December 8, 2023

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Diving overview:

  • A federal judge has denied a request to halt the $6 billion Sweet v. Cardona class action, upholding an agreement to end a lawsuit in which student loan borrowers accused the U.S. Department of Education of failing to respond to requests for a loan forgiveness program. borrowers who have been misled by their colleges.
  • Judge’s orderissued Friday, clears the way for the Department of Education to begin repaying the loan debts of many of the 200,000 borrowers who say their colleges defrauded them.
  • But U.S. District Judge William Alsup temporarily blocked the settlement from taking effect for borrowers who attended three colleges that are fighting the settlement: for-profit American National University and Lincoln Educational Corp. and the nonprofit Everglades College. Alsup gave those schools seven days to ask the appeals court to block the discharge of their former students’ loans while it considers their case.

Diving statistics:

Alsup’s order in Sweet v. Cardona comes amid widespread fighting over efforts to forgive federal student loan debt – battles it could affect both the willingness of students to pay for college and how much money the government will put into the higher education system in the future.

The U.S. Supreme Court is scheduled to hear arguments Tuesday on another student loan forgiveness program, President Joe Biden’s sweeping plan to forgive up to $20,000 for individual borrowers making less than $125,000. The Biden administration is justifying this plan, which is estimated at the price hundreds of billions of dollars over the coming decades, citing the COVID-19 emergency and a 2003 law allowing changes to student financial aid programs in times of national emergency.

The administration is pairing the one-time relief plan with regulatory overhauls that would make it easier for students to repay debt in the future. These overhauls include changes income driven repayment this would lower the graduation threshold for students who pay based on how much they earn. They also include changes in defense of the debtor against repaymentor BDR, a program in which the federal government discharges loan debt for those who attended colleges that engaged in misconduct as delinquent students.

Alsup’s ruling Friday has an impact on congestion under pre-existing borrower protection regulations. Plaintiffs sued in 2019, alleging that the Department of Education improperly delayed ruling on borrower defense claims during the administration of President Donald Trump.

Biden administration reached a settlement agreement in June 2022, which set up automatic loan cancellation for approximately 200,000 class members who participated 151 universities.

The agreement also requires the Department of Education to make an expedited determination of whether the borrower defense claims of an additional 64,000 borrowers should be granted. And it set a timeline for the Department of Education to make a borrower defense decision for the 206,000 additional borrowers who filed between the settlement and Alsup’s approval.

Several colleges protested whose former students had their loans forgiven. They argued that the Department of Education’s settlement overreached and damaged the reputations of 151 institutions because they didn’t have a chance to respond to the borrowers’ allegations of wrongdoing.

But Alsup approved the settlement in Novemberon the grounds that the settlement was not an “impermissible scarlet letter” and that the Department of Education could not use automatic relief to try to recover costs from colleges. The judge called the settlement “fair, reasonable and adequate” as well as a “grand slam home run for the class members.”

In January, three universities have filed notices would appeal the settlement. During the appeal, they asked the court to stop the settlement.

In Friday’s ruling, Alsup found that the objecting colleges had not sufficiently demonstrated that their appeals were likely to succeed or that they would suffer irreparable harm if he did not block the settlement. He pointed out that the settlement is between the Department of Education and student loan borrowers who say it failed to properly process their requests for relief — and not the colleges those borrowers attended.

The judge also found that further delay would harm both the borrowers covered by the settlement and the Department of Education, which has a large backlog of borrower defense applications.

“The resolution of the monumental delay litigation should no longer be held up by the three secondary schools that were not parties to the settlement agreement and were not involved in the long and acrimonious litigation that preceded it,” Alsup wrote.

The Predatory Student Loans Project, the group representing the borrowers in the case, welcomed the order.

“This decision delivers a massive, long-awaited victory for our clients and confirms the fact that this settlement is on solid legal ground,” Eileen Connor, president and group director, he said in a statement. “Now, hundreds of thousands of people and families who have been held hostage for so long in the debtor’s defense process will finally receive the fair resolution and justice they are owed.”

Connor pledged to support the borrowers who attended the three institutions that are still fighting the case. Their appeal is pending before the 9th U.S. Circuit Court of Appeals.

Officials at Career Education Colleges and Universities, a lobbying group representing for-profit colleges, said they expect the appeals court to find fault with the decision.

“While we appreciate the court’s continued recognition that these are not debtor-in-possession lawsuits, we remain concerned that the settlement deprives the affected institution of due process protections afforded under the Department’s own rules and causes reputational damage,” Nicholas Kent, CECU’s chief policy officer, said in declaration.

Keizer University, which is part of Everglades, issued a statement supporting “regulatory consistency, adherence to due process and strict adherence to the law” to protect students, taxpayers and colleges.

“We believe that every student with a valid BDR claim has the right to a fair assessment,” a Keizer spokesman said in an email. “However, Sweet’s settlement ignores the law and provides relief without regard to the evidence or merits of a particular claim. It is based on vague and unsubstantiated allegations of wrongdoing that, to our knowledge, are not true.”

Everglades is appealing to “ensure that the reputation of our institution is not unfairly tarnished and that our rights are not unlawfully violated,” a spokesperson said.

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