The U.S. Education Department is promising to process student loan forgiveness claims for nearly 170,000 borrowers within 18 months as part of a proposed settlement announced Friday in a federal lawsuit.
The suit alleges that Education Secretary Betsy DeVos illegally stalled a program known as borrower defense to repayment, which promises to forgive federal student loans for borrowers who are cheated by their colleges. When the lawsuit was filed in June 2019, it had been a year since the department issued a final decision on any claim.
Most of the borrowers awaiting decisions attended for-profit colleges, and some have been waiting more than four years for a decision.
Under the settlement, DeVos admits no wrongdoing but promises to issue decisions on all pending claims within 18 months, and to cancel debt for approved claims within 21 months. In court documents, the department said it had paused the program while officials crafted new regulations. The agency says it already resumed processing claims last December.
In a statement released Friday, the Education Department called the proposed settlement “an important win for students and for taxpayers.”
“Rather than have their claims needlessly delayed by unnecessary litigation, students will now have their cases adjudicated promptly,” the agency said. “This proposed settlement is validation of that process and of the department’s longstanding goal to resolve all of these claims as quickly as possible.”
Theresa Sweet, the lead plaintiff in the case, called the deal an “enormous relief.” She applied for federal loan relief in 2016 after graduating from the Brooks Institute of Photography, a now-defunct for-profit college in California. Sweet said the school lied about its graduates' employment rates and salaries, and left her with a degree that never led to a job in the area she studied.
“For years, people have been paralyzed with debt and forced to put their education, personal goals and financial plans on hold because we didn’t know if or when we might get a decision," Sweet said in a statement. “Having the Department of Education be forced to put a time frame on making these decisions is vindicating.”
The borrower defense program dates to the 1990s but was expanded under former President Barack Obama to make it easier for students to get loans erased when colleges commit fraud. The update was directed at thousands of students who attended for-profit colleges that collapsed amid accusations that they lied about the success of their graduates.
But DeVos suspended the 2016 rules when she took office and last year issued new ones making it tougher for students to get loans cleared. At the time, DeVos said the previous rules were overly generous and allowed too many students to get loans erased at the expense of taxpayers.
Among other changes, the department has shifted to a formula that provides only partial loan relief for most students whose claims are approved. The formula, announced in December, offers scaled relief based on the financial harm students suffered as a result of their colleges' fraud. Opponents have vowed to sue, saying federal law entitles deceived students to full relief.
Under the settlement, the department says it will waive all loan interest that has accrued while students await a decision on their claims. If the agency fails to decide a claim within 18 months, officials must cancel 30% of debt for every month they're overdue. And if the agency garnishes students' wages or takes their tax refunds while they're awaiting a decision, it must discharge 80% of the debt.
“This settlement is a very important step that will allow them to finally get a decision and move forward," said said Toby Merrill, director of the Project on Predatory Student Lending at Harvard University, which represented the plaintiffs. "The Department of Education’s refusal to cancel these loans quickly and in their entirety is a stain on the federal student loan program.”