Judge rules to erase the student loans of 200K borrowers who say they were ripped off

A federal judge in San Francisco granted final approval Wednesday to a settlement that could cancel at least $6 billion in federal student loans for approximately 200,000 borrowers who argued they had been defrauded by their colleges.

The move, by Judge William Alsup, marks the latest development in a Trump-era lawsuit by borrowers against the U.S. Department of Education, and stipulates that borrowers who are part of the class-action suit and who attended one of 153 mostly for-profit colleges are entitled to full and automatic relief from their federal student loans.

Alsup had already granted preliminary approval of the settlement on Aug. 4.

"This is a life-changing and long-awaited win for our clients who have fought tirelessly in this case. It immediately delivers certainty and relief to borrowers who have been waiting years for a fair resolution of their borrower defense claims," says Eileen Connor, president and director of the Project on Predatory Student Lending, which co-represents the plaintiffs.

The lawsuit, Sweet v. Cardona (formerly Sweet v. DeVos), centered on a federal rule, known as borrower defense, that allows federal student loan borrowers to ask the department to erase their debts if a school has lied to them – about their job prospects, their credits' transferability or their likely salary after graduation.

Tens of thousands of borrowers who say they were ripped off have been in limbo, waiting years to have their claims reviewed. During the Trump administration, borrower advocates sued the department, arguing it deliberately and illegally 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 calls the program's backlog "an impossible quagmire... As of now, approximately 443,000 borrowers have pending borrower-defense applications. That is a staggering number. If, hypothetically, the Department's Borrower Defense Unit had all 33 of its claim adjudicators working 40 hours a week, 52 weeks a year (no holidays or vacation), with each claim adjudicator processing two claims per day, it would take the Department more than twenty-five years to get through the backlog."

The settlement was opposed by the for-profit college industry, with advocates arguing that most of the schools on the settlement's list have never been investigated, let alone found to have defrauded students. The settlement says these schools were included because of strong signs they had committed "substantial misconduct ... whether credibly alleged or in some instances proven."

In an earlier legal memo protesting the settlement, attorneys for Everglades College, Inc., whose schools are listed among the 153, called it a "farce" and complained that, "in most instances, all the Department has before it are unproven and yet-to-be-adjudicated allegations, but the agency is nonetheless deeming schools guilty without further process or explanation."

Alsup dismissed those concerns, writing that a school's inclusion in the settlement is not a kind of scarlet letter because "the settlement does not constitute a successful or approved borrower-defense claim." As a result, he writes, "nothing in this settlement will cause any school to lose a dime."

In a statement response, Jason Altmire, the president and CEO of Career Education Colleges and Universities (CECU), which represents many of the 153 schools on the settlement list, said his group is "disappointed" with the decision: "We expect that the Ninth Circuit on appeal will recognize these fatal flaws and send the parties back to the negotiating table."

In addition to the approximately 200,000 borrowers who will have their debts erased if this settlement survives appeal, another 64,000 who did not attend one of the 153 listed schools will have their fraud claims reconsidered on the merits.

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