The Biden administration has agreed to write off about $ 6 billion in federal student loan debt for an estimated 200,000 borrowers who claimed to have been defrauded from their college.
The administration had previously approved a $ 25 billion loan amnesty for 1.3 million borrowers. About 43 million Americans are in debt for federal student loans.
Many of the borrowers affected by the new deal have been waiting for years for the Department of Education to process their claims under a rule known as the borrower’s defense for repayment. It allows borrowers who believe they have been misled from their college, often due to inflated job placement rates or the ability to transfer credit, to apply for federal student loan relief.
Seven of those borrowers filed a class action lawsuit in 2019 over the department’s handling of complaints. Under former Secretary of Education Betsy DeVos, application processing has stalled. But the Biden administration has dented the backlog.
The agreement to write off the remaining federal student loan debt for the 200,000 affected borrowers was reached between the plaintiffs and the Department of Education as part of a proposed settlement agreement that was filed in federal court on Wednesday. It has yet to be approved by the judge.
Under the proposed settlement agreement, approximately 200,000 borrowers will automatically receive full debt cancellation, no more than one year after the formal date of entry into force of the agreement. Those eligible borrowers have gone to one of dozens of schools the department has already determined to be involved in misconduct that justifies debt cancellation, including The Art Institute, ITT Tech, and Westwood College.
An additional 64,000 borrowers who have already filed borrower defense claims may also be eligible for debt relief under the proposed settlement agreement and will receive decisions on their claims within rolling deadlines, based on how long their claim has been pending.
Both the plaintiffs and the Department of Education said they were satisfied with the settlement.
“This proposed major deal will provide answers and certainty to borrowers who have fought long and hard for a fair resolution of their borrower defense claims after being cheated by their schools and ignored or even rejected by their government,” said Eileen Connor, director of the Harvard Law School Project on Predatory Student Loan, which represented borrowers.
In a statement, Education Secretary Miguel Cardona said the relief “will resolve plaintiffs’ claims in a fair and equitable manner for all parties.”
“From day one, the Biden-Harris administration has worked to address longstanding issues related to the borrower’s defense process,” he added.
The Biden administration has so far taken a piecemeal approach to canceling federal student loan debt. It has already wiped out billions of dollars for other borrowers who were defrauded from their colleges, including $ 5.8 billion for 560,000 borrowers who attended the for-profit Corinthian Colleges system, which collapsed in 2015.
The administration has also temporarily expanded eligibility for what is known as the public service loan forgiveness program, which cancels residual federal student loan debt after a government or nonprofit worker has completed 10 years. of qualifying payments. The expansion has so far resulted in the cancellation of $ 6.8 billion for more than 113,000 borrowers.
The Biden administration has also made changes to existing income-based repayment plans, bringing millions of borrowers closer to forgiveness.
More than $ 8.5 billion was automatically written off even for more than 400,000 borrowers who are permanently disabled and previously eligible for debt relief but had not applied.
In April, after facing months of pressure from other Democrats to write off $ 50,000 per borrower, President Joe Biden said he was considering a large student loan amnesty, albeit for a smaller amount.
During the election campaign, Biden said he would back $ 10,000 in forgiveness. White House officials have indicated that she is also trying to set an income threshold so that high-income borrowers are excluded from debt relief.
The decision is expected to come before August 31, when the pandemic-related hiatus on federal student loan payments is expected to end.
While extensive student loan debt relief could provide financial relief for millions of Americans, the implications of such a significant political move, intentional or unintentional, are complicated. By itself, the action would do nothing to lower the cost of college for prospective borrowers or help those who have already paid for their degrees.