Government to cancel $6 billion in student loans for fraudulent borrowers

Nearly 200,000 alumni who attended schools said they have been defrauded will have $6 billion in federal loans canceled under a comprehensive agreement announced Wednesday to address the student loan crisis by eliminating some of the loans. The latest move by the Biden administration for

Those who applied for relief — some as long as seven years ago — would have their loans wiped out if they attended one of the more than 150 schools designated in the class-action settlement, almost all of which are for-profit colleges and vocational schools. There are programs. The deal reverses 128,000 denial notices — which a federal judge called “disturbing kafkaesque” — that were sent to relief applicants during the Trump administration.

Many of the schools included in the settlement are out of business. These include large chains such as the Art Institute and other campuses run by Dream Center, whose operations suddenly collapsed in 2019, and the latter, owned by Career Education Corp., which, at its peak, enrolled thousands of students in more than 100 locations. , The deal also covers some colleges that are still ongoing, including the University of Phoenix, Grand Canyon University and DeVry University.

Education Secretary Miguel Cardona called the deal “fair and equitable to all parties”.

According to settlement papers filed in the US District Court for Northern, the Department of Education granted the relief to applicants of the schools involved in the deal “based on strong indications regarding substantial misconduct by the listed schools.” District of California. Those borrowers’ loans would be completely liquidated, and any payments made by them would be refunded.

The deal, which must be approved by a federal judge, was greeted with joy and relief by borrowers. “It’s probably the sexiest thing I’ve seen in a long time!” Posted in a Facebook group. “My school is listed as a bad actor and my debt will be wiped out.”

The settlement is a major step toward solving a problem that spanned three presidential administrations: the glut of relief claims from students who attended for-profit schools that cost them large bills for a subpar education. used to be sad.

A decade ago a state and federal crackdown sparked enforcement action against some of the industry’s most notorious operators, pushing several major chains into bankruptcy. But even after the school disappeared, the debt his former students took on remained.

The Obama administration tried to address the problem by updating a federal program called Borrower Defense for Repayment, which allows people who attend schools that break state consumer protection laws or otherwise lose their federal student loans. commit serious misdeeds to end it.

However, Betsy DeVos, the education secretary under President Donald Trump, blocked the program, calling it “free money” cheap. DeVos allowed hundreds of thousands of claims to pile up; In his final year in office, the authorities were in massive denial.

The Biden administration revived the Borrower Defense program and used it earlier this month to wipe out nearly $6 billion in loans for 580,000 borrowers who attended Corinthian Colleges, a major chain that began in 2015 as an illegal recruitment strategy. closed after widespread allegations of It also made claims to rescue borrowers in half a dozen or so other schools.

But under DeVos there was a massive denial, as well as a queue of thousands of pending relief applications, many of which were years old. Wednesday’s deal will erase the denials, treat them as if they never happened. The deal also promises to resolve all applications that are not automatically approved – for schools that are not included in the settlement list – within 6 to 30 months.

Eileen Connor, director of the U.S., said, “This important proposed settlement will provide answers and certainty to borrowers who have fought a long and hard fight for a fair settlement of their debtor defense claims after being defrauded by their schools and overlooked by their government.” or has been rejected.” Project on Predatory Student Loans, which represents borrowers in the case.

Deal relief is primarily limited to those who have submitted a borrower defense application on or before Wednesday. The Department of Education must now decide whether it will accept future claims from students attending schools that it said acted illegally.

President Joe Biden is still contemplating a big decision: whether to use executive action to fulfill a campaign promise to cancel $10,000 in federal student loan debt for all borrowers. High inflation has sparked a debate among his advisors about the prudentity of such a move.

Theresa Sweet, one of the plaintiffs named in the class-action lawsuit, said she was stunned to find justice achieved after years of stress, and as the settlement negotiations progressed, “the roller of realizing the definitive process -Coaster rides will be different.”

Sweet graduated in 2006 from the Brooks Institute of Photography, a for-profit school owned by Career Education Corp., which closed in 2016. Burdened by debt from a program that promised students lucrative careers but offered them little real training or support, they struggled afterward. Graduates to earn a living wage.

“I hope each class member’s experience is proof that fighting for your rights is something you should never be afraid to do,” she said in an email. “It’s been a very long road, but I think we are finally where we need to be together.”

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