here is class action and within the discretion of the Secretary and Attorney General to settle,” the judge wrote.
Employees of the Department of Education are satisfied with the approval of the settlement, Cardona said in a statement.
“Going forward, the Department of Education will continue to increase oversight and enforcement of colleges that mislead students and work to uphold the Biden-Harris administration’s commitment to help students who have been affected,” he said.