Soft settlement wipes out $6 billion in student loan debt

An estimated 200,000 defrauded former students are set to have $6 billion in federal debt erased under a proposed settlement agreement filed June 23 in federal court.

The borrowers in the proposed settlement attended one of more than 150 schools that the U.S. Department of Education has determined to be at fault, including:

  • The Institute of Arts

  • The blue cordon

  • ITT Technology

  • DeVry University

  • Keizer University

  • Phoenix University

  • Westwood College

Almost all of the schools involved are for-profit colleges or vocational training programs.

Those 200,000 borrowers will see a full discharge of their loans, a refund of what they paid, and credit repair beginning no later than one year after the deal officially takes effect, according to the settlement agreement. offers.

Meanwhile, another 64,000 borrowers will receive individualized decisions on their federal debt relief in rolling timelines, based on how long their application is pending.

The settlement stems from a 2019 class action lawsuit called Sweet v. Cardona.

The case argues that many borrower defense requests for loan forgiveness have been ignored by the US Department of Education.

The Borrower’s Defense of Loan Repayment — or Borrower’s Defense for short — allows former students to repay some or all of their federal loans if their school defrauded them or violated specific federal laws. State, such as consumer protection laws.

To qualify for borrower defense, alumni first had to prove they had been misled by their school — often about inflated placement rates or the ability to transfer credit.

Borrowers then had to prove that these lies caused personal financial harm, such as not being employable as a result of the program.

How to qualify for the defense of the borrower?

Wondering if you qualify for debt relief in the Sweet v. Cardona?

You are included if you submitted a Borrower Defense Request by June 22, 2022 and did not receive a decision – or received a denial on or after December 2019.

The easiest way to apply for a borrower defense is online, where it takes about 30 minutes to complete the application.

To apply, you will need your Federal Student Aid ID, school name, enrollment dates, and proof to support why you think you qualify for Borrower Defense .

You can call the Department of Education’s Borrower Advocacy Hotline at 1-855-279-6207 for updates on the status of your application.

Keep in mind that the pool of former students who qualify for Borrower Defense is limited. Still, it never hurts to apply if you think your school has cheated you.

Shaking up student loan forgiveness

The latest announcement comes as the Biden administration continues its piecemeal approach to write off federal student loan debt.

The administration has already approved billions in student loan cancellations for 1.3 million borrowers. That’s about 3% of all Americans who have federal student loan debt.

Among the 1.3 million borrowers already eligible for loan forgiveness are:

  • 47,000 current and former service members.

  • 323,000 borrowers with eligible permanent disabilities preventing them from working.

  • 560,000 defrauded former students who attended the chain of Corinthian schools.

  • About 66,000 borrowers from a settlement reached in early 2022 with loan servicer Navient.

  • 155,000 borrowers defrauded by the ITT Technical Institute.

The administration also temporarily expanded eligibility for the Civil Service Loan Forgiveness Program, which forgives a government worker’s or nonprofit’s remaining federal student loan debt after 10 years of payments. .

Will Biden erase $10,000 in student loan debt for borrowers?

There are rumors that President Joe Biden may enact a broader student loan forgiveness in the future.

In April, Biden said he was considering a broad student loan forgiveness. During his run for the White House, Biden said he would support $10,000 in pardons per student.

Borrowers have taken advantage of a pause in student loan repayments since the start of the pandemic. But that break is due to expire on August 31.

If the White House wipes out $10,000 in student loan debt per borrower, the decision will likely be announced before August 31.

While the move would bring billions of dollars in financial relief to millions of borrowers, it will not reduce the cost of college education for future borrowers or pay off people who have already paid off their debt.

Rachel Christian is a Certified Personal Finance Educator and Senior Writer for The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers around the world earn and save money by sharing unique job opportunities, personal stories, giveaways and more. The Inc. 5000 ranked The Penny Hoarder as the fastest growing private media company in the United States in 2017.

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