Biden Administration Canceling $6 Billion for Defrauded Student Loan Borrowers

The government is canceling billions in federal student loans for around 200,000 defrauded students.

By , Attorney

Legal update: On November 16, 2022, a federal judge granted final approval to the settlement in the Sweet v. Cardona case described below. Then, in January 2023, three of the 100 schools involved in the settlement (American National University, Everglades College Inc., and Lincoln Educational Services Corp.) filed an appeal. But on March 29, 2023, the Ninth Circuit Court of Appeals rejected the challengers' request for a stay pending the appeal. So, settlement relief under the Sweet v. Cardona settlement went ahead while the appeal proceeded. On April 13, 2023, the U.S. Supreme Court declined to block the settlement. So, it will go fully into effect.

On June 22, 2022, the U.S. Department of Education announced it will automatically discharge the federal student loans of around 200,000 people to settle a class-action lawsuit (Sweet v. Cardona). The suit involved claims that the Education Department mismanaged the Borrower Defense to Repayment program

Under the terms of the settlement, the Education Department will approve around $6 billion in debt cancellation. Eligible borrowers will get 100% debt cancellation, including refunds of amounts already paid. The Department also agreed to fix the affected borrowers' credit.

How Borrower Defense to Repayment Claims Are Supposed to Work

In 2016, the Obama Administration set up a new loan discharge program to help defrauded student borrowers cancel their federal student loans. Under this program, if your school misled you, deceived you, or engaged in other illegal misconduct that convinced you to enroll or remain enrolled, you can apply to get a full discharge of the federal Direct Loans you took out to attend the school. (34 C.F.R. § 685.206). This kind of discharge is called a "borrower defense to repayment" discharge or a "borrower defense" discharge.

But in Sweet v. Cardona, the plaintiffs claimed that they and other class members had been defrauded by their schools and alleged that the Education Department ignored their borrower defense applications for loan cancellation.

Terms of the Sweet v. Cardona Settlement

Under the terms of the settlement:

  • Class members who took out loans to attend specific schools, like the University of Phoenix, ITT Technical Institute, Corinthian Colleges, and DeVry (more than 150 colleges and universities in all) will automatically get loan discharges, refunds, and deletion of any related negative marks on their credit reports.
  • Class members who attended other schools will have their borrower defense applications considered and get decisions within set timelines based on how long the applications have been pending.
  • The Education Department will rescind all the borrower defense denial notices issued between December 2019 and October 2020. (In December 2019, the Education Department began issuing denial notices to borrowers who had applied for loan cancellation. But the Sweet lawsuit alleged that the notices didn't contain any real reason for the denials.)

Who's Eligible for Student Loan Cancellation Under This Settlement

If you submitted a borrower defense application on or before June 22, 2022, and have not received a decision, or received a form denial in or after December 2019, you're a class member of either this or a similar lawsuit, Calvillo Manriquez v. Cardona. (Specific borrowers who attended Corinthian, Heald, Everest, and Wyotech schools are class members in the Calvillo Manriquez case.)

You don't need to sign up or do anything further to get relief, and it's free to be a part of the class. You can use this flowchart to determine if you qualify for relief under the Sweet settlement's terms.

When The Settlement Becomes Final

The court will hold a hearing on whether to grant preliminary approval to the settlement on July 28, 2022. After the court grants preliminary approval, the Education Department will send individual notices to all class members with more information.

If the court eventually approves the settlement agreement, and after class members get the opportunity to comment on it, the case will be resolved according to the settlement's terms. A hearing on final approval will probably happen sometime in fall 2022.

Borrowers will automatically get debt relief no later than one year after the agreement's effective date, according to the proposed settlement agreement. To get updates on the status of the Sweet settlement, go to the Project on Predatory Student Lending's Sweet v. Cardona website.

Student Loan Cancellation Under the Biden Administration

Since taking office, President Biden has canceled billions of dollars in federal student loan debt. In addition to the student loan relief discussed in this article, the Biden administration has:

  • canceled $1 billion of student loans for 72,000 student loan borrowers who attended Corinthian Colleges and ITT Technical Institute and previously had part of their federal student loans canceled under a borrower defense claim
  • canceled $1.3 billion of student loans for 41,000 borrowers whose federal student loans were forgiven due to total and permanent disability and then reinstated
  • granted student loan relief for 1 million student loan borrowers who defaulted on Federal Family Education Loans (FFELs)
  • canceled $500 million of student loan debt under the borrower defense rule for 18,000 student loan borrowers who attended ITT Technical Institute
  • canceled $55.6 million of student loan debt under the borrower defense rule for 1,800 defrauded borrowers who attended Westwood College, Marinello Schools of Beauty, or the Court Reporting Institute
  • automatically discharged the student loan debt of more than 323,000 borrowers with total and permanent disabilities
  • canceled $1.1 billion in federal student loans for around 115,000 defrauded borrowers who attended ITT Technical Institute
  • revamped the Public Service Loan Forgiveness program to allow thousands of student loan borrowers to qualify for loan forgiveness
  • canceled $415 million for defrauded DeVry University students
  • implemented a new online Public Service Loan Forgiveness appeal and reconsideration process for payment counts and employer qualification
  • announced one-time account adjustments to retroactively credit millions of borrowers with additional payments toward loan forgiveness, and
  • said it will automatically discharge all remaining federal student loans for those who attended any campus that Corinthian Colleges (around 560,000 borrowers will get $5.8 billion in 100% loan discharges).

Also, the American Rescue Plan Act exempts student debt forgiveness from federal taxation until January 1, 2026, and covers Direct Loans, FFELs, and private student loans.

All of this debt relief is in addition to pausing student loan payments, lowering interest rates to 0%, and stopping all collections of student loans in default from March 2020 through August 31, 2022.

Effective date: June 22, 2022