Biden administration proposes canceling student debt of 200,000 borrowers who say they were scammed

The Biden administration has agreed to cancel billions of dollars in student debt for about 200,000 borrowers who say they were scammed by their for-profit colleges.

In a proposed settlement agreement filed Wednesday in federal court, the Education Department said it would fully discharge the debt of former students of 50 specific institutions whose applications for relief from a federal program were either improperly rejected or have been languishing for years.

The agreement still needs to be signed off on by a judge. A hearing has been scheduled for July 28.

The plaintiffs filed the class-action lawsuit in 2019, contending that the Trump administration and then the Biden administration were slow-walking or improperly rejecting applicants to a student borrower relief program that had been beefed up under the Obama administration.

In a court filing, the plaintiffs claimed that the Education Department’s “alleged policies of delay, presumptive denials, and insufficient Form Denial Notices left them in a state of indefinite limbo, unsure of whether or when they would need to repay their federal student loans or how they could prove their entitlement to [borrower defense] relief.”

If the proposal is approved by a judge, the students would also receive refunds of amounts already paid to the department and be entitled to some form of credit repair. The settlement agreement also calls for the loan relief applications of another 68,000 students from different schools to be fast-tracked.

June 22, 202205:05

The proposed settlement agreement was first reported by Politico.

The Education Department did not immediately respond to a request for comment.

Eileen Connor, director of Harvard Law School’s Project on Predatory Lending, which assisted the plaintiff’s lawsuit, said, the “momentous proposed settlement will deliver 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.”

“It will not only help secure billions of dollars in debt cancellation for defrauded students, but charts a borrower defense process that is fair, just, and efficient for future borrowers,” Connor said in a statement.

The proposed deal comes just weeks after the administration announced the the cancellation of $5.8 billion in federal student loans for hundreds of thousands of students who attended schools affiliated with Corinthian Colleges.